Bull Vs. Bear - iPhone 5 Will Take Apple To New Heights

By Will Ashworth | September 11, 2012 AAA
Question: Will the iPhone 5 bring Apple stock to $1,000 per share?

Bull's Response
Did you get your invitation? Apple (Nasdaq:AAPL) sent out invites September 4 for the launch of its much anticipated iPhone 5, along with the introduction of its mobile operating system iOS 6. The big event happens at 1 p.m. ET on September 12 at the Yerba Buena Center for the Arts in San Francisco. Will the new iPhone 5 be enough to keep Apple on top of the world? Will the phone's intro take its stock to $1,000? I believe it will.
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Samsung Outsells Apple
According to Canaccord Genuity, Samsung's Galaxy III smartphone actually outsold Apple's iPhone 4S in August, the first time since Apple released its latest version of its popular phone last October. Apple's competition has grown stronger in the past year with several phones using Google's (Nasdaq:GOOG) Android operating system garnering positive reviews. Many consider the 4S a disappointment because not much changed between that phone and its predecessor.

Those same fans could be equally disappointed with this year's phone compared to last year's. Investors expect extraordinary product introductions from the house that Jobs built and much of the time, they're not disappointed. However, even the best companies occasionally lay an egg or two, that's the nature of the beast. If you own Apple stock and expect it to deliver a home run on September 12, you might want to sell before the launch, because you'll likely be disappointed. That's just the way life is. Whenever our expectations are ratcheted up too high, they're usually taken down a peg or two. If, on the other hand, you go into this with a healthy dose of reality, then regardless of what transpires, you'll be satisfied that Apple's continuing to build products that consumers like and want.

Apple-Samsung Verdict
Immediately following the $1.05 billion verdict that Samsung had infringed upon six of seven of Apple's patents for its mobile devices, experts around the world were espousing their viewpoints on the subject. Many seem to believe that Samsung will actually benefit from the court's ruling because the case brought attention to its much cheaper smartphone. Marketing money well spent, as the argument goes. It's odd that smart people would come to such a conclusion. According to Stanford Law professor Mark Lemley, "The verdict is large enough to be the largest surviving patent verdict in history."

U.S. District Judge Lucy Koh, who presided over the case, has the option, according to federal law, to triple damages later, and on September 20, will hear Apple's request barring the sale of Samsung's tablet and smartphone in the U.S. Given evidence that Samsung completely ignored Google's request in 2010 to change the design of its products so they didn't look so much like Apple's, it's possible the judge will impose an injunction on Samsung. With one stroke of the pen, Judge Koh could take Samsung's sales gains in August and flush them down the toilet at a time when Apple's bringing out its newest product. This is the doomsday scenario for Samsung and while it's likely not to come to fruition, you can bet executives in Seoul are more than a little bit anxious.

Record Sales
Brian White, analyst for Topeka Capital Markets, calls the iPhone 5 "the biggest upgrade in consumer electronics history." Hyperbole perhaps, but White expects the iPhone 5 to sell between 5 million and 5.5 million units in the first three days of its availability, which is as much as 40% higher than last October in the first three days that the 4S was on sale.

The important thing from an investment standpoint is that as huge as these numbers are, the company has so many other things going on between now and the end of the year, including a new iPod lineup, new iMacs, a smaller iPad and possibly even an updated full-size iPad. It's staggering. Follow all of that with the possible introduction of its own HDTV in 2013 and you have a company knee-deep in interesting product developments. While investors try to decide whether Android is going to take control of the smartphone marketplace, Apple will be on to its next great thing. Some people are so cynical, that even if Apple sells 20 million units in the final 10 days of September - they'd still have an explanation as to why it failed.

The Bottom Line
Michael Feroli is the chief U.S. economist for JP Morgan Chase & Co. (NYSE:JPM). He's on record stating that the iPhone 5 could inject $3.2 billion into the economy in the fourth quarter, which is $12.8 billion on an annualized basis. If that's remotely accurate, we should all be hoping for a successful introduction. We need more good news stories at this point. However, that's not why I think Apple's stock is a sure lock for $1,000. What has me so bullish is that, despite all the activity in the final few months of 2012, it is still trading at less than 13 times its September 2013 earnings per share. Could it hit $1,000 by the end of the year? If the markets do well, it's better than 50/50.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Don't forget to read the Bear Side of this debate and weigh in with your opinion below.

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