Traders, investors, and pundits alike are on tenterhooks, with the long awaited iPhone 7 announcement by Apple (AAPL) due on September 7 (see the connection, 7 X 7?).
Will they blow out all expectations and over deliver, as they have in years past?
Or will they lay an egg?
Are we setting up for the biggest “buy the rumor and sell the news” of all time? If so, Steve Jobs’ creation is due for a revisit to the $92 handle, sooner than later.
Shareholders are dying to know.
First of all, you DON’T have to worry about the surprise $14.5 billion tax the company suddenly got hit with by Ireland yesterday. The US government is going to have to pay that.
This is because Apple will automatically get a foreign tax credit for $14.5 billion, which it can then immediately use to pay off it’s US taxes.
Believe me, I have taken advantage of enough foreign tax credits during my lifetime to know. They are worth their weight in gold, or in this case, iPhones.
Let me give you a list of seven worries if you happen to be a nervous Apple shareholder.
1) The iPhone 7 doesn’t have the juice to produce new highs in year on year sales. There are just not a lot of “wow factor” new features to justify an upgrade for most iPhone 6 and 6s owners, including me.
iPhones account for 75% of the profits of the company, and 100% of the growth. All the rest, Apple TV, Macs, laptops, iPads, iPods, and even cars are just so much hot air.
2) Wage inflation in China is rampant, running at a 20% annual rate for skilled workers. That’s why workers in China change jobs every February, to capture a pay hike. Higher manufacturing costs will squeeze Apple’s profit margins.
Watch out for more suicides at Foxcon, the Chinese company that makes the phones.
3) The “ATM effect” is hitting Apple’s share price big time as it transitions from a growth to a value stock. That is when investors sell winners to raise cash levels. Apple stock was, at one point, up 91% from where I sent out a Trade Alert to buy it at $385 three years ago.
4) Expect President Hillary to make taxation of foreign profits earned by US multinationals a top priority. Guess who has the biggest overseas stash? Apple, which keeps a major portion of its $230 billion cash horde parked in offshore bank accounts. Pass the suntan lotion!
5) I know this one is an oldie, but it is still a goodie. Everyone in the whole world already owns this stock, either directly, or indirectly through pension funds, ETF’s, NASDAQ index baskets (QQQ), or technology funds. If everyone is already fully committed, where does the marginal new buyer come from?
6) So is the law of large numbers. With a market capitalization at a staggering $572 billion, to eke a mere 10% gain in the stock requires roughly $57 billion worth of new investment, and possibly more. That is more than the entire stock market sees on a good day.
7) With interest rates rising sooner or later, support from the company’s 2.13% dividend yield will become less helpful.
Mind you, I have not suddenly become an Apple hater. But there are legions of those out there who are, mostly outside of California. There always have been.
However, I don’t think the next run to a new all time high will begin until next year. That’s when the stock will start discounting the next iPhone 8. That product will have all the new features and gizmos, with different screen sizes and colors.
People will pay through the nose to get that, and yes, including me. That’s if my current iPhone 6 doesn’t get stolen first and end up in on the black market of China, get hijacked by one of my kids, or dropped in a toilet by one of my daughters.
This should provide enough rocket fuel for Apple shares to make it to $150, or higher, sometime in 2017.
You heard it here first.