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Another New iPhone, Another Surge in Mobile Internet Stocks

12 September 2013 in Trading Ideas

This year probably won’t go down as the best ever for Apple – or its investors. The company’s stock has slid 12% as the most recent iterations of Apple’s iPhones and iPad’s have become too-distant memories for some.

Where is the company’s next uber-growth device, increasingly more investors were asking, that will drive the stock to that $1,000 level that looked inevitable only a year ago?

Was Apple — shudder the thought — becoming irrelevant?

Longer term, of course, that question may be up for grabs, but it’s safe to assume that just about any shareholder would love seeing their company be so irrelevant as to have its stock to rise 18% in front of a major product announcement.

So here we are again with shares of Apple, rising back above $500 for the first time since January amid the run-up to last Tuesday’s iPhone announcement.

Mobile Internet TsunamiBut it hasn’t just been Apple’s stock getting a lift – the Mobile Internet Tsunami motif has risen 2.6% in the past month; the S&P 500 is up 0.3% in that same timeframe. For all of 2013, the motif has gained 5.8%, and the S&P 500 has risen 17.2%.

And Apple’s announcement? Not one, but two new iPhones are on their way. The company’s new “flagship” product, the iPhone 5S, has a faster processor, an improved camera, and an integrated fingerprint sensor. As you’ve no doubt heard, it comes in gold.1

But its Apple’s other release, the 5C, that marks the company’s new direction. Priced at $99 with a contract, the 5C is Apple’s attempt to broaden its portfolio to catch up in a segment that it’s essentially avoided on purpose (and, for many analysts, has resulted in the company’s overall growth slowdown).

Also serving that strategy, the company’s now outdated 4S will be offered free with a two-year contract.

However, many have questioned if the new “cheap” iPhone qualifies as low-cost when one considers the lack of carrier subsidies in lower-income emerging markets. As Quartz’s Christopher Mims put it, “Since most phones in emerging markets are sold without the subsidy that comes with a monthly plan, people must pay the full cost of a phone upfront. At $549 even for the base model, the iPhone 5C remains a luxury item in China and other emerging markets.”2

Similar concerns jabbed at shares of Apple on Wednesday, as the stock slipped more than 5%.

Still, others thought the selloff was overblown. Nomura analyst Stuart Jeffrey said Apple may have ensured stable margins for the next couple of quarters by pricing the 5C in the US at $99 with a contract and $549 without.

Regardless of how these two new iPhones ultimately deliver in terms of sales targets, the upswing in mobile internet stocks shows that Apple hype is still worth something.

1Poornima Gupta, “Apple’s two new iPhones target high, low-end markets,” reuters.com, Sept. 10, 2013, http://www.reuters.com/article/2013/09/10/us-apple-iphone-idUSBRE98908I20130910.

2Christopher Mims, “The rumors about the price of the iPhone 5C were wrong, and it could hurt Apple in China, qz.com, Sept. 10, 2013, http://qz.com/#122964/everyone-was-wrong-about-the-price-of-the-iphone-5c-and-it-could-hurt-apple-in-china/.

3Ryan Vlastelica and Eileeen Soreng, “High iPhone price spooks investors, Apple shares drop,” Reuters, Sept. 10, 2013, http://finance.yahoo.com/news/apples-two-iphones-target-high-001321270.html.