After literally years of anticipation, Apple (NASDAQ:AAPL) stock investors are finally getting the iPhone 12. While Apple’s first 5G-capable iPhone will most certainly feature some impressive technology, there’s a much bigger question for investors. How will the AAPL stock price react to today’s big reveal?
Inexperienced investors may believe that an impressive Apple iPhone 12 event means the shares are headed higher in the near-term. In reality, the key catalyst for AAPL stock this week will be just how high expectations have grown ahead of the event.
The iPhone 12 is Important for AAPL Stock
Yes, the iPhone 12 is very important for Apple investors. Back in January, I wrote about how a 5G iPhone was a big reason for AAPL stock investors to be excited. However, even back then I talked about how much the stock had already risen in anticipation.
As a value investor at heart, I absolutely believe a company’s fundamentals are important. The better the iPhone 12, the more sales there will be. The more sales, the more profits Apple will make. Therefore, the better the iPhone 12 is, the better it is for AAPL stock in the long-term.
However, most analysts and Apple investors already believe the iPhone 12 will be awesome. They already expect millions and millions of iPhone sales.
“Importantly, with our estimation that 350 million of 950 million iPhones worldwide are currently in the window of an upgrade opportunity, we believe this will translate into an unprecedented upgrade cycle for Cook & Co.,” respected Wedbush analyst Daniel Ives said.
When you are expecting 350 million to 950 million iPhone upgrades, it’s nearly impossible to surprise to the upside. When your company has a $2.1 trillion market cap, how much success is already priced in?
Psychology of Big Events
If you are a long-term AAPL stock investor, I believe you should mostly ignore today’s iPhone 12 event. True, the Apple stock price today is coming off of Monday’s 6.3% gain. But, to be honest, Apple puts out a new iPhone every year. This will not change the investment thesis on Apple. As long as Apple continues to have the best phone on the market and keeps its customers happy, the devices will be a cash cow for the company.
In the near-term, the iPhone 12 itself won’t have a major impact on Apple’s fundamentals. Investors won’t know how well it is actually selling for months. The more important factor will be the market psychology surrounding the event.
Typically, the more an event is hyped, the more likely it is to disappoint the market. Take the recent Tesla (NASDAQ:TSLA) Battery Day event as an example. TSLA stock was up 7.4% in the two weeks leading up to Battery Day. In the two days after, it was down 15.3%.
Big events can definitely be major catalysts for stocks. But the biggest bullish moves typically occur ahead of the event. The iPhone 12 has been hyped up for more than a year, and AAPL stock has doubled. Another way to think about that move is that the market has already assigned roughly $1 trillion in value to the iPhone 12.
I’m guessing the iPhone 12 event will be a sell-the-news event in which Apple shares will initially react negatively on Tuesday and/or Wednesday. If, however, they initially pop, I bet traders will likely take that opportunity to cash out their gains and the stock will correct in the weeks to come.
How To Play It
I absolutely love AAPL stock as a long-term investment. But I believe now is not the right time to be buying Apple given near-term risk is skewed to the downside ahead of the iPhone 12 event.
As I said back in January, Apple is drowning in cash, which is pretty much the best thing to be drowning in. They have a massive and loyal user base and a long-term growth trajectory that would make almost any other company jealous.
I believe AAPL stock is one of the best blue chip stocks of the 21st century. If you’re looking to establish or add to your position, wait until after the iPhone 12 event. Be ready to pounce on any sell-the-news dip in the next couple of weeks and buy the stock.
On the date of publication, Wayne Duggan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. He is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.
