Entering into new markets is important for Apple

As the chart below shows, Apple’s (AAPL) stock has had a recent run-up from about $520 in mid-May to the current price of $644. The run-up was mainly due to the better-than-expected Q1 2014 earnings, the recent share re-purchase program expansion by $30 billion for a total program size of over $130 billion, and the increase of its quarterly dividend by 8% to $3.29 a share. However, we believe these factors won’t have a long-term effect on Apple’s stock. To maintain stock momentum, Apple needs to introduce a new product or enter into a new line of business. It’s important to note here that since the launch of the iPad in 2010, Apple hasn’t released any new product. 

Apple’s entry into new markets could maintain its stock momentum

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Apple launches a number of new features at a WWDC event

Apple’s recent stock run-up has helped the iShares Dow Jones US Technology ETF (IYW), Technology Select Sector SPDR ETF (XLK), and Vanguard Information Technology ETF (VGT), which have about 20% allocations in Apple. Historically, at Worldwide Developer Conference (or WWDC) events, Apple has usually released software updates and has kept hardware updates for later in the year. During the recent 25th annual WWDC 2014 event, Apple did the same thing and unveiled a number of software updates.

Some of the prominent features that Apple introduced during the event were new features for iOS 8, HomeKit and HealthKit. HomeKit is the smart home technology where lighting, household appliances, and security systems can be controlled from the user’s smartphone. HealthKit is another application wherein the user can see all of their health information in one place. Apple also introduced a number of other features, such as Continuity, which we’ll talk about in the next part of this series.

Google and Microsoft have already entered into the smart home automation market

Apple’s entry into the smart home automation market with its HomeKit application is nothing new for other technology giants such as Google (GOOG) and Microsoft (MSFT). Google recently purchased Nest Labs, the maker of smart smoke detectors, for $3.2 billion. Last year, Microsoft acquired home automation startup R2 Studios for an undisclosed amount. Not only has Apple entered into a new market with HomeKit application, but also, if Apple churns out new rumored product lines, such as the iWatch and Apple TV, they could boost Apple’s stock even further.

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