Wall Street is always abuzz with the latest talk about Apple Inc. (AAPL) stock: Where it has been, what it’s doing, and most importantly, where it’s going. But last week, the company faced far more media scrutiny than even it was used to, as the Federal Bureau of Investigation demanded AAPL create a “backdoor” through which the Feds could access the iPhone of one of the San Bernardino shooters.
Apple refused, saying the company wouldn’t be bullied into hacking its own customers.
Some investors think the conflict is a net positive for Apple stock, giving the iPhone-maker tons of free publicity. Others think AAPL stock could take a hit if it faces a federal lawsuit or is seen as anti-American.
The truth? Forget about the FBI. Investors should keep their eyes on the prize, and that means paying attention to what will really move the needle for AAPL stock in the coming months:
AAPL’s 4-inch iPhone 5se
That’s right, iPhones started small, then got really big, and now they’re getting smaller again. If you’re Apple and everything you make* flies off the shelves, why not just make more things? Sure, they cannibalize themselves, but Apple stock wouldn’t have soared 850% in 10 years if it hadn’t constantly come out with new devices that make year-old products seem like ancient, uncool artifacts.
With the iPhone 5se, Apple is deviating from its typical release schedule, which usually sees Cupertino drop a new phone every fall. The iPhone 5se is rumored to hit stores on March 18, giving AAPL stock a spring catalyst it usually never enjoys.
More importantly, the 4-inch phone will test the theory that many customers haven’t upgraded to the more recent models because they find them too large and unwieldy. If there truly is pent-up demand here, this could be a big seller.
*OK, maybe not the Apple Watch.
Apple Stock Buybacks, Dividend
Apple recently raised $12 billion in the bond market, which may sound like a curious thing to do for a company with $216 billion in cash on the books. Unfortunately, more than 90% of that scratch is held overseas, and if AAPL brought it back to the U.S. it would have to pay $70 billion to $80 billion in taxes.
That’s not gonna happen.
Still, Tim Cook & Co. remain determined to return capital to AAPL stock owners, and as much as $10.5 billion of that $12 billion in new debt can be expected to go straight to share repurchases. Plus, now that Apple is a dividend-paying company, it’s likely to follow tradition and increase its dividend payment in April.
iPad Air 3
It’s not just the iPhone 5se that’s coming in March — the iPad Air 3 is also reportedly dropping that day. And while iPad sales have been shrinking rapidly in recent years, it’s important to remember that these tablets are still the second-most important driver of AAPL stock; only the iPhone is responsible for more revenue.
Apple itself seems to have extremely high hopes for the resurgence of the iPad division. At a recent town-hall meeting with employees, CEO Tim Cook said he expected the iPad segment to return to growth by the end of 2016.
This is a potentially significant driver for AAPL stock because a growth in Apple’s tablet business is certainly not currently expected by Wall Street analysts. Why would it be? iPad sales fell 23% in FY2015 from $30.3 billion to $23.3 billion; Cook is anticipating a major turnaround.
Bottom Line for AAPL
With a new iPhone, new iPad, a dividend hike and Apple stock buybacks all on the horizon, investors are foolish to focus on the FBI narrative when thinking about this company. Later this year, the highly anticipated iPhone 7 will also hit she shelves, a new and improved Apple Watch is rumored and a TV series starring Dr. Dre is even in the works.
AAPL stock has no shortage of catalysts — the FBI storyline simply isn’t an important one.
As of this writing, John Divine had no positions in any of the stocks mentioned. You can follow him on Twitter at@divinebizkid or email him at editor@investorplace.com.
