Can Apple Perform Well the Rest of the Year?

With shares of Apple (NASDAQ:AAPL) trading around $556, 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.

Carl Icahn has upped his position in Apple to more than $3 billion, the billionaire investor said Wednesday. In a series of Twitter posts, Mr. Icahn said he’s been buying more Apple shares ever since he initially announced a large position in the iPhone and iPad maker on August 13. He said he purchased more than $500 million over the past two weeks, which pushed his stake to above $3 billion. Mr. Icahn confirmed in an interview the statements he made on Twitter.

Mr. Icahn, who has been imploring Apple to implement a bigger buyback, said the company is doing a “great disservice to shareholders” by not returning more cash. The company has about $150 billion in cash and cash equivalents on its balance sheet. Apple shares recently rose 1.3 percent to $566.34. The stock is up 12 percent over the past 12 months, although it remains well off its record high above $700 in September 2012. Mr. Icahn said he initially bought the stock when it was priced at $468. Since then, the stock is up 21 percent.

T = Technicals on the Stock Chart Are Strong

Apple stock has struggled to make significant progress in the last several quarters. The stock is currently trading near highs for the year and looks poised to continue. 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

31.46%

73%

70%

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

February Options

Flat

Average

March 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 very 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-4.73%

-19.85%

-17.97%

-0.43%

Revenue Growth (Y-O-Y)

4.19%

0.86%

11.27%

17.65%

Earnings Reaction

-2.49%

5.13%

-0.16%

-12.35%

Apple has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with Apple’s recent earnings announcements.

P = Average 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

-0.82%

3.75%

-3.66%

44.22%

1.48%

Apple has been an average relative performer, year-to-date.

Conclusion

Apple strives to provide innovative products and services that consumers and companies love to own. Carl Icahn has upped his position in Apple to more than $3 billion. The stock hasn’t made significant progress in the last several years — however, it’s currently trading near highs for the year. Over the last four quarters, earnings have been decreasing while revenues have been rising, which has pleased investors in the company. Relative to its peers and sector, Apple has been an average year-to-date performer. Look for Apple to OUTPERFORM.

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