As the old saying goes, history does not repeat, but it often rhymes. This is why I like to look at the past performance of Apple stock (AAPL) - Get Free Report and compare it to the S&P 500 (SPY) - Get Free Report to understand when shares are most likely to produce strong gains.
Today, I go back to 2007, the year that the original iPhone was unveiled, and try to understand: under what circumstances has AAPL outperformed the broad market in the past decade and a half? Could doing so provide a clue as to when shares will impress once again?
(Read more from Apple Maven: AAPL Bears Do A Happy Dance: Were They Right?)
AAPL does not merely follow the market
Those familiar with the capital asset pricing model must have heard of the concept of beta. This statistical metric informs the sensitivity of one stock’s price, for example, to the movements of the overall stock market.
For instance, Apple stock’s beta is approximately 1.2. This means that for every increase or decrease of 1% in the S&P 500, investors should expect AAPL to also rise or decline, but by 1.2% instead – that is, 1% times the 1.2 beta.
The problem is that beta simplifies things a bit too much, as it establishes a static relationship. Look more closely at the different periods, and one can see that Apple’s outperformance or underperformance relative to the market is not easily caputurd by beta.
The scatter plot below shows the relationship between the 12-month rolling returns in SPY (horizontal axis) vs. those of Apple stock (vertical axis).
If AAPL consistently produced 1.2 times the performance of the S&P 500, the dots would line up perfectly in ascending fashion, from left to right. They do, to be fair, but only minimally. The very low r-squared of 0.02 suggests that the connection between the two is largely immaterial.
In other words: if the S&P 500 is up 10% over 12 months, it is far from a certainty that Apple will be up 12%. Therefore, I don’t think it is fair to say that AAPL will outperform the S&P 500 once the broad market heads higher, merely as a result of the former’s sensitivity to the latter.
Look for company-specific catalysts
The following graph seems to point us in a different (and better) direction. The chart shows AAPL’s rolling 12-month outperformance or underperformance since 2007. I have highlighted the outliers in the bullet points below:
- Early 2008: AAPL lavishly beat the S&P 500 due, in great part, to the launch of the original iPhone. The revolutionary device was unveiled in January 2007, after which investors aggressively bought the stock through the beginning of the following year.
- Early 2010: once again, AAPL produced superior returns relative to the S&P 500. While the rebound from the recession can partly explain the phenomenon, it was Apple’s ability to deliver growth even during the deep economic crisis that probably explains best the outperformance. The announcement of the original iPad, in January 2010, probably played a role too.
- Mid-2013: this time, AAPL lagged the S&P 500 by quite a bit. 2012 and 2013 were great years for the broad market, but Apple fell way behind due to increased competition with Android and Samsung, which led to unimpressive growth and loss of profitability.
- Late 2020: the most alpha that Apple stock managed to deliver in the past decade and a half was in the middle of the COVID-19 crisis. First, Apple produced solid financial results when most expected demand for consumer discretionary products and services to take a hit due to the pandemic. Second, Apple was gearing up to announce its first 5G-capable smartphone, which many argued would kickstart the “iPhone super cycle”. Lastly, the Cupertino company announced a stock split that, while largely immaterial on paper, served as a massive catalyst to increase demand for shares – especially from retail investors.
What do the above points have in common? Apple stock deviated substantially from the performance of the S&P 500 when meaningful, company-specific events took place: from the launch of the iPhone to outperformance during the Great Financial Crisis to stock splits.
This should provide us with a clue as to what could happen next. AAPL is most likely to beat the market, in my view, as a result of company-specific factors – and not market-wide events – that can range from substantially better-than-expected quarterly results to the launch of new products or services that could surprise (positively) its investors.
What could these next catalysts be? A killer holiday quarter? The launch of a mixed reality device? The announcement of a new venture involving automated vehicles? It is hard to tell for sure, but taking a few guesses can be an interesting exercise.
So, let me know your thoughts below.
Historically, AAPL has beaten the S&P 500 following meaningful, company-specific events – the launch of the iPhone in 2007 and the stock split in 2020, for example. What do you think will be the next major catalyst that drives outperformance?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)