High stakes for the Apple iPhone 6 reveal

By John Spence

Apple ( AAPL) needs to blow away already-lofty investor expectations at its September 9 "special event" when it’s expected to unveil the iPhone 6.

Adding to the drama, there could also be other possible launches such as a new smartwatch and a mobile payments service. Like Apple's stock, the expectations are soaring.

iphone6-aapl-apple-launch

 

Tremendous anticipation

The hype surrounding the iPhone 6 and a rumored iWatch has been intense, and Apple shares have rallied to all-time highs when adjusted for the the stock split.

That's why Apple really needs to hit it out of the park at this week's event.

Investors and consumers are looking for something groundbreaking – a simple redesign of previous iPhones would be seen as a disappointment.

"We view much of Apple’s runup — a 32% gain in the past six months, reaching all-time highs — as driven by tremendous anticipation for these products," says Brian Colello, CPA, a Morningstar senior analyst who covers the company.

"In our view, the bar has been raised to the point where Apple has virtually no room for error."

The stock hit a rough patch last week amid iCloud security concerns after hackers stole and released celebrities’ private photos. Also, Samsung last week introduced the Galaxy Note 4 phablet and the Galaxy Note Edge, which are expected to compete with Apple's iPhone 6.
apple-appl-stock

Apple share price since 2010

" The recent sell off could be due to the fact that investors are booking a profit ahead of the new product launches, since the impact of the new iPhones - which will have to contend with a saturating high-end smartphone market - is possibly factored into the company's stock price, while a wearable device may not offer a very meaningful upside considering the company's already large size and market cap," Trefis analysts said in a research note.

The smartwatch business is seen as much smaller than smartphones and tablets, so some investors wonder if the iWatch will be enough to "move the needle" for Apple's bottom line even if it is a success.

 

Priced in

Apple stock tends to rally in the weeks and months leading up to a new iPhone, then pull back after the launch.

This time around, Apple is expected to introduce two bigger-screen iPhones with screens of 4.7 inches and 5.5 inches, according to reports.

Some analysts forecast that Apple could sell 10 million iPhone 6 units in the first week alone. The question is whether that's already "priced into" the stock.

“We think a lot of the positives are priced into the shares right now. If you look at the performance of the stock year to date, it is indicative of something more than the company has delivered thus far. Clearly there’s a fair amount of anticipation associated with Tuesday’s event and what’s going to come from that," said S&P Capital IQ analyst Scott Kessler in an Investor's Business Daily report.

apple-aapl-rally

 

Buy the rumor, sell the news

No doubt, investors will be looking for big things from the iPhone 6 and early sales to confirm the big rally in Apple stock.

Tuesday's unveiling "will have to include all of, if not more than, the widely rumored features and screen sizes, while offering no glaring omissions or room for disappointment," said Morningstar's Colello. Regarding last week's sell-off, he thinks it's reasonable for investors to begin to take profits after the surge in Apple shares, while the company "certainly appears to be a candidate for a 'buy the rumor, sell the news' type of sell-off heading into the event," the analyst added.

Aside from the iPhone 6, at Tuesday's event investors will be looking for more details on a possible iWatch, a mobile wallet, or even some other unexpected product.

 

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Apple CEO Tim Cook

 

Apple has a history of astounding consumers with new products at gala launch events. CEO Tim Cook has boasted that Apple has the best product pipeline in his 25 years at the company.

Now, investors expect Apple to deliver the goods.

 

Continue learning: 6 things to know about the iPhone 6 launch (and Apple stock)

 

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Tim Cook photo credit: Mike Deerkoski via Flickr Creative Commons

DISCLAIMER: The investments discussed are held in client accounts as of August 31, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
Robert Freedland

Robert Freedland

Robert has over 40 years of investment experience and is a full-time optical surgeon. He uses his expertise in the
Barry Randall

Barry Randall

Crabtree Asset Management invests in growing technology companies. Barry Randall is the firm's founder and Chief Investment Officer. He has

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