The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Apple Stock Forecast

Summary:

The quality of the cameras on smartphones are now important for high-end handsets like the iPhone 7.

The Samsung Galaxy S7 Edge and Galaxy Note 7 have a better low-light and overall camera performance than Apple’s current handsets.

The LG G5, Huawei Honor 8, and Huawei P9 now tout dual-camera systems.

Apple also needs a better dual-camera system for its upcoming iPhone 7 phones to enhance its appeal.

It might also be good for Apple to start building and selling add-on camera accessories for its iPhone/iPad products.

I Know First’s predictions for AAPL are currently bullish, over the 1-month, 3-months, and 1-year time horizons.

Just a few days from now, Apple (AAPL) will unveil its much-anticipated iPhone 7. Rumor has it that it will no longer have a 3.5mm headphone jack but it will come with a rear-facing dual-camera system. This is just shrewd because two cameras have helped the sub-$500 LG G5 and Huawei P9 Android handsets become among the best phone cameras this year.

If true, Apple’s alleged use of a dual-camera system will make the iPhone 7 Plus compete better with the best-rated cameras used by the Samsung Galaxy 7 and Galaxy Note 7. It was reported that before that the Galaxy S7 phones are outselling the iPhone 6s in the United States. One of the reasons might be that Samsung’s (SSNLF) have better cameras.

Consequently, a better picture-taking iPhone 7 might attract respect from more potential buyers. A $700-$900 iPhone 7 needs to have cameras that can beat the quality of the dual Leica lens used by the $499 Huawei P9. The image below is from iPhone accessory maker Spigen, hinting that the iPhone 7 or iPhone 7 plus will really come with dual-cameras. AppleInsider is also strongly endorsing that the iPhone 7 Plus will sport two 12-megapixel cameras with 1/3” sensors and F/1.9 aperture.

(Source: Spigen)

Why It Matters

Apple, as the king of high-end phones, has compelling reasons to come up with constant camera improvements for its iPhone/iPad products. Investors and customers alike are disappointed that Apple seems to be lagging behind Chinese firms like Huawei when it comes to phone camera development. The quality of the cameras is the no.3 reason to evaluate when buying a new phone.

The smartphone is now the de factor camera and camcorder tool. The death of the pocket digital camera was attributed to the rise of smartphones. Study the chart below from CIPA. The introduction of smartphones with decent image sensors in 2010 coincided with the decline in compact digital camera sales. Smartphones made everybody become instant photographers and/or videographers.

(Figures Are in Thousand Units)

(Source: CIPA)

The rise of Instagram and other social sharing mobile apps also made the smartphone the better picture-taking tool for everybody. Up until now, most pocket digital cameras do not have Wi-Fi or 3G/4G connectivity.

(Source: Gadget Review)

The emergence of the smartphone as an everyday photography gadget has raised expectations. People now expect their smartphones to capture pictures with the same image quality of dedicated point & shoot cameras made by Canon (CAJ) and Nikon (NINOY). Unfortunately, due to the thin body design of smartphones, using dual lenses/image sensors is the only way phone manufacturers can hope to deliver better pictures.

Even the $399 Huawei Honor 8 Android phone already has a dual-camera. Xiaomi has also released a sub-$300 dual-camera phone, the Redmi Pro. The Xiaomi Redmi Pro 3 takes very sharp photos from its rear dual 13MP sensor and 5MP depth sensor cameras. My point is that the iPhone 7 Plus and the smaller iPhone 7 both deserve a dual-camera system.

It is unfair to iPhone loyalists to pay $650 for an iPhone 7 which has inferior camera quality than a sub-$300 Android phone like the Xiaomi Redmi Pro 3. I predict that the iPhone 7 Plus’ dual-camera system will use Sony’s (SNE) image sensors and Leica or Carl Zeiss lenses.

(Source: I.R.F.)

Sony’s Exmor sensors are found inside the best camera phones today. The iPhone 6s Plus also uses a Sony CMOS sensor. We can assume that Apple will either use the Sony IMX 260 used inside the Samsung Galaxy S7 or the IMX 286 used by the Huawei P9. The IMX 260 and IMX 286 sensors seem to offer the best image equality. If not, Apple will use Samsung’s Isocell or Britecell image sensors.

Apple Should Start Building Add-on Lenses For iPhones

The inadequate camera performance of past iPhone models has given rise to a new industry of add-on camera and add-on lenses from third-party companies. As a long on AAPL, I think it is time for the company to start making its own brand of add-on lenses or camera accessories for the iPhone.

Optics manufacturer Schneider is selling $249 iPro add-on lens accessory for the iPhone. There’s also a $499 add-on camera for the iPhone from DxO. Moment also sells $99.99 lenses for the iPhone. Apple is missing a lot of derivative revenue from its iPhone customers if it remains absent in the growing industry for iPhone camera accessories.

There are iPhone owners who obviously wants to get better pictures from their phone. If Apple can get away selling a $99 Pencil for the iPad, I don’t see why it should not try selling a $99 add-on camera/lens for its iPhone product. I predict that Apple could generate $300 million to $500 million in new annual revenue from selling camera accessories to iPhone/iPad owners.

Conclusion

Anything that will improve the commercial appeal of the iPhone is good for Apple. We all know that Apple gets 2/3 of its revenue from iPhone sales. The stock also performs according to quarterly iPhone sales numbers. Releasing a dual-camera iPhone 7 that can match/beat the image quality of the Galaxy S7 or the Huawei P9 should be a massive compelling point for iPhone 6 and iPhone 6s owners to upgrade their handsets.

I reiterate my Buy Rating for AAPL. This recommendation is also reinforced by the positive algorithmic forecasts from I Know First.

Past I Know First Forecast Successes with AAPL

I Know First has been bullish on AAPL in the past, as shown below. In past forecasts, such as the one dated on May 27th, the I Know First algorithm correctly predicted a price increase for Apple stocks in a 3-month time period. The return on AAPL during the course of 3 months had been 7.08%, providing investors a premium over the SP500’s average return of 3.78%, during the same period. AAPL had a signal strength of 74.83, and a predictability indicator of 0.27. This forecast was a part of the Hedge Funds Stocks package, and the algorithm had predicted 9 out 10 stocks correctly, with an average return of 20.28%.

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence.

This bullish forecast for AAPL was sent to current I Know First subscribers on May 27, 2016.