Can New Products Send Apple Stock Higher?

With shares of Apple (NASDAQ:AAPL) trading around $470, 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 include 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 released its new lineup of iPhones on Tuesday, including a cheaper, more basic version of the iPhone called the iPhone 5C to target emerging markets. Apple said the new phones would be available in China on September 20. Apple has received a license from Chinese regulators for its iPhones to operate on China Mobile’s (NYSE:CHL) 3G and 4G networks, according to the Wall Street Journal. China Mobile is China’s largest carrier, with 700 million subscribers, representing a huge untapped market for Apple.

T = Technicals on the Stock Chart Are Strong

Apple stock has been fairly volatile over the last several months. The stock has established a solid base this year that it just broke above. 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 slightly 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

28.71%

26%

25%

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

October Options

Flat

Average

November 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 small 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 Mixed 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-19.85%

-17.97%

-0.43%

23.03%

Revenue Growth (Y-O-Y)

0.86%

11.27%

17.65%

27.22%

Earnings Reaction

5.13%

-0.16%

-12.35%

-0.90%

Apple has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been had mixed feelings with 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

-12.10%

26.45%

23.12%

-10.40%

10.92%

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 has just unveiled its latest iPhone products, the iPhone 5S and iPhone 5C, but may have disappointed investors who expected a larger link with China Mobile. The stock recently formed a solid base and has now broken above that base. Over the last four quarters, earnings have been decreasing while revenues have been rising. Relative to its peers and sector, Apple has been a weak year-to-date performer. WAIT AND SEE if Apple can hold current price levels.

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