Apple's Product Event This Week Will be Interesting but Not Particularly Informative for Investors
The only predictable thing about this week in terms of the broad stock market is that it will be unpredictable. Markets are responding to news at the moment rather than fundamental shifts in conditions and, in an era when even a major bank has seen fit to create an index based on Trump's tweets, it is impossible to anticipate what direction that news will take. That kind of craziness will no doubt prompt many people to focus more on Apple (AAPL) 's scheduled product launch this week than on the latest trade war propaganda or attack on the Fed.
If you are hoping that this will give a welcome opportunity to make decisions based on reality rather than perception and interpretation, though, you may be disappointed.
The fact is that for a few years now, Apple's regular fourth-quarter product updates have been less about what the changes to iPhones and Apple watches are than about guessing how they will be received. There is a feeling that at some point, the constant cycle of improvements and higher prices will go too far, and consumers will rebel. So far, though, that hasn't happened, and there is no reason to believe it will this time either.
As I have pointed out in the past, the main reason for that is because hardly anybody pays cash for a phone. Most people sign an agreement to upgrade, and when getting the latest improvements means just adding a couple of bucks a month to their bill it easy to justify.
So, from an investment decision perspective, all the well-meaning, earnest product reviews that will undoubtedly follow this week's big reveal can pretty much be ignored, except for one thing. Those reviews are usually negative, and that creates an opportunity to buy AAPL at a discount.
That negativity comes from the fact that there is much speculation in advance of these events as to what will be revealed. Inevitably, some of that speculation is over the top, so even good, tangible improvements in the products are often seen as a bit of a letdown. The result is a classic "buy the rumor, sell the fact" pattern that creates an opportunity for long-term investors. That is even more true this time around, as Apple's future is even less tied to the specifics of product updates now than it has been in the past.
The majority of the company's revenue still comes from hardware sales, but growth is increasingly coming from services rather than products.
This year, Apple' share of the global smartphone market passed fifty percent for the first time. That doesn't mean that it can't go higher, but an improvement from that level is inevitably going to be slow. Services revenue, on the other hand, has been growing rapidly and, at $11.46 billion in Q3 of this year, is now approaching half of the $26 billion generated by iPhone sales in the same period.
By all means, watch the Apple product launch this week. Assessing actual products will provide welcome relief from attempting to parse the words of an unpredictable and inconsistent president or guessing how much of the data released by China is real and how much is wishful thinking and information control. What it will probably not do though is shed any light on the long-term prospects for AAPL. That will be decided by less measurable things than chip speed, screen resolution or camera quality and on that basis, the stock, which is trading at a discount to the market in terms of P/E, still looks cheap.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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