Two days after Apple Inc. (NASDAQ:AAPL) unveiled the new generation of iPhones, you’d think CEO Tim Cook had committed corporate suicide. Almost everyone on the planet was weighing in on what the new designs got wrong and the dire implications for Cupertino.
This is exactly why it’s so crucial to separate that brand loyalty from the stock, which can be a good or bad bet depending on whether the winds of sentiment are blowing with the fundamentals or against them. Right now, those winds seem bearish, but dig deeper and it’s clearly just a trick of the noise.
Even a quick sweep of news coverage around the iPhone X launch reveals what looks like staggering negativity around the product. I counted the word “disappointment” 34% more often than “innovative,” while “lackluster” is popular enough this year to show up as frequently as the neutral “announced.”
AAPL has receded as much as 2.2% from Monday’s close, so Apple stock isn’t exactly cheering the latest incremental features (no button, different pixels, face recognition, etc.). You’d think it was the end of the world.
Disappointing or Innovative?
But it’s not. The industry press loves to chatter and the Apple launch is the event that overwhelms everything else on the calendar in terms of sheer buzz. Roll back to last fall when Tim Cook unveiled the iPhone 7. Once again, “disappointment” outweighed “innovative” while the prevalence of other negative signaling made the new phone sound like a failed product from a tired company.
By the end of the year, several iPhone configurations were on deep back order, the product was a record-breaking success and AAPL stock was up 10% after initially wobbling on the announcement. That’s far from a failure. It may not be the kind of category-creating triumph that helped build this company’s Wall Street reputation, but it’s enough to beat the broad market by a healthy margin, which is really all we can ask for.
And the fundamentals always call the tune. Wall Street hasn’t seen anything in the iPhone X pricing and specs to budge earnings models more than $0.01 across quarter boundaries. That’s really just a rounding error for a company this size — maybe AAPL will sell another 500 phones next year, but that’s as far as the analysts have been willing to go.
Building the Walled Garden
As an investor, what excites me about the iPhone X isn’t the pixel count or battery life anyway. I like the $999 price point because it entices more people into Apple’s automatic upgrade program, which locks users into the internal upgrade cycle from year to year. While it’s nominally interest-free, you’re also signing up for AppleCare to add another $100 a year to the ultimate cost of that beautiful new phone.
That’s a classic walled garden scenario. When you have such a fierce user base as AAPL, the higher you can build those walls, the better the long-term picture looks, especially when you might be struggling to maintain both margins and a track record for premium “wow.” I recommend ignoring the complainers, as they’re not in the garden, and I think those who buy this dip will ultimately be rewarded.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.