Options Trade – Apple Inc. (NASDAQ:AAPL) Calls
Sunday, March 08, 2015

**OPTIONS TRADE: Buy the AAPL Jun 2015 140.000 call (AAPL150619C00140000) at or under $3.00, good for the day. Place a protective stop loss at $1.20 and a pre-determined sell at $6.00.

by Ian Harvey

March 08, 2015

Introduction

Apple Inc. (NASDAQ: AAPL), that 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, has been one of the best-performing stocks during the past several years, soaring to become the company with the highest market capitalization in the entire stock market. Despite the blockbuster gains the stock has achieved, however, many believe Apple can still climb further, with some citing a $150 per-share price target as the next stop in Apple's inexorable rise.

On Monday, Apple’s CEO, Tim Cook, will take to the stage in San Francisco to unveil the Apple Watch. With Apple stock trading within striking distance of its all-time high, the March 9 event will probably push the stock to new highs.

After years of speculation, the new product will launch Apple into the wearable technology space. The Apple Watch - expected to cost $350 - will also be the first brand new product line launched under Cook's leadership.

The last new product line was the iPad, launched in 2010. At the time, Apple founder Steve Jobs still took center stage to promote the company's latest product.

The ‘Apple Watch’ will provide convenience because this brand new product will integrate into the Apple ecosystem. The Apple Watch will be yet another big hit despite the critics. Consider Apple's track record of innovation and creating product categories: MP3 players (iPod), smart phones (iPhone) and tablets (iPad). Looking forward one year, expect the Apple Watch will have set the standard for wearable technology.

Last year, wearable tech device sales reached 27 million units, according to Juniper Research. The independent tech research firm expects that number to quadruple in the next three years.

The Apple Watch will be a dominant force in wearable technology. Customers must have an iPhone 5 or 6 to connect to a Watch. The company currently has 400 million existing customers using these devices, creating a sizable market for the Watch.

It seems safe to assume that Apple can achieve a 5% penetration rate this year. That equals 20 million Apple Watches. Some Wall Street analysts are far more optimistic. For example, JP Morgan expects sales to reach 26 million units in 2015 and 55 million units in 2016. Using those estimates, the Apple Watch could generate $23 billion in sales next year, boosting Apple's sales by 10%.

The Apple Watch is the next big product to boost sales and profits at the world's most valuable company. For the current fiscal year - ending September 2015 - analysts expect sales to grow 23%. Meanwhile, EPS growth estimates call for a 33% increase. For a company with $183 billion in sales last year, that growth is astounding.

Even though Apple stock is currently trading near an all-time high the stock is still cheap. Shares closed yesterday at $126.60. That translates into a reasonable P/E multiple of 15, which makes the stock considerably cheap.

Technical Details

Apple has a 52-week low of $73.0471 and a 52-week high of $133.60. The stock has a 50-day moving average of $121.3 and a 200-day moving average of $110.1.

The company has a market cap of $736.3 billion and a P/E ratio of 17.41.

Earnings

Apple last announced its earnings results on Tuesday, January 27th. The company reported $3.06 earnings per share for the quarter, beating the analysts’ consensus estimate of $2.54 by $0.52. The company had revenue of $74.60 billion for the quarter, compared to the consensus estimate of $66.42 billion.

During the same quarter last year, the company posted $14.50 earnings per share. Apple’s revenue was up 29.5% compared to the same quarter last year. On average, analysts predict that Apple will post $8.59 earnings per share for the current fiscal year.

Other Positive Aspects

Apple Inc. is set to replace AT&T Inc. (NYSE:T) in the Dow Jones Industrial Average, the 119-year-old index most commonly used as shorthand for market performance.

This will not be a major mover for Apple but will certainly give the blue-chip Dow Jones a somewhat better reflection of the U.S. economy.

AAPL is the largest company by market capitalization, and it holds a dominant place in an industry which has become singularly important to the U.S. economy. Once Apple split its stock, it was only a matter of time before it was tapped for the Dow Jones Industrial Average. After all, with market cap of about $750 billion, it’s the biggest stock in the market by far.

Other likely insights from the scheduled for the event for March 9, that will be held at the Yerba Buena Center for the Arts Theater in San Francisco, are…..

• Its new plan for its Beats Music service. The Cupertino-based tech giant has also opted to go for the streaming-based music system after it acquired Beats audio for $3 billion last year.

• The company also looks ready to announce updates on Apple TV at the event, which is long overdue having its last upgrade back in March 2013. 4K video might just be on the cards here.

• There’s also the new 12-inch iPad called iPad Pro, which is rumored to be set for shipping. The tablet could feature a 2K display, a stylus, a 64-bit processor, and an ultra-slim design.

