Will Recent News Launch Apple Stock Higher?

With shares of Apple (NASDAQ:AAPL) trading around $503, 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’s iPad share in China took a nosedive in the second quarter, according to new data from IDC. The iPad accounted for 28 percent of shipments to China in the quarter, down from 49 percent a year ago. Cheaper tablets built by Samsung and others running on Google’s (NASDAQ:GOOG) Android operating system have eaten away at Apple’s market share in China. A similar phenomenon has already been seen with smartphones, as Android-based phones have cut down on the iPhone’s market share.

Apple has grabbed the attention of activist investor Carl Icahn, who revealed yesterday via Twitter that he has a $1.5 billion stake in the company. Icahn said in an interview cited by the Wall Street Journal that he believes Apple’s stock is highly undervalued and the company should begin a share buyback as soon as possible. Icahn believes the stock is worth $625 a share.

T = Technicals on the Stock Chart are Strong

Apple stock has been exploding over the last few years. The stock is now breaking above a base and looks poised to move 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 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

29.86%

66%

64%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 significant 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 mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been mixed 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

-5.40%

22.79%

19.77%

-13.90%

11.94%

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 seen a flurry of news lately as activist investor Carl Icahn has revealed that he has a big stake in the company and the iPad is seeing stiff competition in China. The stock has moving higher over the last few years and is currently breaking above a solid base. Over the last four quarters, earnings have been mixed while revenues have been rising which has produced mixed feelings about investors in the company. Relative to its peers and sector, Apple has been a weak year-to-date performer. Look for Apple to OUTPERFORM.

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