Will the iWatch Send Apple Higher?

With shares of Apple (NASDAQ:AAPL) trading around $409, 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, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. Apple also delivers digital content and applications through the iTunes Store, App Store, iBook Store, and Mac App Store.

Apple has been one of the most innovative companies of our time. Its products exist in many homes and companies around the world and continue to see significant demand domestically and internationally. With rumored Apple products, such as the iWatch and new iPhone devices, flooding the headlines as well as announced products such as iOS 7, look for Apple to continue to deliver. Check out the five products sitting in Apple’s labs right now.

T = Technicals on the Stock Chart are Mixed

Apple stock witnessed an explosive move higher within the last decade. The stock has now pulled back from all-time highs but seems to be forming a base around these prices. 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 below its key averages which signal neutral to bearish 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

29.77%

90%

88%

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

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-17.97%

-0.43%

23.03%

19.64%

Revenue Growth (Y-O-Y)

11.27%

17.65%

27.22%

22.58%

Earnings Reaction

-0.16%

-12.35%

-0.90%

-4.31%

Apple has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have expected more from 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), BlackBerry (NASDAQ:BBRY), Microsoft (NASDAQ:MSFT), and sector?

Apple

Google

BlackBerry

Microsoft

Sector

Year-to-Date Return

-23.11%

25.99%

-13.06%

29.82%

7.24%

Apple has been a weak relative performer, year-to-date.

Conclusion

Apple provides technology products and services that continue to exceed expectations. With a number of innovative products being speculated for the company, look for these to possibly fuel a rise in the stock. The stock has been on a powerful move higher over the last several years, however, it has pulled-back and is still forming a base so it may need time before its next move. Over the last four quarters, earnings have been mixed while revenue figures have been on the rise, regardless, investors in the company have expected more. Relative to its peers and sector, Apple has been a weak year-to-date performer. WAIT AND SEE what Apple stock does this coming quarter.

Screen Shot 2013-07-02 at 3.11.54 PM

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.