Meanwhile, full-size iPad sales have fallen recently because of cannibalization from the iPad Mini. However, the next full-size iPad will probably be thinner and significantly lighter than the current model, which could reinvigorate sales by enhancing portability. I still expect the iPad Mini to be the top seller, but any increase in full-size iPad sales will boost Apple’s bottom line, because the full-size iPad produces more profit per device.
New markets
New generations of the iPhone and iPad can briefly boost Apple’s sales and profit, but they no longer generate enough growth to drive Apple stock consistently higher. However, many analysts believe that the iPhone 5S — unlike previous iPhone models — will be sold by China Mobile Ltd. (ADR) (NYSE:CHL) , the world’s largest wireless carrier. While the iPhone is too pricey for most China Mobile customers, China Mobile Ltd. (ADR) (NYSE:CHL) has a lot of customers: more than 700 million! This large customer base creates an opportunity to sell tens of millions of additional iPhones annually. Capitalizing on this opportunity could increase EPS by $2-$3, enough to positively affect Apple stock. Apple is also targeting other wireless carriers that it has not previously worked with: most notably, T-Mobile USA, which on Friday began selling the iPhone 5 for $579.99 — roughly $70 below the official unlocked price.
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The iPhone 5 (courtesy of Apple).
Longer-term, while Apple will never offer a low-end iPhone, it’s likely to target the mid-range smartphone segment with a phone priced around $300-$350. This would be more expensive than many Google Inc (NASDAQ:GOOG) Android phones, but many people are willing to pay a premium for Apple Inc. (NASDAQ:AAPL) devices. The problem today is that the cost of an iPhone is just too far out of reach. A $300-$350 iPhone would appeal to those individuals while allowing Apple to maintain generous profit margins.
Foolish conclusion
There are numerous catalysts that could drive Apple stock up from its current rock-bottom valuation. New product lines, higher margins resulting from new product releases, higher sales from new carrier partners such as China Mobile Ltd. (ADR) (NYSE:CHL) and T-Mobile, and long-term growth based on a cheaper iPhone are all potential earnings growth drivers. Some may not pan out this year, but in all likelihood, others will. Apple’s valuation implies permanent earnings decline, which seems far-fetched in light of the company’s opportunities. We are likely to learn more about what’s next for Apple at the company’s Worldwide Developers Conference in June. As Mr. Market starts to focus on some of these opportunities rather than Apple’s challenges of the moment, Apple stock could begin its next big rally.
The article Apple Stock: The Next Run Could Come Sooner Than You Think originally appeared on Fool.com is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg owns shares of Apple. The Motley Fool recommends Apple and Google and owns shares of Apple, China Mobile, and Google.
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