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After dipping below $500 on Tuesday, shares of Apple rebounded on Wednesday, retaking the $500 mark, still trading close to 30 percent below its all-time high. Does this rebound signal the end of the four-month sell-off?
I cannot read the mind of the market, as Apple’s stock has become very volatile recently. What I can say, however, is that investor sentiment has
shifted from maximum optimism in September to maximum pessimism in the last week. That’s certainly a bullish indicator for contrarian investors, and it may very well be one of the factors driving the stock’s rebound today, as there are no official corporate developments to account for the rebound.
The definitive answer to the above question will be given next Wednesday when the company reports earnings. Analysts and investors will be looking to find out whether the company’s growth has tapered off; and whether margins have shrunk significantly from competition from Samsung, Nokia, and Google smartphones.
Analysts and investors will further look closely at hints about the company’s product pipeline, the next iGadget that will re-accelerate the company’s growth and boost profit margins, which has become the talk of the day, as the stock dipped below $500. I have also been concerned about the company’s product, but not as the stock was heading below $500, but as the stock was heading above $700.
Nevertheless, I believe that the debate over Apple’s product pipeline is overblown, for a simple reason: Apple’s product innovations are disruptive; and disruptive innovations don’t come out every year; but when they do come they create entirely new markets that last for years.
The key questions, therefore, are two: First, how long the smartphone cycle will last? Second, will the next Apple innovation come fast enough to make up for the natural erosion in the company’s current business?
I don’t have the answers, but I’m willing to assume the risk, spreading my bets among major smartphone players, and tame my expectations, as I discussed in previous pieces.
Also read:
A Dangerous Sign for Apple's Stock
Apple's Stock Tests $500, Time To Change Strategy?
I, The Consumer: An Open Letter To The Capitalist Enterprise
Disclosure: Long on AAPL and NOK
