The recent tumult in the markets hasn’t had much of an effect on Apple Inc. (NASDAQ:AAPL). Since the end of last week, AAPL shares have logged a hefty gain of 9%, including a 3%-plus bump today on heavy volume.
So maybe Apple stock is a way to hedge against volatility — especially with the incessant jitters about interest rates as well as the wild presidential election?
Perhaps.
If anything, Apple stock is getting a big-time lift from the travails of one of its arch rivals, Samsung Electronic (OTCMKTS:SSNLF). Yes, it’s actually kind of hard to believe, but some of the new Galaxy Note 7 phones have apparently been blowing up (the culprit is the lithium-ion batteries). Someone even claimed his Jeep Grand Cherokee burst into flames because he charged his device in the car.
It’s like all this is straight out of Stephen King’s Firestarter.
A Helping Hand From Samsung
Yet, as if things could have not gotten even worse, Samsung has been bumbling with its response. Keep in mind that just two weeks ago the company initiated a voluntary recall. But this was really just too feeble. After all, the Consumer Product Safety Commission has gone on to tell owners of the Note 7 to not use the device. Oh, and of course, airlines are also concerned, and have been telling their customers to turn off their phones.
Another part of the Samsung response has been an exchange program. But for the most part, the details have been mostly a muddle of confusion for customers — probably because the process was not handled through the CPSC, which has not approved the replacement device. There is also a concern that there may not even be enough devices available anyway.
In the meantime, AAPL has recently launched its iPhone 7 and iPhone 7 Plus. While they may not necessarily be a must-have devices, it probably does not matter. The fact is that the smartphone market is fairly mature. That is, growth is generally about gaining market share from competitors. So in light of the troubles at Samsung, is it any wonder that Apple stock is on a big run?
Of course not.
But the situation with Samsung could be much more than a short-term blip. When it comes to expensive devices — the Note comes at $800 — consumers can certainly be very discerning. This is often magnified when there is a loss of trust.
For a perspective on this, look at BlackBerry Ltd (NASDAQ:BBRY). Back in 2009, the company was the dominant player in the smartphone space. But because of poor product quality and recalls, BBRY eventually fizzled.
Now, this is not to say the same fate will befall Samsung. For the most part, the company can turn things around. But it will definitely take time — and AAPL will not hold back on capitalizing on the situation. Even better, all this comes during the all-important holiday season.
Great News for Apple Stock
Already there are signs that AAPL is gaining traction. Check out the following:
- T-Mobile US Inc (NASDAQ:TMUS) has reported that the new iPhone has “gone on to shatter all previous iPhone pre-order records” at the company.
- Sprint Corp (NYSE:S) has announced that pre-orders are up nearly four times.
It’s important to note that — when it comes to Apple stock — about 57% of overall revenues come from the iPhone. So an uptick can certainly move the needle.
Besides, even with the run-up in Apple stock, the valuation is still reasonable. AAPL’s price-earnings ratio is just 12 for crying out loud! By comparison, Microsoft Corporation (NASDAQ:MSFT) trades at 17 times future earnings, Intel Corporation (NASDAQ:INTC) sports a multiple of 13 and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is swapping hands at 19 times estimated earnings.
There’s a pretty good chance that growth will start to perk up again, meaning the upside on Apple stock could be especially roomy.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
