Tuesday, September 11, 2012

Apple Inc.(NASDAQ:AAPL) Shares Sell-off strategy with May not Work This time

The typical strategy of a trader - buy on rumours, sell on news - may not work this time around with Apple.

Shares of Apple Inc.(NASDAQ:AAPL) have reached record highs and made it the most valuable company in the U.S. in the run-up to the expected launch of its iPhone 5 on Wednesday.

In earlier time, investors would have bought the shares and typically sold it off just after the news is out. However this time things are slightly different.

After the launch of the iPhone the Cupertino company is scheduled to announce another launch - a smaller and cheaper version of its iPad, which is scheduled to take place sometime in October.

So the expected drop in prices after the September 12 event might not really pan out.

According to Barclays Capital - Historically, Apple’s stock performance has on average performed in line with the S&P 500 in the three-months following an iPhone announcement but significantly outperformed over the six-months following an announcement. Conventional wisdom seems to say that Apple should ‘sell off’ out of the iPhone launch event slated for this Wednesday – and in fact, that sell-off may have already begun. But we believe these ‘trades’ are hard to time and we can’t recall a time when an important launch like the iPad mini followed a major iPhone launch so closely.

We note that Apple’s average six-month return following an iPhone announcement is 18 percent compared to 6.4 percent for the S&P 500. Typically iPhones are launched into very high expectations but most features seem to be predicted before the event, thus creating a ‘sell-off’ when the product merely meets expectations. Later on – after about three months – we have found iPhone sales typically beat expectations and Apple’s shares benefit…Therefore, we are not surprised to see the six-month return so greatly outpace the three-month return following an iPhone announcement.

As a result, playing Apple for a big iPhone ‘sell-off’ has proven to be a risky bet over more than a few months or weeks.

This means that trying the normal play might actually pose risks for investors since there is not much argument for a sell-off post the iPhone event.

Barclays has estimated that the iPad Mini may well sell more than 10 million units in the first quarter itself.

No comments:

Post a Comment

Privacy Policy | Legal Disclaimer