Apple: Buy Company Shares on Rumor, Sell on News?

Scott Martin, USA Today

SAN FRANCISCO – Apple will put the investor maxim "buy on the rumor, sell on the news" to the test this week when it unveils its latest surprises that may include an iPhone 5 and possibly an iPad mini. But while consumers ponder the new devices, investors will be trading against how well the products are received and on perceptions of sales.

Getty Images

Apple's stock hit a new 52-week high of $683.29 on Monday, ahead of its event.

"Apple has had an almost non-stop string of successes with product introductions, and the market has been bidding up the price in anticipation of another successful product launch," says Jay Ritter, a finance professor at the University of Florida.

Since early June, Apple shares have shot up 16% amid anticipation for a major refresh of the iPhone and a possibly smaller iPad. Some of those gains also owe to Apple's win last month in a patent case in which a jury found that Samsung infringed the company's patents. But the most recent stock run-up isn't an isolated event. Three months ahead of Apple's June 2010 iPhone 4 launch, shares climbed 21%.

It can be a different story once Apple's rumored products arrive, Ritter says: "Buy on the rumor, sell on the announcement has been what's been going on in the market." Within one month after the iPhone 4 launch, Apple shares were down 3% from the product debut day.

For investors trying to read the tea leaves, much will depend on how the new iPhones and iPads stack up against a growing array of products from competitors Amazon, Google and Samsung. Amazon last week showed off some bargain-priced Kindle Fires, which go on sale this fall.

One sign for investors: Apple clearly has pent-up demand for its next iPhone. Last quarter's earnings showed that iPhone sales slackened in the company's fiscal third quarter, suggesting consumers were waiting on the sidelines for the next model.

Product launches aside, Apple's growth has been staggering. With it, the Nasdaq 100 grew 17% last year. But if you took Apple out of the tech-heavy index, the Nasdaq 100's growth would have been 6%, says Sandeep Dahiya, associate professor of finance at Georgetown University.

Still, news generally has to be beyond expectations for the stock to move the needle much on launch day, Dahiya says. "Surprise is what moves the stock. It could be good surprises or bad surprises. Apple has a history of delivering good surprises."