Apple's New Phones Could Move the Needle

 | Sep 18, 2013 | 4:10 PM EDT
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(The following was sent today at 1:04 p.m. EDT to subscribers of Action Alerts PLUS. If you would like a free, no-obligation 14-day trial subscription to Action Alerts PLUS, please click here.) 

Can a new product move the needle for a company? Can it mean so much to the numbers, both sales and earnings, that it powers a stock higher?

Typically, no. We have seen many introductions of products from many different companies, and they've done nothing whatsoever for a company. Think about Microsoft's (MSFT) Surface or Windows 8. Think about the Hewlett-Packard (HPQ) tablet, or any of the recent Nokia (NOK) or BlackBerry (BBRY) phones. They haven't meant a thing.

But how about Apple (AAPL) and its new Apple 5c and 5S? Can they affect the company and therefore the stock? I think this case is unusual, in that I do believe that the needle will be moved and that the stock will go up on these phones. They are that different and that important to the company that the stock can go higher from them over time.

Let me explain why this is and clarify my comments about this great American company.

First, despite what you have heard or what the company might think, I am not an Apple basher. I belong to an Apple family. All we use is Apple. We never contemplated anything made by Samsung. Probably never will.

Second, I will try to buy one of these new phones this weekend. I am due for a new Apple phone, and these are mighty tempting.

Third, my Action Alerts PLUS charitable trust owns shares in Apple. So unlike what I read on Twitter @Jim Cramer, why the heck would I want it to go lower? I have given away $1.8 million since I started the trust. I am not anxious to give away less. I want to give away more.

However, as a shareholder, I have been unhappy of late, even as I am grateful that the stock has had a huge run from when the trust first bought it. This is a tough business, this stock business, and, like it or not, and I know I wouldn't if I were running a company, this is a "what have you done for me lately" game. Apple has done so much for so long that you would think it would have goodwill in the bank, but that's not how it works.

I have been quite vocal about how Apple let expectations for the company get ahead of where they should be. One of the unfortunate aspects of working at a public company that has tons of analyst coverage is that you have to try to keep expectations low in order to surprise the Street with better numbers. You can have contempt for this process, but if you do that, you will be held in contempt for doing so. That, too, is a fact of life.

Great products should be all that matter to the consumer. But it is not what matters to the institutional stockholders. They care about better year-over-year sales and higher gross margins, which are indicative of how you are fending off the competition and winning in the marketplace. Again, this could be heresy to executives, but I say, that's the arena you have chosen when you are public, if you care about a higher stock. If you don't, then who cares what I have to say?

Which brings me to the new phones. First, the reviews were breathtaking. The guy I listen to for what I want to do, David Pogue of The New York Times, wrote this about them: "It's a terrific phone. The price is right. It will sell like hotcakes."

To which I say, bingo, because, judging by the heap of downgrades last week, most of the Wall Street community is not expecting hotcakes-like numbers. If you are a shareholder, as my trust is, that's exactly what you want to have happen.

Now, within the same story is this quote about cellphones in general: "Maybe the end of the annual mega-leap is over." Later on, though, Pogue says that while huge hardware innovations are behind the industry, "software breakthroughs are only just getting under way." So that means no OMG products but one that can still move the earnings needle with surprisingly strong sales, the emphasis on "surprisingly," because that's what moves a stock.

So, here's my conclusion: The downgrades coupled with the positive reviews, I believe, will manage to move the stock higher, which I want to happen. I like what the company has done here, and I think the stock will go higher, and that's about all there is to it. 



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