Where Will Apple Go Next?

With shares of Apple (NASDAQ:AAPL) trading around $518, 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.

Relations between Apple and its court-appointed antitrust monitor Michael Bromwich seem to be improving since the company was denied a request to halt Bromwich’s work in February. According to a report from Bromwich seen by Reuters, Apple has finally made a “promising start” to improving its antitrust policies, though Bromwich still noted that he hasn’t had the opportunity to speak to many of the company’s top executives. Judge Denise Cote found Apple guilty of engaging in an elaborate scheme with book publishers to fix the price of e-books to the disadvantage of Amazon (NASDAQ:AMZN) and its Kindle e-readers. The publishers — including Hachette, HarperCollins, Simon & Schuster, Macmillan, and Penguin — elected to settle outside of court, and Amazon recently issued a refund to those affected by the artificial pricing inflation.

Apple vigorously defended its actions, but was still found guilty of breaking antitrust law. Cote appointed an antitrust monitor against the company’s wishes since she believed that Apple was incapable of monitoring its own anticompetitive behavior. Apple initially responded by dragging its feet on everything Bromwich requested, leading the monitor to file a report at the end of last year saying that Apple repeatedly blocked interviews between him and some of the company’s senior executives and refused to provide him with requested documents. Apple has been throwing a tantrum over the monitor since he was instated in October of last year and yet another request to have Bromwich’s investigation put on hold was denied by the U.S. Justice Department in February.

T = Technicals on the Stock Chart are Mixed

Apple stock has struggled to make significant progress over the last several quarters. However, the stock is currently pulling back and may need time to consolidate. 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 signal 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

26.80%

33%

30%

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

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a 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 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 = Average Relative Performance Versus Peers and Sector

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

Apple

Google

Microsoft

BlackBerry

Sector

Year-to-Date Return

-5.90%

-2.23%

12.08%

-33.10%

-6.28%

Apple has been an average performer, year-to-date.

Conclusion

Apple strives to provide innovative products and services that consumers and companies love to own. The company has finally made a “promising start” to improving its antitrust policies. The stock hasn’t made significant progress in the last several quarters and is currently pulling back. 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 an average year-to-date performer. WAIT AND SEE what Apple does next.

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