Could Apple Give Your Portfolio a Jolt?

With shares of Apple (NASDAQ:AAPL) trading around $96, 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.

With Apple’s next-generation iPhone expected to be released in two larger screen sizes of 4.7 inches and 5.5 inches, the debut of the so-called “iPhone 6” is gearing up to be one of the biggest and most highly anticipated iPhone launches in the company’s history. However, a new research note issued by a well-connected analyst is throwing some doubt on the widely predicted September launch date. Less than a week after pushing his estimated date for the mass production of Apple’s iWatch into November, KGI Securities analyst Ming-Chi Kuo is now also revising his expected launch date for the 5.5-inch version of the iPhone 6. According to the analyst, yield issues with some the larger iPhone’s key components could push the launch of the 5.5-inch iPhone 6 past October and even into next year.

“We think the 5.5-inch model will also have issues with the yield rate of in-cell touch panel and color unevenness of metal casing. Indeed, these problems will likely be even more complicated with a larger size,” wrote Kuo in a note to investors obtained by 9to5Mac. “In addition, from a technical perspective, we don’t expect sapphire cover, used for the first time on the 5.5-inch model, will easily pass the drop test near term. We are conservative about 5.5-inch iPhone launching by end-2014. Even if the product is launched in 2014, it is likely to take place after mid-4Q14, which is later than the September-October of consensus, with shipments being lower than consensus of 15- 20mn units.” According to Kuo, similar problems are causing “production bottlenecks” with the 4.7-inch iPhone 6 as well, reports MacRumors.

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

27.83%

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

August Options

Flat

Average

September 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

18.80%

3.46%

12.50%

54.70%

12.58%

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 continue to OUTPERFORM.

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

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