A Trading Strategy Involving Apple Suppliers Is Apparently Way More Profitable Than Investing In Apple Itself

Apple has been something of a disappointment for investors over the past year or so.

Shares of the consumer tech giant peaked at $US700 on September 21, 2012 — the day the highly-anticipated iPhone 5 went on sale in retail stores.

The stock bottomed out in April and has been rallying since June. Still, at today’s prices around $US521, shares are more than 25% below the September 2012 high.

In a note to clients, Société Générale strategists led by Vivek Misra devise a trading strategy using Apple’s Asia-based suppliers that has fared much better than actual Apple shares since the launch of the iPhone 5.

Apple suppliers basket performance versus Apple sharesDatastream, SG Cross Asset Research/EquityPerformance rebased to 100 = 21/09/12. Daily data as of 11/11/13. Past performance is not indicative of future performance.

“We have built a basket of stocks designed to cushion any future disappointment from Apple on the basis of out/underperformance over the last year,” says Misra. “We ranked outperformers as stocks with a rise of more than 10% (since 21 Sept 2012) and underperformers as stocks with a performance inferior to 10% over the period. On this basis we have assembled a basket of stocks that have outperformed the Apple stock over the last year.”
The stocks that actually comprise the basket are highlighted in the table below.

Despite the fact that the basket’s composition is based solely on the past performance of the stocks that comprise it, the strategists believe it still contains value.

“Our top/bottom basket offers a way to position for the outperformance of Apple’s Asian suppliers over Apple despite a tightening of supply chain of the latter,” writes Misra.

And even though the basket of Apple suppliers has outperformed Apple itself, it’s actually been underperforming against a broader index of Asian stocks, due to that supply-chain tightening.

“The main model feature of Apple’s success story has always been its ability to reap a high margin,” writes Misra. “However, this high-margin model seems to have reached its limit in an increasingly competitive world. So Apple has had no choice but to cut its production costs to maintain an ‘Apple yield’ on its high-technology products. The underperformance of our basket of suppliers relative to the MSCI Asia equity index (respectively -5.9% for our equally-priced index and -11.7% for our market value-weighted index) seems to show that Apple’s Asian suppliers are now under pressure.”

Apple suppliers basketDatastream, SG Cross Asset Research/EquityBlue/brown= top 5/bottom 5 stock performers over last year. Data as of 11/04/13.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.