I thought coming out of Apple Inc. (NASDAQ: AAPL ) earnings in early May that short-term trading would define the stock's medium-term returns. AAPL stock fell modestly on its second-quarter report, for good reason. Q2 numbers missed expectations, however modestly, and Q3 guidance was below analyst estimates.
But Apple stock bulls are looking past Q2 and Q3 to the release of the next iPhone. As a result, Apple shares have recovered some of their post-earnings losses … but the stock remains mired below all-time highs of $156.
That uneven trading over the past few weeks seems likely to persist going forward, at least until the iPhone 8 (or X, depending on the source) is released. There's a good news/bad news sense to Apple stock at the moment - but there doesn't seem enough to tip the scales materially toward either bears or bulls.
With Apple's profits significantly dependent on iPhone sales, it seems likely that AAPL stock will stay flattish until the new iPhone is released. And with delays of that launch looking increasingly likely , that implies little movement in Apple stock over the next couple of quarters .
When Will Apple Release The Next iPhone?
The fact that the iPhone drives roughly two-thirds of revenue for the most valuable company in the history of mankind says volumes about the gadget's dominance. iPhone product cycles drive Apple stock, and it's highly likely that at least some of the 32% YTD gains in AAPL were driven by optimism toward the new iPhone launch.
But reports increasingly suggest that production issues related to OLED screens are going to push back the launch of the next iPhone from its usual position in September. Supplier Samsung Electronics (OTCMKTS: SSNLF ) reportedly has had some technical issues, and given that the next iPhone will be the first with an OLED screen, Apple no doubt wants to get it right the first time.
That's understandable. And a delay is unlikely to move AAPL stock. I'm skeptical, barring a major mishap, that Apple's bulls will ignore the cited $1,000 ASP or the prospect of earnings growth for a company that has struggled to grow net income over the past few quarters.
Frankly, a three- or even six-month delay in launch doesn't change the bulls' case all that much. Nor should it change the valuation of AAPL, which is as much of a long-term play as any stock in the market at the moment.
What Else Moves Apple Stock?
With Apple so reliant on the iPhone for sales and profits, it seems unlikely that there will be news large enough to move AAPL shares until the next iPhone's launch.
Sales of the current iPhone did look a touch disappointing in Q2, and Q3 projections look a little light as well. But it very well may be that consumers aren't upgrading at the moment - and instead waiting for the launch before doing so. That colors current revenue - and means any further weakness in Q3 likely will be similarly excused.
There was some good news in the Q2 report relative to the rest of the portfolio. Mac revenue rose 14%, for instance. Non-iPhone sales in total grew 11%. That's a big number for Apple, given that non-iPhone revenue grew barely 1% total between FY12 and FY16. But again, those sales simply aren't enough to move the needle. Apple Inc.'s operating income increased just 1% in Q2 despite that strength.
It looks increasingly unlikely that Apple stock will make a big move ahead of the next major iPhone release. Current iPhone sales are becoming incrementally less important to the long-term case. The iPad still is declining, and Services and Apple Watch simply aren't big enough against an $800 billion market capitalization.
The one possible catalyst would be an acquisition. But again, Apple's sheer size makes a merger-related move unlikely. Even if the company were to buy Walt Disney Co (NYSE: DIS ), as has been speculated , the deal would be worth in the range of 25% of AAPL's market cap.
All told, Apple is dependent on the iPhone. And there simply isn't another driver big enough to move the stock ahead of the next launch.
Playing AAPL Stock in the Short-Term
It then seems likely that Apple will replicate recent trading until that launch comes. Recent coverage suggests that launch may not come until the end of the year. 2018 appears possible at this point.
The new iPhone likely won't impact sales and earnings until the Q1 FY18 report, which would be released in late January. But analyst channel checks and other sales data points certainly will shape the narrative before that.
Until then, however, it's unlikely that AAPL stock will do much. Bulls can take a 1.6% dividend and wait. But traders might want to look at profiting off a stagnant stock, and can do so via the options market; I would suggest iron condors or straddles to do so, targeting November or December expirations.
For instance, a Nov $155 straddle sells for $18.70 at the moment, implying a roughly 12% move from current levels.
But frankly, I'm skeptical that AAPL stock will generate anywhere close to that much volatility.
As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.
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