Will Apple Make All-Time Highs This Year?

With shares of Apple (NASDAQ:AAPL) trading around $95, 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.

A recently published Apple patent spotted by Apple Insider shows that the Cupertino-based company is continuing to explore the use of an incredibly strong alloy known as Liquidmetal. In a patent titled, “Counter-gravity casting of hollow shapes,” Apple describes a new method for casting a “bulk metallic glasses” material — also known as Liquidmetal — into hollow parts by using a counter-gravity molding technique. Although this proprietary material is owned by Liquidmetal Technologies (LQMT.PK), Apple has an agreement with the company that gives it the right to manufacture consumer electronics products made from Liquidmetal through a wholly-owned subsidiary of Liquidmetal Technologies called Crucible Intellectual Property.

In a filing made with the Securities and Exchange Commission in May, Apple extended its licensing agreement with Liquidmetal Technologies until February 5, 2015. Despite holding the exclusive rights to use this material for consumer electronics products since 2010, Apple has so far only used Liquidmetal to make a SIM card eject tool for the iPhone. Apple’s limited use of Liquidmetal may be related to the difficulties associated with mass producing this material. However, the recent publication of a Liquidmetal-related patent by Apple has reignited speculation that the long-rumored iWatch may be made from this material. As noted on the Liquidmetal Technologies website, this material “uniquely combines the strength of forging with intricate molding capabilities” and has “twice the strength of titanium.”

The unique properties of this material have led to its widespread use in many different markets, including “medical, aerospace, military, commercial, sporting goods, & energy applications.” However, one of the first industries to embrace the use of Liquidmetal was watchmakers. As noted on ABlogtoWatch, The Swatch Group’s (SWGAY.PK) Omega luxury watch brand has been using Liquidmetal for some of its devices since 2009. As seen in the Omega video above, Liquidmetal’s unique qualities make it an ideal material for watchmaking. The same qualities of durability and malleability that make Liquidmetal an ideal material for traditional timepieces also make it the ideal material for Apple’s rumored wrist-worn wearable tech device. Last month, an insider source cited by 9to5Mac reported that Apple’s iWatch will be marketed primarily as a fashion accessory. More recently, it was reported by Reuters that Apple had poached a prominent sales executive from Swiss luxury watch brand TAG Heuer. Both reports suggest that Apple’s iWatch will be competing against luxury watchmakers, rather than other wearable tech device makers such as Samsung (SSNLF.PK).

T = Technicals on the Stock Chart are Strong

Apples tock has been moving higher over the last couple of months. The stock is currently trading near highs for the year and looks set to continue this path. 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

26.87%

96%

94%

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 Ford Motor’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

20.73%

2.17%

16.64%

1.95%

11.37%

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 company is continuing to explore the use of an incredibly strong alloy known as Liquidmetal. 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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