With Apple set to introduce a new, smaller iPhone, we ponder the question–have smartphones gotten too big? Jefferson Graham reports on #TalkingTech.
Sean Fujiwara

Apple (AAPL) investors are betting that smaller is better.

Shares of Apple have rallied 10.3% over the previous 30 days as investors anticipate the company’s new product announcement today, according to a USA TODAY analysis of market data from S&P Global Market Intelligence. Apple is widely anticipated to Monday announce a smaller iPhone rumored to be called the SE.

The details of the announcement won’t be known for hours, but the stock’s run-up ahead of the announcement is impressive. Shares closed Friday at $105.92, which is up 15% from its lowest point over the past 52 weeks. This rally is noteworthy because it is:

* Reinvigorating the famous Apple rally ahead of announcements. Buying on the rumor of new iterations of iPhones ahead of announcements used to be an easy way to make money. Apple shares have gained 4% on average in the 30 days ahead of the 10 iPhone announcements in the past – while the broad market was flat during the same period. This “buy the rumor” winning streak was starting to look like it was fading faster than a smartphone battery. Shares of Apple sank 6.4% in the 30 days leading up to the announcement of the widely disappointing iPhone 6S. But Apple’s gain over the past 30 days ahead of Monday’s announcement is the best run-up of shares ahead of an Apple unveiling of new model of smartphone since the 11.4% gain before the 5C and 5S back in September 2013.

APPLE STOCK REACTIONS TO PAST IPHONE ANNOUNCEMENTS

Model announced, Announced, % Ch. Apple 30-day before, % Ch. S&P 500 30-day before 

1, Jan. 2007, -3.2%, 0.2%

3G, June 2008, 1.2%, -2%

3GS, June 2009, 12%, 1.2%

4, June 2010, 8.5%, -4.1%

4S, Oct. 2011, 0.1%, -6.4%

5, Sep. 2012, 4.9%, 2.1%

5C/5S, Sept. 2013, 11.4%, -1.2%

6/6+, Sept. 2014, 3.8%, 3.6%

6S, Sept. 2015, -6.2%, -6.4%

SE*, March 2016, 10.3%, 6.9

* Expected to be a small iPhone released

Source: S&P Global Market Intelligence, USA TODAY

* Outperforming the broad market’s rally. Apple’s rally is even more notable since it even outpaced a broad market gain. The S&P 500 has enjoyed a powerful 6.9% rally over the past 30 days – helping major market measures to pull back into the black for the year and shake off the abysmal January and first part of February. But Apple’s gain during that time is even 65% greater.

* Putting Apple back back as most valuable company. The rally in Apple has been enough to push it back past Google parent Alphabet (GOOGL) as the world’s most valuable company at $587 billion, a title it briefly lost earlier this year. Alphabet shares are up too, rising nearly 5% over the past 30 days. But even with that gain, Alphabet has slipped behind Apple with a market value of $514 billion.

* Rising despite the overhang of a pending legal battle with the Department of Justice. Later this week, Apple and the Justice Department are expected to get into the thick of a skirmish with broad implications over the company’s future with regards to security and cooperation with the government. The Justice Department is arguing the company much comply with federal orders to help it examine the contents of a phone owned by a gunman involved in the San Bernardino shooting.

Seeing Apple’s stock act better lately underscores that “things may be better than feared,” according to a report to clients co-authored by Kulbinder Barcha at Credit Suisse. Investors turned negative on Apple’s stock starting last year as it became increasingly clear profit would decline in fiscal 2016 ended in September. “In our view, this improvement could be the first positive movement since the Apple iPhone supply chain cuts began late last year.”

New product announcements that further solidify Apple smartphones as a platform for other technology to built upon is a driver for the stock price, says Steven Milunovich, research analyst at UBS said in a note to clients. Companies that make “platforms,” or ways for producers and consumers to connect, are where investors will focus their investments, he says. At Apple’s Friday closing price of $105.92, the stock is trading for just 10.6 times what the company is expected to earn in fiscal 2017. Based on the company’s strategy of building a platform, the stock could trade closer to 12 times fiscal 2017, which would put the stock at $120 a share, Milunovich says.

But despite Apple’s rally on the rumor of a new phone, the shares are still beat up as investors realize the company’s fast-growth days are over. It’s unclear if a teeny phone will be enough to get the company back on the fast track.  Shares are down 21% from the all-time high of $134.54 – putting it in a bear market. Adjusted earnings in 2016 are expected to drop 1.4% this fiscal year ended in September.

It’s also typical for Apple shares to fade following the announcement of a new smartphone. Shares of Apple have, on average, have fallen 1% in the 30 days after an iPhone announcement. Following the last update, the 6S, shares of Apple declined 1.9% in the 30 days following even after dropping 6.2% in the 30 days ahead of the announcement.

But for now – investors have big hopes for this small phone.

APPLE STOCK REACTIONS TO PAST IPHONE ANNOUNCEMENTS

Model announced, % Ch. Apple 30-day after, % Ch. S&P 500 30-day after

1, 0.8%, 2.5%

3G, -6.1%, -8.5%

3GS, -5.1%, -6.4%

4, 1.1%, -0.4%

4S, 7.6%, 14.7%

5, -4.7%, -0.3%

5C/5S, -3.3%, 1.2%

6/6+, 2.7%, -3.7%

6S, -1.9%, 2.3%

Sources: S&P Global Market Intelligence, USA TODAY