Apple is still an iPhone story, for now

SAN FRANCISCO (MarketWatch) - What a difference a year makes.

Last year, when Apple Inc. hosted its annual Worldwide Developer Conference, its shares were trading around $439. One year later, as investors gear up again for another highly anticipated keynote, its shares are up 42%, surging again beyond the $600 level.

Some excitement has been building up in the recent weeks, partly in anticipation of next week's developer conference, where Apple often releases software upgrades or gives previews of new products. Last week, the stock hit a 52-week high In addition, fueling the stock were the persistent rumors that Apple would buy the well-known headphone maker, Beats Electronics and its music service Beats Music, which it confirmed on Wednesday, for $3 billion.

Apple did not respond to a request for comment. The company does not comment on unannounced products.

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Apple's announcement in April that it will split its stock, increase its dividend payment and boost the number of shares in its stock buyback plan has also driven investor enthusiasm. Its stock will begin trading after its seven-for-one stock split on June 9, a split that will surely make its shares more affordable to retail investors, and could further drive interest in its shares. As Bernstein Research analyst Toni Sacconaghi wrote in a note Tuesday, the stock split 'could psychologically make it easier for the stock to climb and its affordability could also broaden retail ownership.'

Even if Apple launches products in a major new product category, as Chief Executive Tim Cook has declared it will, the stock will likely remain an iPhone story, for the near-term.

One factor is that two of the potential product areas - the much rumored iWatch and software for a connected home - are nascent markets, and it is not clear whether or not an Apple foray would upend those emerging areas, as it did in digital music, smartphones and tablets. And its much-speculated upon entry into television with an actual TV may never happen, and it may not expand beyond its AppleTV set top box.

Over the weekend, the Financial Times reported that Apple will unveil new software that will put the iPhone at the center of control for a 'smart home' with apps on your phone that can control the heating, lighting, security systems, garage doors, music and kitchen appliances in your house. This futuristic view of the all-connected home is not going to happen overnight, however.

'The tech pundits will have you think we will have the all-dancing, all-magic house tomorrow,' said Frank Gillett, an analyst at Forrester Research. 'That's not gonna happen. What's happening is we are doing this one device at a time.'

In addition, for this vision to become widespread, Apple will need to forge partnerships with a vast number of other companies that develop home appliances, an attribute that Roger Kay, president of Endpoint Technologies noted the famously secret and insular company it is not known for .

'Things have to be standardized,' Kay said in an interview. 'Apple might say 'We do Bluetooth, we do WiFi, we will have our own apps and our own ecosystem.' And you can get the Whirlpool app for your iPhone that talks to your dryer and your frig...Then you own stuff from multiple vendors and it works well with Apple stuff but it doesn't work well with others. This market may be diffused enough that Apple cannot be dominant.'

Some on Wall Street are expecting that the iWatch will be Apple's new product category. Sacconaghi wrote that the 'iWatch is the most likely new product category with availability in [calendar] CQ4.' While an iWatch 'may not have a significant impact on EPS, a strong product offering and smooth rollout could generate incremental enthusiasm about Apple's ability to innovate under CEO Tim Cook.'

Still, many are hoping that the most tangible news at WWDC is a possible preview of a larger screen iPhone, dubbed by many as the iPhone 6. Apple investors have been hoping for many months that the company will catch up to rival Samsung and offer an iPhone with a 5-inch screen. Sacconaghi wrote in his note, in which he raised his price target to $700, that a larger screen iPhone 6 was one of five reasons he continues to be bullish on the stock.

It is not a given that Apple will launch a new iPhone at WWDC. Last year, Apple did not introduce the iPhone 5C at WWDC, which was launched in September just before it went on sale. However, if the company is going to offer a larger screen version, it might want to give software developers time to fine tune their apps for the larger screen format so that the most popular apps will run whenever the phone is actually launched. Apple typically launches a slew of new products before either the back-to-school shopping season or the holidays.

Whatever Apple does on Monday during its develope conference, investors will be able to watch themselves. In a rare move, the company is going to live stream the keynote Monday morning. It's not an overstatement to say that many investors will now be watching so they can judge for themselves.

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