CW on RM: Slicing Up Apple's News

Slicing Up Apple's News
09/08/2006 11:52 AM

So the tech, media and investment worlds are holding their collective breath in outsized anticipation of what Apple will reveal in the announcement on Sept. 12.

Its stock has been pretty strong lately, especially after bottoming amid the options controversy in the middle of the summer. (You know, the "Hey, don't worry about the options scandal because Steve Jobs canceled those options after they were totally worthless, and we gave him tons of valuable stock to replace it!" revelations.)

The Street seems to have convinced itself that the risks surrounding those options irregularities have passed, though I have my doubts about that. Therefore, the focus has moved back to the fundamentals and new product potential. As good as Apple's fundies are and as uniquely positioned as it is for meaningful new product introductions, the stock's been rightly moving higher.

Tuesday's announcement will most likely include something about how Apple will offer downloadable movies at the iTunes storefront. Traders who are looking for a pop next week had better hope for more than that because expectations for this announcement are running rampant. Here are some possible new products and what I'd expect the stock to do, based on each potential new product:

1. A living room computer that enables easy downloading of content from the Internet and iTunes, perhaps even playing high-definition content. If there's anything besides movie downloads from iTunes in the announcement, this is what I'd expect. The stock would probably hang tough around $73 or so if this gets rolled out.


2. An iPod phone. An Apple-branded phone that really is a full-on video iPod would be a huge, huge hit. I don't expect this rollout yet, but if it were to happen Tuesday, I'd look for a 5% to 10% pop in the stock.


3. A new lineup of video iPod and/or iPod nanos. If the announcement is about new iPods that aren't phones, they sure as heck better have something else awesomely compelling about them. Bluetooth enablement won't be enough -- neither will a touch screen. I'd look for 5% hit if it's "just" new iPods and downloadable movies.


4. Miscellaneous. If something comes out of left field, that would surprise just about everyone, including me. The stock's action would obviously depend on just how cool (or uncool) the product is.


5. Just movie downloads. The market is expecting more than this, and if it's just movie downloads from iTunes, I figure a hit of about 5%.

The upshot is that this isn't exactly a good risk/reward for a trade, as most scenarios that I expect to play out next week entail some downside. Part of the reason for my pessimism is the way the market has just not been trading well and seems to be selling most news.

I still own a decent bit of Apple from much, much lower levels and continue to hold it as the long-term outlook -- as long as the options debacle doesn't kill it -- is very bullish. But I wouldn't want to flip it for a trade into next week.

By the way, the last time the hype got this big was right around the time Apple announced its stupid iPod HiFi system. I had gone on CNBC before it was announced and downplayed it.