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TheStreet Open House

The 5 Dumbest Things on Wall Street: Predictions for 2013

Stocks in this article: NYX AAPL GS GPS

2. Apple's Next Act

It's no secret that Apple (AAPL - Get Report) needs to do something drastic in the coming year after exiting 2012 on such a low note. Believe it or not, we have a pretty good notion as to what it's going to be.

No, not Apple TV. It's something much, much cooler than that, and far, far more stylish.

Check this out: Shares of the technology giant tumbled close to 14% in the final six months of 2012. The stock's severe downdraft has many investors wondering if the company is cooking up anything fresh to follow the iPad and whether CEO Tim Cook is the right chef to run the kitchen that Steve Jobs built.

As bond god Jeff Gundlach succinctly summed up in November: "I'm really struck by this mini iPad thing as if that's any kind of a product innovation. Once you just start changing the size of your products, I really think you're not exactly innovating."

In other words, it's Hail Mary time for Tim. And we think we know in which direction he plans to throw the ball.

He's going to buy The Gap (GPS - Get Report) and launch a line of stores mixing technology and fashion. We even know what he's going to call the chain.

Gapple.

Easy does it. Relax. We know you are thinking that this time we really fell off our rockers. Nevertheless, when you consider the facts, the only legitimate conclusion for Apple is Gapple.

To start, take a look at The Gap.

As bad as Apple performed in the final half of 2012, that's how well The Gap fared. The once-moribund retailer thumped Apple, returning over 10% from July through December. Same-store sales consistently topped Wall Street estimates last year, causing analysts to change their view on the stock. Since last August, The Gap went from Wall Street dog to darling, receiving multiple upgrades from investment houses and not a single downgrade.

But just because the retailer, now valued at around $15 billion, is on a roll is not the reason why Apple will part with some of its cash hoard to create Gapple. It's more than that and it's certainly more than the fact that both companies know the importance of selling consumers fashionable and functional products.

It's about square footage, something The Gap has in spades and Apple maximizes better than anybody.

The Gap has about 3,000 company-operated stores and 300 franchised stores in 90 countries worldwide. Apple, meanwhile, had 250 stores in the United States and 140 stores internationally as of September. And if Apple is tapped out of new ideas and is resorting to cannibalizing its own products by hawking smaller versions of old ones, then it better sell a boatload of them.

The only way it is going to do that is through an aggressive bricks-and-clicks retail approach like Gapple. Think about it. In one simple swoop, Apple gets (1) a ton of new stores in ideal locations and (2) entrance into the fashion industry which, according to numerous Wall Street analysts, is more than ever jibing with technology.

"We believe that longer term (over the next 10-plus years), wearable computers could eventually replace the iPhone and smartphones in general," Piper Jaffray's Gene Munster wrote in his Wednesday note on Apple.

Oh, and don't forget about Topeka Capital analyst Brian White's note this week where he gushed about the "wide array of vibrant colors" Apple will soon be offering for its entire iPod, iPad and iPhone lineups.

Strap on a pair of pink iPads, Gisele. It's runway time.

Perhaps most importantly, a chain of Gapple stores selling hot styles and even hotter gadgets also provides Tim Cook a chance to step out of Steve Jobs' shadow and prove to the world that he is, indeed, his own man.

Unless, of course, Gapple plans to sell black turtlenecks in homage to Steve. If that's the case, then he may want to keep Steve in the picture. At least for the advertising campaign.

4 of 5

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