Apple (AAPL) Is Still The King Of Equities

| April 28, 2014 | 0 Comments

Of all the surprises from this earnings season, none was as impressive as Apple (AAPL).  The company flat out blew away all the analysts’ estimates, and then some.

Here are some of the details…

Apple’s first quarter profits came in at $11.62 per share on revenues of $45.6 billion.  Analysts had predicted earnings per share of $10.18 on revenues of $43.5 billion.  Can you say ‘underestimated’?

What’s more, these same analysts projected iPhone sales of 37.7 million.  Actual sales were a whopping 43.7 million units.  Clearly, the iPhone continues to be a dominant brand.

Oh, by the way, Apple also ratcheted up it buyback plan another $90 billion, hiked its dividend by 8%, and approved a 7-for-1 stock split!

The stock jumped about 8% on the news, with shares up near their 52-week high.  So, given the big move, is AAPL still a buy?

In a word… yes.

Here are some reasons why AAPL may have plenty of upside left…

First off, despite the jump higher, the stock is still substantially undervalued.  The shares are trading at roughly 14x earnings and 12x projected earnings.  The S&P 500, per contrast, is trading at over 18x earnings with an historical average of 15.5x.

Moreover, AAPL has several potential growth catalysts this year.  The iPhone 6 is likely to come out later in the year and is already generating significant buzz.  Plus, a new product is also likely due out – such as the iWatch or something similar.

Finally, with AAPL’s 7-for-1 split, the stock is much more likely to be added to the Dow Jones Industrial Average.

Due to the way the DJIA is calculated, AAPL couldn’t be added to the index unless it split.  It may not seem like a big deal, but if the stock is added to the Dow, it will also be added to several index tracking funds – and thus will see a new flood of stock purchases.

Bottom line, there are plenty of good reasons why Apple is a buy at these levels, despite the big jump in the shares after earnings.  Also, given the fundamentals, the share price has limited downside.

For you option traders, it could be a good opportunity to sell puts.  Limited downside and solid upside potential is always a good recipe for a put selling strategy.

Yours in Profit,

Gordon Lewis

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Category: Options Trading, Stocks

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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