Does Apple Have the Potential for New Highs?

With shares of Apple (NASDAQ:AAPL) trading around $581, 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 has hired Ari Partinen, one of the Nokia’s (NYSE:NOK) leading smartphone camera engineers, according to several tweets first spotted by Engadget. Partinen helped develop Nokia’s vaunted PureView camera technology. “Today will be my last day working for the amazing #Lumia family,” said Partinen via Twitter. “In June I will start a new chapter in Cupertino, California. Much love!” According to his LinkedIn profile, Partinen’s current job title is “Lumia Photography Lead.” Nokia’s Lumia brand covers the smartphones and tablets that were created through a partnership with Microsoft (NASDAQ:MSFT).

T = Technicals on the Stock Chart Are Mixed

Apple stock has struggled to make significant progress over the last couple of years. The stock is currently pulling back and may need time to consolidate before heading higher. 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 signals neutral to bullish price action in the near-term.

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

19.89%

6%

4%

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

June Options

Flat

Average

July Options

Flat

Average

As of Friday, there is 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 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%

0.86%

Earnings Reaction

8.19%

-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 Apple’s recent earnings announcements.

P = Excellent 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

5.38%

-7.46%

10.19%

-32.5%

-5.09%

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 has hired Ari Partinen, one of the Nokia’s leading smartphone camera engineers. The stock hasn’t made significant progress over the last couple of years 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 a year-to-date performance leader. Look for Apple to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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