Options Trade – Apple (AAPL) Wednesday, February 27, 2013

Shareholder Meeting Should Boost AAPL!

**OPTION TRADE: Buy the AAPL Apr 2013 500.000 call (AAPL130420C00500000) at or under $4.50, good for the day. Place a protective stop limit at $2.00 and a pre-determined sell at $9.00.

by Ian Harvey

February 27, 2013

Introduction

Value stocks should profit from the calming down of the market – and Apple (NASDAQ: AAPL) certainly fits this category.

AAPL Value

On the face of it, Apple seems astonishingly cheap. If we compare the net value out of AAPL and that of Microsoft (NASDAQ: MSFT), AAPL is selling for approximately the same multiple of actual, reported 12-month earnings as MSFT.

If past growth were the only consideration, you would have to believe that AAPL deserves to trade at a premium to MSFT.

On the other hand, it’s good to remember that Apple is primarily (though by no means exclusively) a hardware company — and it’s exceedingly difficult for computer-hardware companies to maintain their competitive edge over the long run. For instance, Dell (NASDAQ: DELL) was a champion not too long ago.

Already, we’re hearing grumbles that Apple product — notably the iPhone 5 — are “too expensive.” (The telecom carriers hate the princely subsidies they have to pay to get customers to buy iPhones.) If competition and consumer resistance force AAPL to cut prices and accept lower profit margins, the company could generate much slower earnings growth in years to come than the consensus now assumes.

Evidence is finally surfacing to suggest that the momentum traders have largely exited the stock. An enterprise with $137 billion of cash on its books isn’t about to go up in smoke!

Price and Dividends Are Aligning

In recent months, investor perceptions of the company have undergone a tectonic shift. People are starting to realize Apple is now too big an enterprise to keep growing at the heady rates of yesteryear. As momentum-driven “growth” investor’s exit the stock, the share price is coming down to levels that have begun to make sense for long-term value investors.

While David Einhorn’s crusade to get AAPL to issue a special class of preferred stock seems to be running out of steam, CEO Tim Cook may soon persuade the company’s board to do something much more dramatic and effective. Possible steps at today’s shareholder meeting include an enormous dividend increase, a stock split or a buyback — or perhaps all three at once. AAPL could raise its dividend 50%, buy back $20 billion of stock annually — and still not affect its cash pile!

If there is an announcement like that, an end could be in sight of the exodus.

Technical Outlook

Already, the shares yield 2.3%. At less than 10X estimated year-ahead profits, and zero debt, this premier technology franchise simply looks too cheap. From current levels, a projection of total return— dividends plus capital appreciation — of about 20% to 30% in the next 12 months is likely.

Therefore, based on the facts above the following options trade is recommended…..


**OPTION TRADE: Buy the AAPL Apr 2013 500.000 call (AAPL130420C00500000) at or under $4.50, good for the day. Place a protective stop limit at $2.00 and a pre-determined sell at $9.00.



”Success is simple. Do what's right, the right way, at the right time.”


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Options traders are not successful because they win.
Options traders win because they are successful.



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