AAPL Apple Inc

By Tripp Mickle and Aaron Kuriloff 

Apple Inc.'s shares reached their highest closing level ever Monday, as investors bet that the 10th-anniversary iPhone expected later this year will build on renewed momentum at the world's most valuable company after its worst stumble in years.

The stock rose nearly 1% to close at $133.29, topping the prior record of $133 set in February 2015. The all-time intraday trading high for Apple shares is $134.54, also reached in 2015.

That puts Apple's market value at about $700 billion, which is more than $120 billion ahead of the No. 2 company, Google parent Alphabet Inc. -- which not long ago was challenging Apple for the top spot -- and beyond the values of Exxon Mobil Corp. and J.P. Morgan Chase & Co. combined. Apple's market value remains below the nearly $775 billion it hit in February 2015 because of a major share-buyback program initiated in fiscal 2013.

Major investors, including Warren Buffett's Berkshire Hathaway Inc., poured into Apple stock when the share price dipped last year, a period that included three straight quarters of profit and revenue declines. Since then, a combination of a new iPhone, improved sales in China and surging sales of apps and streaming music subscriptions has buoyed the stock, investors and analysts said.

No major strategic change triggered the stock's resurgence, although Chief Executive Tim Cook helped bolster investor confidence last month with the announcement of an ambitious goal to double the company's $24.35 billion services business by 2021.

Mr. Cook also expressed optimism that tax legislation under the Trump administration later this year could enable Apple to bring home cash held overseas. Investors envision that offshore cash pile -- which at $230.2 billion is the largest of any U.S. company -- being used for stock buybacks, dividends, or acquisitions.

Apple has risen 20% since the U.S. elections, beating the 8.8% gain for the S&P 500.

Still, the biggest driver of investors' renewed enthusiasm is the iPhone, which is both Apple's blessing and its curse. One of the most successful consumer products in history, the device is on track to top $980 billion in sales in the decade since it hit the market.

The iPhone is now so huge that it propels Apple, accounting for two-thirds of sales and three-fourths of operating profit -- and prompting gyrations in the company's stock price tied to investors' changing views of each new model's prospects for success.

"Apple is really an iPhone business," said Sean Stannard-Stockton, chief investment officer at Ensemble Capital Management, a Burlingame, Calif., wealth-management firm with $500 million in assets; it counts Apple among its largest holdings. He added, "The next [iPhone] cycle should be strong."

The speculative frenzy that always precedes a new iPhone has been supercharged in anticipation of the 10th-anniversary release expected later this year. Analysts in research reports have predicted the phone will be one of Apple's most revolutionary, with some suggesting it will come in three sizes instead of the usual two, with a case made almost entirely of glass and possibly wireless-charging capability.

At least one of the anniversary phones is expected to have an OLED screen, technology that would make the device thinner and lighter. The display, on top of the device being an anniversary edition, has led to speculation that Apple could charge record prices for the phone, said Steven Milunovich, an analyst with UBS.

Apple is extraordinarily secretive about its plans, making it difficult for analysts and investors to know what to expect -- and adding risk for anyone betting that the new phone will be a hit. Even the prospective name is debated: some analysts say Apple will call it the iPhone 8; others suggest it will be the iPhone X. Apple declined to comment.

Apple has struggled with intensifying smartphone competition in recent years. In China, the world's largest smartphone market, rivals have cut into Apple's market share with cheaper phones offering comparable technology. Samsung Electronics Co. and Google have added pressure with new, higher-priced devices.

The iPhone 7, launched in September, hasn't generated the kind of sales jumps Apple recorded with previous new models, but it has helped rekindle enthusiasm. It was the best-selling smartphone in China, according to Kantar Worldpanel, helping stabilize Apple's revenue there after three quarters of declines. That gave investors "increased comfort that China is not falling off a cliff," said Jim Tierney, chief investment officer of concentrated U.S. growth at AllianceBernstein Holding LP.

Since the first iPhone was unveiled, Apple shares have gained a median of 4.3% between the announcement of a new model and when it started selling, according to Bespoke Investment Group. The iPhone 7 built on that streak, surging 6.7% between its Sept. 7 unveiling and Sept. 16 launch. Apple reported in January that the new device helped deliver record shipments for the three months ended in December and helped boost total revenue in the quarter by 3% to a record $78.4 billion.

Apple has more going for it than smartphones. For example, its highly profitable services business, which includes sales of apps and streaming music, increased revenue 18% to $7.2 billion during the December quarter, making it bigger than many large companies. But what Apple hasn't done is replicate its iPhone success with other products -- and that raises questions about its future. The company hasn't introduced a game-changing product since the iPad in 2011. The Apple Watch, introduced in 2015, hasn't been a breakout success, and its wireless Airpod earbuds are in their infancy.

"The iPhone as a form factor will sometime disappear," said Mr. Stannard-Stockton. "Can they produce entirely new form factors and devices?"

Still, Apple shares actually are relatively inexpensive, even after the recent run-up. They are trading at roughly 16 times the past 12 months of earnings, compared with prices averaging about 23 times earnings for other tech stocks in the S&P 500 -- and below Apple's 10-year average of 21 times earnings, according to FactSet. "It's gone from a growth stock that was largely overvalued to a value stock," said Jack Brown of Aviance Capital Partners LLC, a Naples, Fla., investment firm that counts Apple among its largest holdings in both its growth-strategy and value-strategy portfolios.

And in some ways, the iPhone's lackluster performance over the past year or so has laid the foundation for more growth. There are now more than 600 million iPhones world-wide, and many of the phones in circulation are iPhone 6 models, suggesting Apple could benefit from a swell of upgrades in coming years. An estimated 85% to 90% of those iPhone users will buy another iPhone when they upgrade, according to UBS.

"What happened with the last quarter is people discovered there's a replacement need for these phones," said Michael Harkins, a partner at Levy, Harkins & Co., a New York investment advisory that counts Apple among its holdings. "They wear out and that's not changing any time soon."

Write to Tripp Mickle at Tripp.Mickle@wsj.com and Aaron Kuriloff at aaron.kuriloff@wsj.com

(END) Dow Jones Newswires

February 13, 2017 18:55 ET (23:55 GMT)

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