Is Apple a Buy?

With shares of Apple (NASDAQ:AAPL) trading around $529, 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.

Apple is suing China’s State Intellectual Property Office — the government agency responsible for patent rights protection — over rights to a software related to Siri, reports the country’s official Xinhua news agency via the Economic Times. The Cupertino, California-based company has also named Shanghai Zhizhen Network Technology, a China-based tech company, in its lawsuit. Per Xinhua via the Economic Times, Apple’s case against the State Intellectual Property Office and Shanghai Zhizhen Network Technology will be heard in the Beijing No. 1 Intermediate People’s Court on Thursday. According to Xinhua, Shanghai Zhizhen Network Technology filed its own lawsuit against Apple in 2012, alleging that the voice-recognition software used by Siri infringed on its patented “Xiao i Robot” software. Apple previously asked the State Intellectual Property Office to declare the company’s patent invalid, but its request was refused. According to Xinhua, the case against Apple was heard by a Shanghai court in July. The court announced that it would continue the case at a future date without specifying a time. Apple’s recently filed lawsuit appears to be the iPhone maker’s attempt to end Shanghai Zhizhen Network Technology’s ongoing litigation.

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 pulling back 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 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

21.71%

13%

10%

What does this mean? This means that investors or traders are buying a minimal 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 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 minimal 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), BlackBerry (NASDAQ:BBRY), and sector?

Apple

Google

Microsoft

BlackBerry

Sector

Year-to-Date Return

-6.66%

8.72%

1.40%

33.53%

1.86%

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 company is suing China’s State Intellectual Property Office. The stock hasn’t made significant progress in the last several years and is currently pulling back. 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. WAIT AND SEE what Apple does this quarter.

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