Can Apple Continue to Outperform?

With shares of Apple (NASDAQ:AAPL) trading around $538, 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.

The latest rumor on Apple’s iWatch comes from the China Times and says that Taiwanese touchscreen maker TPK will supply a flexible touchscreen panel for the wearable device. Using flexible screen technology will allow Apple to make a device that can contour to different wrist sizes without being bulky. Digitimes first picked up on the Chinese report, which claims that TPK is now a part of the iWatch supply chain, although the company won’t begin ramping up the production of the screens until later in the year. The report said that the iWatch will have a flexible AMOLED display with 3-D protective glass over it. The touchscreen will also use silver nanowire technology that TPK developed alongside Japanese firm Nissha Printing.

9to5 Mac pointed out that China Times doesn’t have a very good track record in terms of Apple news and called the report a “sketchy rumor.” The website said that using a curved touch-screen from TPK, which has been an Apple supplier in the past, makes perfect sense for the iWatch project, but that this report in particular shouldn’t be viewed as anything more than speculation. Rumors about the iWatch have been kicking into high gear recently, as analysts are expecting Apple’s first venture into wearable tech to debut sometime in 2014.

T = Technicals on the Stock Chart Are Mixed

Apple stock has struggled to make significant progress over the last several quarters. The stock is currently trading sideways and may need time to stabilize. 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 between its rising key averages, which signals neutral 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

21.36%

6%

4%

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

Put IV Skew

Call IV Skew

March Options

Average

Average

April Options

Average

Average

As of toWednesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

5%

-4.73%

-19.85%

-17.97%

Revenue Growth (Y-O-Y)

5.65%

4.19%

0.86%

11.27%

Earnings Reaction

-7.99%

-2.49%

5.13%

-0.16%

Apple has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Apple’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

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

Apple

Google

Microsoft

BlackBerry

Sector

Year-to-Date Return

-4.3%

7.54%

0.59%

23.12%

7.73%

Apple has been a poor relative performer, year-to-date.

Conclusion

Apple strives to provide innovative products and services that consumers and companies love to own. The latest rumor on Apple’s iWatch comes from the China Times and says that Taiwanese touchscreen maker TPK will supply a flexible touchscreen panel for the wearable device. The stock hasn’t made significant progress in the last several years and is currently trading sideways. Over the last four quarters, earnings and revenues have been on the rise. However, investors have had conflicting feelings about recent earnings announcements. Relative to its peers and sector, Apple has been a poor year-to-date performer. Look for Apple to OUTPERFORM.

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