MorningWord 6/11/13: OK Lets get a few things out of the way, the investment world is in near universal agreement that AAPL’s stock has bottomed, but having little to do with the product roadmap. It appears that the main pillars of the bull case have shifted from innovative slick products with sticky ecosystem and dominant market share in new categories, To fortress balance sheet, better than average dividend yield, massive share repurchase and rock-bottom valuation (excluding their $144 million in cash trading at less than 8x this years expected earnings). We have discussed the investor transition from growth to value on numerous occasions over the last 6 months, which has obviously been painful, but despite some high profile institutional investors calling the bottom of late, the stock can’t get out of its own way. On Friday I laid out a levered yield enhancement strategy for long term investors (here) who see a move back to $500 in the next few months, but after yesterday’s disclosures at AAPL’s WWDC in San Francisco I can’t help but think that the stock will continue to struggle until we start to get some reliable leaks of fall product releases, and overwriting long positions on top of the 2.78% annual dividend yield could be the way bide time until the fall.
As for WWDC, for those of you who could stay awake during the livestream (here), I would suggest that this wasn’t the product event with which AAPL should have broken with tradition and opened up to the world (normally they do not stream live). Steve Jobs might have gotten away with convincing us that mundane changes to the iOS that most Android users already have the benefit of are “Glamorous”, but Tim Cook with his mis-fired one liners and his signature (ugh) black button down party shirt just didn’t deliver. To be fair, the iOS 7 does seem like a fairly dramatic change to an operating system that was once innovative and had gotten a tad dated in the last couple years (and full disclosure I have had all 6 iPhones, despite trying 2 Samsung Galaxies in the last 2 years).
Yesterday, on TV, I heard many pundits and analysts suggest that the new iOS would drive interest in iPhone and iPad, but it is hard to believe that given Android’s perceived lead on the software front that AAPL will be able to do much other than maintain existing users interest rather than convert users from Android (but maybe from Windows and Blackberry). Which brings me to another point – it appears that AAPL’s changes to iOS, while a bit defensive, appear to look a mash-up of Windows Mobile OS, FB’s Home, BBRY’s BB10 and even YHOO’s new Weather App, all with a resemblance to iOS 6. I wouldn’t exactly say that given yesterday’s keynote that it is a slam-dunk that innovation is alive and well in Cupertino, but as investor focus continues to shift away from products and more towards the technical aspects of the stock, this should give meaningful support in and around the previous lows from April.
From an investor perspective, I think it is safe to say that there was little news one way or the other that should be a meaningful catalyst in the near term, and the focus will quickly be analyst estimate positioning in front of the company’s late July fiscal Q3 earnings release.
Disclosure: I am long a June14th weekly 435/425 Put Spread.