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Mobile Internet Stocks Bounce Back

23 August 2013 in Trading Ideas

Who knew it would take Carl Icahn to make Apple interesting again?

Yes, that’s a broad overstatement, but after spending the first half of 2013 losing about 25% of its market capitalization, technology’s former Public Darling No. 1 has found its shares crawling upward.

About one-third of the stock’s 18% gain over the past month came from the news that uber-investor Icahn picked up about $1.5 billion of Apple’s stock, because – surprise! – he finds it “extremely undervalued.”1 Icahn hasn’t uttered much in the way of his wishes for the tech giant, other than his hope that the company will ramp up its stock buyback program, which Icahn contends would push its shares back above $700 – where they briefly sat in the fall of 2012 (AAPL shares closed yesterday at $502.96).

However, strip away the buzz surrounding Icahn’s stake, and one could wonder: Wasn’t there independently enough to like about Apple’s stock when it fell below $400 earlier this summer? After all, Apple’s fall-and-rise has been, intuitively enough, a result of investor perceptions about the company’s product lineup.

Once the stock hit $700 on the momentum of its newest iPhone model, the company’s value started to erode as investors began to question what, if anything, was going to be next to drive growth. And for a number of months, the fear seemed to be: not much.

Now, however, some investors are attracted by the buzz surrounding new product enhancements (an iWatch, new iPhone and iPad models) as well as the possibility of increased buybacks and further dividend payouts.

Inherent in that positive vibe, however, is the belief that the mobile internet sector is still ripe for growth. Look, for example, at mobile chip giant Qualcomm, which has gained 8.5% in the past month amid Apple’s own runup.

Last week, Canaccord Genuity analyst Mike Walkley wrote in a research note that he believed Qualcomm’s September quarter would show that its license revenue was holding firm. Even though more lower-cost smartphones are being sold, they’re replacing even cheaper “feature phones” in some markets, while the most expensive smartphones still have “strong” sales in developed markets.2

mobile internet tsunamiApple and Qualcomm shares make up about a 41% weighting in the Mobile Internet Tsunami motif, which is up 3.5% in the past month. During that same period, the S&P 500 has lost 1.9%. So far in 2013, the motif has gained 3.0%; the S&P 500 is up 14.8%.

Of course, nothing guarantees that consumers will keep up their embrace of mobile devices, either from Apple or anyone else. On the other hand, history has shown that betting against mobile internet stocks immediately before or after new Apple product releases has not been a winning strategy.

1Sam Gustin, “Carl Icahn Bites Apple for a Taste of Cash, Innovation on the Side,” time.com, Aug. 14, 2013, http://business.time.com/2013/08/14/carl-icahn-bites-apple-for-a-taste-of-cash-with-innovation-on-the-side/, (accessed Aug. 20, 2013).

2Tiernan Ray, “QCOM: Smartphone Growth Helped Sept. Q, Says Canaccord, barrons.com, Aug. 20, 2013.