Can Apple's share price maintain momentum?

The countdown has begun. In the technology world, the 9 September 2014 is now comparable to Christmas, with Apple sending invitations for the press event in its hometown of Cupertino, California.

Apple shop floor
Source: Bloomberg

Very few hints have been provided about what will be announced with the iPhone-maker happy to build anticipation by sending merely the suitably ambiguous ‘wish we could say more’ addendum to the invitation.

When launching its latest product Apple knows how to generate excitement among the media and consumers. It’s widely expected that the company will introduce the iPhone 6 and that there will be two models available with display sizes of 4.7 and 5.5 inches. Apple reported sales of 35.2 million iPhones and 13.3 million iPads in the June quarter, resulting in $7.7 billion in profit. Though the numbers fell slightly below Wall Street expectations, investors were still encouraged by the fact iPhone shipments grew 12.7% from the same period a year prior.

Consumers and shareholders alike have been waiting for a new product and now it looks like we might even see the anticipated 'iWatch' unveiled at the press event next week.

Apple's investors see profit

You could say that activist investor Carl Icahn is Apple’s biggest fan. Having pushed the company to buy back more of its own stock earlier this year, he has been rewarded handsomely with the recent moves in the share price. According to a recent filing, Mr Icahn owns 52.8 million shares in the world’s largest company; and he’s clearly not the only investor buying into the strategy. Last month Apple’s stock surpassed its 2012 record as investors look ahead to new products, such as the bigger screen iPhone and wearable technology, which may help to drive revenue growth in the coming quarters. This has certainly been reflected in the share price moves.

Apple’s cash-hoard of around $160 billion has not simply been utilised to return money to shareholders. The company also recently embarked on a spending spree, using some $3 billion to buy Beats Electronics.

The 7-for-1 stock split in early June has also encouraged investors. In a stock split, a company increases the number of shares outstanding while lowering the price accordingly. This often tends to attract the less seasoned trader, despite the fact it does nothing to change the fundamentals about the valuation of the company.

Reduced subsidies could affect Apple

There may be a few headwinds both for Apple and its main competitor Samsung. Chinese state-run wireless operators are slashing subsidies they pay to make devices more affordable for consumers, just as the biggest phone-makers are set to introduce upgraded products. This reduction in subsidies, along with rising local competition, will affect consumers’ reception for the new phones. It must also be considered that the markets are perhaps front-running the launch. The iPhone 5 was released on Friday 20 September 2012. Apple’s share price continued to run higher in the week that followed, hitting its all-time high (at the time of $705) on 27 September, before falling some 40% in the six months thereafter.

This level equates to around $100-per-share when the stock split is considered. The stock is looking slightly overbought at current levels of $103 per share.

The share price is up over 28% year-to-date and it seems that Apple can do no wrong. Out of 52 brokers, 42 have a buy rating on the stock. There is one lonely broker who has issued a strong sell recommendation.

Will the profit takers step in? Only time will tell if this contrarian point of view pays off.
 

This September, IG will launch its online stockbroking service. You can find out more here.

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