• Rumors are that there also a new 12-inch MacBook Air with a better design and retina display. The device was supposed to be announced sometime in the middle of February, but that did not happen. The upcoming event could be the perfect stage for Apple to break the ice.

• Apple Pay might be on the company’s agenda and we will hear Mr. Cook talk about security and privacy. It is possible that Apple Pay has made its way to more countries or gotten more financial institutions to back it.

• It wouldn’t be surprising to see iOS 8.2 since the Apple Watch is going to be powered by it. The company might even talk about the public beta program that starts with the iOS 8.3.

• There is also a slight possibility that Apple can really shock us all by announcing a whole new virtual reality initiative, or give us details on an Apple Car, but both seem unlikely at this point.

Dominating the smartphone market -- market researcher Gartner has just released its estimates for the smartphone market in the fourth quarter, and its figures show that Apple has now overtaken Samsung as the market leader in terms of unit volumes. The Mac maker squeezed ahead of its South Korean rival by less than 2 million smartphones.

Apple is now on top of the smartphone market, in terms of both unit volumes and profitability. The broader market continues to grow, reaching 1.2 billion units in 2014. That's up 28% from the 970 million units sold in 2013. Smartphone penetration is also on the rise, now accounting for two-thirds of all global handset sales.

Analysts Opinions

Research analysts at BMO Capital Markets set a $135.00 price objective on shares of Apple stock in a report released last Thursday. The firm currently has a a “buy” rating on the stock. BMO Capital Markets’ price target would suggest a potential upside of 6.81% from the company’s current price.

Also Apple ‘s stock had its “outperform” rating restated by Zacks in a report released last Wednesday. They currently have a $155.00 target price on the stock. Zacks‘s price objective suggests a potential upside of 19.81% from the company’s current price.

Zacks’ analyst wrote, “Apple reported better-than-expected first-quarter 2015 results, beating the Zacks Consensus Estimate for both earnings and revenues. Results were driven by a surge in iPhone and Macintosh sales. The company benefited from strong demand across key regions, like Greater China. We believe that a refreshed product portfolio, Apple Pay and the upcoming Apple Watch will drive the top line over the next several quarters. These should also improve Apple’s competitive position in the near term. Moreover, the availability of Microsoft Office and the partnership with IBM will likely boost iPad adoption among enterprises over the long haul.”

And Apple was also been given an “AA-” credit rating by analysts at Morningstar. The firm’s “AA-” rating suggests that the company is a very-low default risk. They also gave their stock a three star rating.

The company has also been the subject of a number of other research reports:-

• Analysts at Deutsche Bank set a $110.00 price target on shares of Apple and gave the company a hold rating in a research note on Thursday.

• Analysts at Oppenheimer raised their price target on shares of Apple from $130.00 to $155.00 and gave the company an outperform rating in a research note on Tuesday.

• Finally, analysts at Morgan Stanley raised their price target on shares of Apple from $133.00 to $160.00 and gave the company an overweight rating in a research note on Monday.

Two analysts have rated the stock with a sell rating, eleven have issued a hold rating and thirty-four have given a buy rating to the stock. The stock has an average rating of Buy and a consensus target price of $126.14.

Conclusion

Analysts at UBS expect Apple Inc. to sell 66 million units of the new iPhones during the first quarter of fiscal year 2015, considerably above the consensus estimate of 54 million units. The investment firm made this conclusion on an analysis that was done using the firm’s proprietary iPhone monitor tool.

Accordingly, the monitor tool is to keep tabs on the demand for Apple products, and adjust its findings in real time as Apple reports sales. Consequently, UBS has also increased its projections for revenue and earnings for the March quarter.

UBS also views the rising demand in China for iPhones as a key catalyst for Apple possibly beating analysts’ estimates in its earnings release for the March quarter. In addition to this, analysts at UBS have positive expectations from iPhone user upgrades. Another area where analysts see potential upside is Samsung (OTCMKTS:SSNLF) users switching over to Apple devices. UBS maintained its Buy rating and price target of $150 on Apple shares in its bullish thesis on the Cupertino-based company.

In a recently published research note, Barclays also expressed similar sentiments regarding the demand for the iPhone this year. Analysts at the firm note that the demand for the iPhone 6 has remained solid since the holiday quarter, citing certain unnamed sources close to the iPhone maker who were present at the Mobile World Congress event. The investment bank expects Apple to sell a total of 218 million units this year.

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


**OPTIONS TRADE: Buy the AAPL Jun 2015 140.000 call (AAPL150619C00140000) at or under $3.00, good for the day. Place a protective stop loss at $1.20 and a pre-determined sell at $6.00.



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Options traders win because they are successful.



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