During Apple corrections, sentiment usually becomes tainted, which is what we’re seeing now. Over those seven trading days of summer selloff, the media picked up rumor’s of an iPhone delay, an iWatch production constraint and a Chinese product ban.
AAPL data by YCharts Each rumor was quietly proven to be false, but most mainstream outlets failed to revise the stories. All of a sudden, Apple investors are shaken and wonder whether the stock will ever crack $100.
It’s interesting to observe how quickly sentiment can shift after one week of selling and a few false rumors. We’re chalking this up as a typical summer selloff that in no way alters the long-term opportunity for Apple to explode between July 23, 2014 and July 23, 2015. The year-over-year forecast for an advantage in revenue, EPS and margins remains robust. We believe Wall street is not considering the possibility of 20%+ iPhone growth nor are they considering the true potential of iWatch.
It won’t last because the changes coming to Apple’s ecosystem are so big.
Apple’s wearable strategy will likely hinge on three components: mobile payments via iBeacon/NFC, health monitoring via Healthkit and home automation via Homekit. The comparison of iWatch to Disney’s ( DIS) MagicBand was one that I highlighted in March 2013.
MagicBand runs on an NFC chip and the latest rumors suggest iPhone 6 will include NFC as well. If true, it’ll be one more reason to upgrade to an iPhone 6.
The MagicBand has been a huge success at DisneyWorld as half of itsguests now opt in for the product. During Disney’s earnings call, CEO Robert Iger mentioned that in the first full quarter of MagicBand availability, 90% of users rate the experience as excellent to very good.
Guests use the MagicBand for contactless payments, park admission, hotel keys and Fastpass tickets. Disney’s success bodes well for Apple’s new product category.
I understand that iPhone 6 is a big fall catalyst to move the stock because its larger screen, faster processor and longer battery life practically guarantee’s double-digit growth, but I also believe potential iWatch adoption is vastly underestimated by Wall Street.
Few people are talking about the potential of exponential growth in wearables compared to mobile. In my humble vision of the future, iWatch is a no-brainer as long as it differentiates from iPhone. Certainly Tim Cook has paid close attention to Disney’s MagicBand and sees the appetite for a wallet replacement. A 90% approval ratings speak loud and clear. The time for iWatch has arrived.
The next sign of an Apple uptick should lead to a significant rally for the iPhone 6 catalyst in September, another rally for the iWatch catalyst in October and another rally for the holiday earnings report in January. Yes, there is rational optimism that this summer selloff represents the buying opportunity of the year.