Don't be fooled - iPhone 5 shortage is bullish
We're on week three of the Apple iPhone 5 saga as the most-anticipated smartphone in history finally hit store shelves over the weekend.
On Monday, Apple reported that it sold 5 million iPhone 5 units in its first three days on sale, easily exceeding the 4 milion+ iPhone 4S units sold on its opening weekend last year.
However, that 5-milion unit number was below Wall Street's forecasts, which started at around 6 million.
So is this the end for Apple's seemingly endless winning streak?
Not so fast!
The culprit in this supposed disappointment is a shortage of iPhones. Apple simply couldn't make enough phones to fulfill demand.
Historically, product shortages, even though they represent lost sales, often proved to be enormously bullish for stocks.
Why? Because unless a shortage is the result of management incompetence, there is no greater sign that business is booming.
In 2007, Activision consistently had trouble in producing enough Guitar Hero video games. The stock rose 72% that year!
And do you remember how hard it was to get a Nintendo Wii? In 2007, shares of Nintendo rose a whopping 38% at a time of rampant Wii shortages.
There are countless other examples of stock skyrocketing on product shortages, ranging from Mattel's adventure with Tickle-Me-Elmo Extreme in 2006 to cement companies during the housing bubble to 4Kids Entertainment's Pokemon cards back in the late 1990's.
Now looking forward, the lower-than-expected iPhone sales might actually result in an earnings miss. However, any subsequent weakness in Apple stock will quickly be made up, because virtually every sale missed in the third quarter will simply be bounced into the fourth quarter.