Is Apple a Hot Stock?

With shares of Apple (NASDAQ:AAPL) trading around $93, is AAPL an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Apple designs, manufactures, and markets mobile communication and media devices, personal computers, portable digital music players, and a variety of related software, services, peripherals, networking solutions, third-party digital content, and applications. The company’s products and services feature the iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and further accessory, service, and support offerings. Apple also delivers digital content and applications through its iTunes, App, iBook, and Mac App stores.

It’s no secret that China is figuring into Apple’s future plans. The iPhone maker reported an all time quarterly revenue record of almost $10 billion in Greater China during the March quarter, and CEO Tim Cook noted that it was the company’s fastest growing region. “We literally did well in every single area in China,” said Cook, according to a second-quarter of fiscal 2014 earnings call transcript provided by Seeking Alpha. “So, we’re looking at this data and deciding to continue investing in a big way. We plan to triple the number of Apple Retail Stores over the next two years,” he added. Now it appears that Cook is implementing the first phase of his retail expansion plans for Greater China.

According to job postings first spotted by Bloomberg on Apple’s China website, the company is seeking new Apple Store managers for six Chinese cities. As noted by Bloomberg, none of the cities listed currently have Apple Stores. The cities include Tianjin, Chongqing, Wuxi, Zhengzhou, Shenyang, and Hangzhou. However, the job postings did not reveal when the new store locations will open. Apple currently has thirteen Apple Store locations in the Greater China region. Ten stores are located in major urban centers on the Chinese mainland, including Beijing, Chengdu, Shanghai, and Shenzhen. The other three are located in the semiautonomous city-state of Hong Kong. Last year, for the first time, China was included in Apple’s initial iPhone 5S and iPhone 5C launch event after years of getting the latest iPhone models weeks after most other markets.

T = Technicals on the Stock Chart Are Strong

Apple stock has been moving higher over the last couple of months. The stock is currently trading near highs for the year and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Apple is trading above its rising key averages which signal neutral to bullish price action in the near-term.

AAPL

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Apple options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Apple options

24.32%

93%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Apple’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Apple look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

15.16%

5%

-4.73%

-19.85%

Revenue Growth (Y-O-Y)

4.7%

5.65%

4.19%

0.85%

Earnings Reaction

6.19%

-7.99%

-2.49%

5.13%

Apple has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Apple’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Apple stock done relative to its peers, Google (NASDAQ:GOOG)(NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), BlackBerry (NASDAQ:BBRY), and sector?

Apple

Google

Microsoft

BlackBerry

Sector

Year-to-Date Return

18.28%

3.22%

16.64%

-5.01%

9.28%

Apple has been a relative performance leader, year-to-date.

Conclusion

Apple strives to provide innovative products and services that consumers and companies love to own. The stock has been moving higher over the last couple of months and is currently trading near highs for the year. Over the last four quarters, earnings and revenues have been on the rise, which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Apple has been a year-to-date performance leader. Look for Apple to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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