Bullish On Equities? Long Apple At New High Instead
August 15, 2012 3:00 pm
On July 16th we posted a bullish technical setup that was developing on Apple (AAPL). We were rather bearish on equities at the time and didn’t take the trade, however with the recent market rally it may be time to take another look at potentially taking a long on Apple. In doing so, let’s take a look at some of the underlying fundamentals and events that are driving the stock. Before that however, I should point out a position on Apple should be incorporate alongside an outlook on the general market as it will trade in step with the direction of the market. I am suggesting that rather than taking a position in QQQ or SPY, a long position in Apple may be optimal.
As of Fridays close Apple was trading around $620 with a P/E of 14.6 and a dividend yield of 1.705%. I’ll quickly point out to the novice investors that Apple isn’t in fact expensive as many believe it to be. A P/E under 15 is quite low for a company that’s maintained considerable growth, especially in comparison to other high flying tech stocks such as Amazon (AMZN) and LinkedIn (LNKD), with P/Es of 289 and 954 respectively.
Contributor “Post At Eventide” put out a recent article that had a great graph illustrating the cash per share compared to the P/E. If we were to overlay that will the stock price we would see that both cash per share and the market price has continued to increase while there has been moderate P/E compression. With cash increasing, P/E decreasing and already low, and a dividend yield that’s outperforming the 10year US bond, a long in Apple truly looks good fundamentally.
Rumors have it that the IPhone 5 release is in the very near future, with leading tech site Mashable citing a potential date of Septembers 12th. It goes without saying that the iPhone has been an incredible success to date and continues to be a significant source of profits for the company. That being said, there has been considerable discussion about the new Samsung Galaxy being the “Apple iPhone Killer”. And, anyone who happened to tune into the Olympics over the last two weeks likely noticed the large marketing campaign Samsung launched in order to build up its brand for the Galaxy SIII.
There are quite a few problems with the “iPhone Killer” thesis however:
Apple products are already highly integrated into many households, with the average American household owning at least one Apple product. With the entire suite of products working seamlessly together, it is unlikely that a large majority will be quick to shift to Samsung
While the Samsung SIII offers a larger screen that may appeal to some users, it won’t necessarily appeal to everyone. Further, beyond the difference in screen size, the remaining phone specs and prices are comparable.
In the rumor mill has also been substantial chatter to the possibility of the iPad mini. As was the case with the initial iPad, there has been mixed reactions about the viability of this product. However Apple to date has not provided any reason to doubt their new product implementation, and the introduction of the iPad mini could be another significant source of profits for the company.
With potentially two new products in the pipeline, and the stock trading down at a 2 year low P/E, it may be time to look for a long term entry position into Apple. I’ll note that as of Friday’s close the recommended trade we put out was already up 6% from our entry around $580.
From here I think a break above $645 will trigger more buying by long term investors sparking another rally that could last 2-3 weeks before having a small pullback in price.
If we take a look at an updated chart, we tend to see lighter volume levels prior to breaking out into a new rally and that is a signature sign that investors are averaging up (buying new highs) as there is technically no resistance/sellers at higher prices. Instead there are only levels which investors will see as profit taking levels which temporarily pulls price down or stops it from moving any higher.
On July 16th we posted a bullish technical setup that was developing on Apple (AAPL). We were rather bearish on equities at the time and didn’t take the trade, however with the recent market rally it may be time to take another look at potentially taking a long on Apple. In doing so, let’s take a look at some of the underlying fundamentals and events that are driving the stock. Before that however, I should point out a position on Apple should be incorporate alongside an outlook on the general market as it will trade in step with the direction of the market. I am suggesting that rather than taking a position in QQQ or SPY, a long position in Apple may be optimal.
As of Fridays close Apple was trading around $620 with a P/E of 14.6 and a dividend yield of 1.705%. I’ll quickly point out to the novice investors that Apple isn’t in fact expensive as many believe it to be. A P/E under 15 is quite low for a company that’s maintained considerable growth, especially in comparison to other high flying tech stocks such as Amazon (AMZN) and LinkedIn (LNKD), with P/Es of 289 and 954 respectively.
Contributor “Post At Eventide” put out a recent article that had a great graph illustrating the cash per share compared to the P/E. If we were to overlay that will the stock price we would see that both cash per share and the market price has continued to increase while there has been moderate P/E compression. With cash increasing, P/E decreasing and already low, and a dividend yield that’s outperforming the 10year US bond, a long in Apple truly looks good fundamentally.
Rumors have it that the IPhone 5 release is in the very near future, with leading tech site Mashable citing a potential date of Septembers 12th. It goes without saying that the iPhone has been an incredible success to date and continues to be a significant source of profits for the company. That being said, there has been considerable discussion about the new Samsung Galaxy being the “Apple iPhone Killer”. And, anyone who happened to tune into the Olympics over the last two weeks likely noticed the large marketing campaign Samsung launched in order to build up its brand for the Galaxy SIII.
There are quite a few problems with the “iPhone Killer” thesis however:
In the rumor mill has also been substantial chatter to the possibility of the iPad mini. As was the case with the initial iPad, there has been mixed reactions about the viability of this product. However Apple to date has not provided any reason to doubt their new product implementation, and the introduction of the iPad mini could be another significant source of profits for the company.
With potentially two new products in the pipeline, and the stock trading down at a 2 year low P/E, it may be time to look for a long term entry position into Apple. I’ll note that as of Friday’s close the recommended trade we put out was already up 6% from our entry around $580.
From here I think a break above $645 will trigger more buying by long term investors sparking another rally that could last 2-3 weeks before having a small pullback in price.
If we take a look at an updated chart, we tend to see lighter volume levels prior to breaking out into a new rally and that is a signature sign that investors are averaging up (buying new highs) as there is technically no resistance/sellers at higher prices. Instead there are only levels which investors will see as profit taking levels which temporarily pulls price down or stops it from moving any higher.
AAPL – Apple Stock Weekly Trading Chart
(click to enlarge)
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