Investors bullish ahead of Apple iPhone launch
Investors are hoping that Apple will unleash some of its old magic when it takes the wraps off its latest iPhone later on Tuesday, with many building bullish share and options positions.
In the past two weeks, Apple investors have bought almost twice the number of call options than puts on three major US option exchanges.
Apple on Tuesday is holding a media event at its headquarters in Cupertino, California, where it is expected to launch an updated iPhone model - widely referred to as the iPhone 5S - as well as a cheaper version of the device dubbed the iPhone 5C.
Investors are hoping that in addition to the phone unveiling, the company will also announce it has finally penetrated the world’s largest wireless carrier China Mobile, which has over 740 million users.
Currently, Apple phones are supported by Chinese telecom carriers China Unicom Hong Kong and China Telecom Corp, which has a combined subscriber base of 266 million.
“Apple is effectively only selling to half the Chinese market today,” said Brian Colello, analyst with Morningstar. “They can essentially double their sales in China quickly with China Mobile. So it’s a big deal.”
But Colello also cautioned that many investors could have already bought the stock in the hope of a deal with China Mobile and could sell off if the deal does not materialize in the near term.
Also, Apple shares typically sell off on major product unveiling and Tuesday’s iPhone launch could mark the same trend.
Jefferies analyst Peter Misek expects choppy trading of Apple shares following the event as he expects “lackluster” sales of the phone.
“Lack of differentiation, elongating replacement rates, and smartphone growth shifting to the very low-end below the iPhone 5C price point” are the negatives, he said.
Apple shares are down 29 per cent since hitting a record high of US$702.10 in September last year, fuelled by fears of slowing growth and thinning margins amid competition from Samsung Electronics and other manufacturers of cheaper Android-based smartphones.
Apple’s stock has seen upward momentum recently, sparked by hedge fund billionaire Carl Icahn’s revelation last month that he had taken a large position in Apple and was pushing for the company to expand its program of share buybacks.
He has said the stock could rise to as much as US$700 a share if chief executive Tim Cook pushed for a larger stock buyback.
Icahn, who is having dinner with Cook this month, said on Monday on CNBC television that Apple shares are “very undervalued” and buying the stock was a “no-brainer.”
“If you look at the numbers, look at the multiples that are going on, look at the great cash flow they have ... you really have a lot of protection on the downside,” he said.
Wall Street’s 12-month target share for Apple ranges from a median estimate of $530 to as high as $825, according to Thomson One. The shares closed on Monday up 1.6 per cent at $506.17.
While many options investors are taking an optimistic view, expecting Apple to build on recent gains that have driven the stock up nearly 25 per cent since the end of June, some analysts cautioned the market may be overpricing expected volatility in Apple shares.
Reuters
