If Apple Does a Deal with This Company, I’d Buy the Stock

Apple Does a Deal with This CompanyAs I’ve written in these pages before, Apple Inc. (NASDAQ/AAPL) needs to increase its brand in the Chinese economy in order to really entice investors and jumpstart the stock. (Read “Update: Apple’s Attempts to Enter Emerging Markets a Blunder?”)

The reason is simple: China is the biggest mobile phone market in the world with over one billion users, which is more than three times the size of the United States market.

Apple is rumored to have a major distribution deal in place with China Mobile Limited (NYSE/CHL), the largest cell phone operator in the country with a market cap of $210 billion. The company services about 755 million customers as of the end of September, which is huge. (Source: China Mobile Limited web site, last accessed November 5, 2013.)

In my view, Apple could see its business accelerate if a deal is finally announced and, of course, if Apple can execute in the Chinese economy via much cheaper smartphones than the “iPhone 5C.”

For China Mobile, the addition of Apple could also generate new sales and higher margins, so it’s a win-win situation for both companies. The move towards 4G networks will also help to drive growth.

And with the rise in income levels in the cities and rural areas, we could see a major push to buy higher-end smartphones, such as those made by Apple.

China Mobile is the top mobile play in the Chinese economy. The company is bigger than Verizon Communications Inc. (NYSE/VZ) and AT&T Inc. (NYSE/T). China Mobile also owns Luxembourg-based Millicom International Cellular S.A. (OTC/MICCF), a telecom operator with mobile operations in 13 countries and a potential market of about 270 million people. And as I noted earlier, there are 755 million users with China Mobile. Clearly, Apple is anxious to get in.

On the chart, China Mobile has largely been moving in a tight sideways channel, between $50.00 and $56.00, since mid-2012, and it appears to be stuck. We saw attempted breakouts in December 2012 and more recently in September, as shown by the top two shaded circles in the chart below, but in both cases, the move was not sustainable. There’s current weakness, but investors can look for support around $50.00, which could make a decent entry point, or wait for a dip to the $48.00 level, based on my technical analysis.

China Mobile Limited Chart

Chart courtesy of www.StockCharts.com

China Mobile is rated the top brand in BusinessWeek’s “20 Best China Brands.” Investors can expect the company to retain its dominance in the world’s largest consumer market; and with its adaptation of 4G as a catalyst to drive the company going forward, a deal with this mobile powerhouse could be what Apple needs to propel itself into the lucrative Chinese market.