Apple's Media Event Gives Investors Four Reasons To Buy The Stock Now

It’s that time of year again when smartphone makers crowd the calendar to introduce new products and excite consumers for the upcoming holiday season.  Samsung introduced its Galaxy Gear smartwatch and its Galaxy Note 3 complete with 13 megapixel camera and SPen navigation.  Apple is highly anticipated to introduce two new smartphones, provide insights on its new iOS 7 and potentially an updated Apple tv.  Here is what to look for and why it is important.  Disclosure:  I hold long equity positions in Apple and Google .

1.     Expect announcements from Apple regarding agreements with China Mobile and NTT DoCoMo.  Word of these deals has leaked over the past week, but speculation has been accelerating given the number of trips CEO Tim Cook has made to China.  Distribution of iPhones through these channels is significant:  China Mobile has 700 million subscribers (180 million of these estimated to be 3G, growing at a rapid clip), NTT DoCoMo has 60 million subscribers bringing the combined newly addressable market to almost 800 million additional subscribers.  To put this in context, Apple sold 121 million iPhones over the last four quarters.  Therefore, expanding the potential market by almost 800 million will be meaningful.  Consider:  if Apple achieves 10% market share within the new carriers, it increases its iPhone unit sales by 60%.

2.     Apple is expected to announce a iPhone 5C, a color model at a mid-range price.  This product has two important attributes:  Color and Price.  Color has the opportunity to make iPhones “cool” again with a younger, less loyal audience that craves new and refreshed, versus the stable and predictable.  Price has the opportunity to make iPhone more attractive in markets such as China, where the overall addressable market is more sensitive to price.   In fact, a lower-priced color iPhone has been called a “game changer” in the media. If the iPhone 5C follows in the footsteps of the iPad Mini, it is certain to be another catalyst to sales.  The two quarters following the iPad Mini release resulted in approximately 8 million more iPads sold each quarter, or an approximate 48% and 65% increase respectively over the prior year.  While many call this cannibalization, others call it market expansion.  Regardless, stronger sales and greater market penetration followed.

3.     Apple is expected to showoff its new iOS 7, and this could ignite a replacement cycle for older iPhone 4 and iPhone 4S models to the iPhone 5 or anticipated iPhone 5S.  Apple CEO Tim Cook and industry observers have called the new iOS 7 the biggest change in iOS since its introduction with an entirely updated look and feel to the user interface, an always-ready control panel, and a new notification center with enhanced integration with other iOS devices.  The visual changes alone are expected to create a lot of excitement around iOS where the Google Android interfaces have gained ground over the past couple years.  On top of that, the control panel and user interface are deemed to be much more intuitive, potentially setting a new high bar with the competition.  If iOS 7 behaves as well as its reviews suggest, it could be the next must have software requiring a hardware upgrade for many owners of older iPhone and iPad models.

4.  Inclusion of touch sensor-based fingerprint technology could be propel Apple back at the head of the pack in terms of must-have new features.  Over a year ago, Apple completed its acquisition of Authentec, a leading provider of touch sensor fingerprint authorization.  The possibilities for Authentec  technology integrated into iPhones and iPads are enormous.  Fingerprint authentication means greater security for enterprise (and personal) use of devices, for mobile commerce and for user identification for content consumption.   It could be a key integration for Apple to enter the mobile payments market and proliferate the usefulness of Passbook.

4.     Apple may announce more content partners for the existing Apple tv, but don’t expect any announcements about a new Apple “television.”

5.     Investors should not expect any announcement of an iWatch or wearable technology.  The rumor mill on Apple new product introductions is just too efficient at this point for Apple to be able to sneak a new product into the market.  Apple is said to be waiting for its “iPod moment” to release a smartwatch that is intuitive, packed with features that customers will use the most, and sport an elegant design.  While Samsung is known for iterative design, Apple is steadfast at delivering a “final” product upon introduction.  Samsung’s Galaxy Gear smartwatch will provide ample customer feedback that will benefit Apple’s eventual iWatch introduction.

The Apple announcements on Wednesday should serve to excite the lowered expectations for technology giant and renew interest in its flagship iPhone lineup.  If Apple shows off the new iOS 7 with even a small dose of the old marketing magic, it could serve to ignite a replacement cycle for older model iPhones and iPads.  Recall that 93% of iOS customers are on iOS 6, and achieved over 60% adoption within one month of release.  The new iPhone 5C and any potential changes to the iPad mini could also open up larger addressable markets, including in China and Japan, to Apple products.  Apple is currently trading at value-company levels, or 8x next year's earnings (excluding cash).  Entering back into growth-company area, with a Price-Earnings Growth multiple of less that 2.0 even with depressed earnings estimates, could put Apple at a $600 share price within a year.