Will the iPhone 5 Release Spark Profit-Taking in Apple?

by Daniel Putnam | August 23, 2012 10:52 am

Will the iPhone 5 Release Spark Profit-Taking in Apple?

Investors often are advised to “buy the rumor, sell the news” — a wise warning that a rising stock often will reverse following a long-anticipated event.

With the latest rumors indicating a late September release for the iPhone 5[1], investors may be wondering if Apple (NASDAQ:AAPL[2]) will be vulnerable to this type of selling pressure in the weeks ahead. If the history of the company’s past product releases is any indication, the answer is a solid “no.”

The table below shows that the period leading up to a product release is marked by strong absolute returns for Apple shares, and the stock’s recent rally shows that this pattern is holding true once again right now. The one- and three-month periods after a product release have brought more muted returns and a lower frequency of positive results, but the returns are nothing to sneeze at:

PRODUCT RELEASE DATE RETURN,
3 MOS. BEFORE
RETURN,
1 MO. BEFORE
RETURN,
1 MO. AFTER
RETURN
3 MOS. AFTER
iPhone 6/29/07 30.1% 6.7% 15.9% 25.8%
iPhone 3 7/11/08 17.3% -4.6% 0.6% -43.9%
iPhone 3GS 6/19/09 35.9% 4.5% 12.7% 30.6%
iPad 4/3/10 10.3% 12.7% 11.7% 4.3%
iPhone 4 6/24/10 17.2% 9.0% -3.6% 8.7%
iPad 2 3/11/11 4.7% 0.2% 15.3% 20.2%
iPhone 4S 10/14/11 18.0% 8.4% -10.1% -0.5%
iPad 3 3/16/12 53.7% 16.6% -0.9% -2.0%
Average 23.4% 6.7% 5.2% 5.4%

The next question, of course, is how much of these returns came from broader market performance, and how much from Apple itself. But a look at relative performance shows a similar pattern.

In the three months prior to a major product release, Apple has outperformed the S&P 500 — as measured by the SPDR S&P 500 ETF (NYSE:SPY[3]) — by an average of 19.9 percentage points, and it has outperformed in the one-month period by an average of 6.3 percentage points. Apple beat the market in all eight product launches measured for both periods — a 16-for-16 sweep.

Apple’s relative performance dips somewhat after the releases, averaging 3.2 percentage points of outperformance in the one-month period (five times beating the S&P and three times falling short), and 7.8 percentage points in the three-month period (beating six times, lagging twice).

Again, we see a similar pattern to the absolute performance numbers shown in the table above — excellent results, but somewhat less impressive than the returns prior to the product release. Still, most investors would be happy with that kind of alpha.

PRODUCT VS. SPY,
3 MOS. BEFORE
VS. SPY
1 MO. BEFORE
VS. SPY
1 MO. AFTER
VS. SPY
3 MOS. AFTER
iPhone +23.8% +7.5% +19.4% +23.8%
iPhone 3 +24.0% +2.5% -5.0% -15.8%
iPhone 3GS +17.6% +3.8% +7.4% +15.7%
iPad +6.3% +7.8% +10.3% +17.2%
iPhone 4 +24.9% +8.8% -7.5% +1.2%
iPad 2 +0.8% +1.4% +11.9% +24.2%
iPhone 4S +23.9% +5.2% -12.5% -6.3%
iPad 3 +37.8% +13.0% +1.4% +2.0%
Average +19.9% +6.3% +3.2% +7.8%

These results should be taken with a grain of salt for three reasons:

  1. It’s a small sample.
  2. Market trends become less reliable as they become more well-known.
  3. Apple’s market cap is much bigger now than it was in the earlier product launches — which might be reflected in the fact that its post-release relative performance has softened as time has passed.

Instead, the message here is to avoid getting carried away with any discussion that Apple will be a “sell the news” candidate once the next iPhone comes out in mid-September. The historical evidence just doesn’t support it.

As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.

Endnotes:
  1. late September release for the iPhone 5: http://investorplace.com/2012/07/monday-apple-rumors-iphone-5-ipad-mini-to-debut-soon/
  2. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  3. SPY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPY

Source URL: http://investorplace.com/2012/08/will-the-iphone-5-release-spark-profit-taking-in-apple/
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