The Absurdly Simple Reason to Be Bullish on Apple Inc. (AAPL) Stock
This Could Bring Apple Stock Back to the Center Stage
Remember when Apple Inc. (NASDAQ:AAPL) stock bears said the “iPhone 7” would be a flop? Well, they are eating their words. In the past week, Apple stock surged 11.4%; that’s over $60.0 billion added to the company’s market cap!
Apple stock fell into the doldrums about 14 months ago. The concern was that iPhone sales—the company’s number-one revenue source—would slow down. Things got a little better when Apple announced last year that it sold more than 13 million new “iPhone 6S” and “iPhone 6S Plus” devices in just three days after launch. But soon, AAPL stock went down again. Even high-profile Apple bull Carl Icahn announced this April that his company had sold its entire Apple position. (Source: “Icahn: We’re out of Apple, and it’s China’s fault,” CNBC, April 28, 2016.)
For a while, it looked like Apple stock had lost all its appeal. Even 20% year-over-year growth in its services segment could not cheer up the market. For Apple stock to make a comeback, there is only one way: another successful iPhone launch.
And that’s precisely what happened. Apple unveiled its latest flagship smart phone, the iPhone 7, on Wednesday, September 7. The company said that it would not be providing first weekend sales results as it did in the past. However, there are other indications showing just how popular the latest “iGadget” really is.
There are many ways to get an iPhone. You can go to the Apple Store and buy one directly, or you can get one from your wireless carrier. It’s not easy to get an idea of iPhone sales through the Apple Store. But on the carrier front, there is good news.
Last week, T-Mobile US (NASDAQ:TMUS) said that the first weekend’s results, “shattered all previous iPhone pre-order records at T-Mobile.” In particular, pre-orders for the iPhone 7 at T-Mobile were up nearly four times compared to the carrier’s next most popular iPhone, the “iPhone 6.” (Source: “iPhone 7 and iPhone 7 Plus Shatter Records at T-Mobile,” T-Mobile US, September 13, 2016.)
T-Mobile also said that Friday, September 9 set a single-day sales record for any smartphone ever in the carrier’s history.
And then there’s Sprint Corporation (NYSE:S), which announced that pre-orders for iPhone 7 and “iPhone 7 Plus” models were up more than 375% in the first three days compared to last year’s launch of the iPhone 6S and iPhone 6S Plus. (Source: “Sprint Pre-orders of iPhone 7 and iPhone 7 Plus Increase Nearly Four Times,” Sprint Corporation, September 13, 2016.)
There are two things that Apple stock bears seem to have underestimated: Apple’s brand name and its ability to make smartphones. They thought that since everyone that wanted an iPhone has already got one, not many will buy the latest model. Moreover, they thought that the new model won’t come with any important new features, so why would consumers upgrade?
The thing is that Apple has an unrivaled following in the tech world. Just look at one number and you’ll see what I mean: 40.4 million. That’s how many iPhones Apple sold in its most recent fiscal quarter, which ended June 25. (Source: “Apple Inc. Q3 2016 Unaudited Summary Data,” Apple Inc., July 26, 2016.)
I’m sure among the buyers of those 40.4 million iPhones, some of them must know that Apple was going to release a new one. But they decided to get it anyway because, well, why wait?
Other tech giants (with perhaps the exception of a certain electric car maker) could only dream of the brand loyalty of Apple’s customers. To Apple fans, it’s not about necessity. No one really needs a $650 smartphone, but a lot of people want it.
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Moreover, the new iPhone 7 came with quite a few bells and whistles. It is powered by a new, custom-designed Apple A10 Fusion chip, the most powerful chip ever in a smartphone. At the same time, it boasts the longest battery life ever in an iPhone.
The iPhone 7 Plus models also come with dual 12-megapixel cameras, enabling a new depth-of-field effect. They use sophisticated technology, including machine learning, to separate the background from the foreground to produce images once possible only with DSLR cameras. And did I mention the new stereo speakers, “AirPods,” and that the new models are water- and dust-resistant?
When tens of millions of consumers were willing to buy a product that’s been on the market for quite a while in the last fiscal quarter, what would make you think that more people won’t be buying the new one?
The Bottom Line on AAPL Stock
Just like what Apple stock bears believed, the iPhone is the most important product from the Cupertino, California-based tech giant. But instead of going downhill, iPhone sales could shoot through the roof, just as they did with the previous versions. Combining that with the company’s attractive valuation, there’s a strong bullish case for Apple stock.