How to Trade Apple Ahead of Developer Conference, Stock Split

NEW YORK (TheStreet) -- Apple (AAPL) stock has been on tear since the company reported fiscal second-quarter results in April.

The stock closed Friday at $633, giving back almost 2% from the new 52-week high of $644.17, which it reached earlier in the session. Still, investors have to be impressed with Apple's performance.

All told, these shares are up 14% year to date. But the more impressive aspect is that the stock has surged 63% since reaching a 52-week low of $388.87 last June.

With such strong gains on the table, investors are chewing their nails ahead of Apple's World Wide Developers Conference (WWDC), which gets kicked off Monday. The stock has a history of selling off following the conference. So what's an investor to do?

Also of note is Apple's upcoming 7-for-1 stock split. The split-adjusted shares will begin trading on June 9. But only the shareholders in possession of the stock on June 2 are entitled to receive additional shares. The shares will split after the market close on June 6.

In either case, the more pressing questions are: When is a pullback coming from either of these two events, and how should investors play it, given the potential impact of the recently announced deal for Beats Electronics?

Apple's rally ahead of this week's WWDC in San Francisco reminds me of other run-ups the stock has experienced over the past couple of years. In 2009 and 2010, Apple's stock surged 12% and 8.5%, respectively, just before the keynote address.

Investors (then) were excited about the new iPhones. But in both cases, the stock sold off the day of the event and the days after. In fact, in each month after the WWDC, the shares posted declines of 5% in 2009 and 1.1% in 2010. Last year, Apple stock lost 4.8% in the month after.

According to BTIG Research's Walter Piecyk, Apple stock has sold off by an average of 1.4% the day of the event and 1.5% the day after the WWDC. I expect things will be different this time.

As always, expectations will be high. Analysts have rushed to issue upgrades and price target increases ahead of the event. Everyone will be looking for major clues regarding new products and breakthrough in software that will separate from Samsung and Google (GOOG).

If Apple's fails to impress, the stock will get punished. But I don't see a scenario where Apple will disappoint. Last week, Apple's senior vice president Eddy Cue insisted that Apple has the best product lineup he's seen in 25 years. Included in that lineup is, presumably, the much-rumored iPhone 6, which is due out this summer. The phone is expected to come in two models and sport a larger screen.

The demand in the U.S. for the iPhone 6 should be high. But imagine the impact of a larger iPhone on 770 million China Mobile (CHL). customers. Apple won't announce earnings for another two months. But with the July quarter already assumed to be seasonally weak, there is very little by way of bad news that has not already been priced into the stock.

Even with the shares having performed so well, Apple's stock is the cheapest on the market when adjusting out its $151 billion cash. And when you consider the several $700+ price targets that have been issued on the stock, there is (at least) 11% upside to these shares, which are still "underweight" from an institutional ownership perspective.

This means that even with Apple's recent run, there will be plenty of pent-up demand from institutions to buy. And waiting for the "all clear" signal from the WWDC and the effect of the stock split might be too late.

At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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