“Armchair Trader Series” Recommendations
- Week Beginning -
Monday,  March 15, 2021

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Options Trade - Apple Inc. (NASDAQ:AAPL) Calls

Monday, March 15, 2021

** OPTION TRADE: Buy AAPL JUL 16 2021 125.000 CALLS at approximately $8.20. (Max. $8.80)

 Place a pre-determined sell at $16.40.

Also include a protective stop loss of $3.30.

Shares of tech heavyweight Apple Inc. (NASDAQ: AAPL), a company 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, is looking for a re-bound.

Cupertino's darling reported fiscal first-quarter sales at the end of January. Revenue hit an all-time high of $111.4 billion and earnings per share were $1.68. The company's other divisions -- wearables, iPhones, and services -- hit new revenue records, as well. And sales in China were up 57% from a decline in the previous quarter. Yet the stock is trading down about 8% for the year.

On March 10, longtime bull Daniel Ives from Wedbush said the recent sell-off is creating a "golden buying opportunity" and the new iPhone 13 could be a "game-changer." He has a price target of $175 on the stock, but sees an even more bullish possibility of $225. (It's trading at around $122 a share as of this writing.) This seems a real possibility considering Apple recently reported super-high demand for the larger iPhone 12 models.

Apple is aggressively pursuing new areas, as well. Analyst Ming-Chi Kuo thinks there'll be an augmented reality (AR)/virtual-reality headset in the very near future, with AR glasses following. And, the company's creating a new $1.2 billion state-of-the-art research and development facility in Munich where its European Silicon Design Center "to focus on 5G and future wireless technologies."

Also, let's not forget the rumored self-driving car and the fact that 5G smartphones are just starting out and topped the smartphone sales charts last quarter.

Apple Development.....

Apple pioneered an entire industry through the iPhone, its largest revenue driver for more than a decade. In time, competition from lower-cost players using Alphabet's Android operating system forced Apple to offer lower-cost iPhones as the company's overall net sales fell.

However, this situation may have changed. The pandemic brought about increased iPhone sales as dependence on such devices rose. Now, Apple has launched the 5G iPhone 12. With the 5G iPhone's faster speeds, Apple regained some pricing power. This has brought back some of the higher margins that bolstered iPhone profits in past years.

Moreover, Apple has maximized wearables sales, in part by promoting the health benefits of the Apple Watch. It not only monitors one's heart but also measures blood oxygen levels and sends out an alert in case of a fall. Additionally, Fitness+, Apple's fitness experience that works with the Apple Watch, launched on Dec. 14. Apple partially credited the Apple Watch with taking wearable sales 30% higher year over year in the latest quarter.

Also, Apple's services division, which includes iTunes and the App Store, has achieved notable successes with a 24% 12-month surge in revenue over the same period. Some analysts speculate that services could generate half of Apple's profits by the middle of the decade.

As a result, Apple earned more than $294.1 billion in revenue over the last 12 months. This represents a 10% increase from the previous 12-month period. Also, thanks in part to the iPhone release last fall, overall revenue for the latest quarter increased 21% from year-ago levels.

This revenue improvement led to net income for the latest quarter of almost $28.8 billion, 29.3% higher than year-ago levels. An increase in operating expenses of only 12% helped contribute to the higher profit surge.

This growth took Apple stock higher by more than 70% over the last 12 months. Additionally, its P/E ratio has risen to 33.

Earnings…..

Apple last announced its quarterly earnings data on Tuesday, January 26th.

The iPhone maker reported $1.68 earnings per share (EPS) for the quarter, beating analysts’ consensus estimates of $1.41 by $0.27. Apple had a net margin of 20.91% and a return on equity of 75.15%.

The business had revenue of $111.40 billion during the quarter, compared to analyst estimates of $103.24 billion. During the same period last year, the firm posted $1.25 EPS. The company’s revenue was up 21.4% on a year-over-year basis.

Sell-side analysts forecast that Apple Inc. will post 4.03 EPS for the current year.

Influencing Factors…..

Last Friday, Citigroup analyst Jim Suva estimated California-based Apple could increase its market cap by 50% in the years ahead, depending on how it rolls into the electric vehicle market.

The analyst gave two scenarios: The first predicts Apple could increase its sales 10-15% and EBITDA by 5-11% if the company designs an Apple-branded car and outsources its production to an automaker.

The second sees Apple increasing its sales 2% and EBITDA by 1-2% if the company creates an IT ecosystem, such as Apple CarPlay. Suva sees the first scenario as the most likely.

“We do believe Apple will likely make an Apple car via outsourced production and that this will be part of the road for Apple to travel from a $2 trillion market cap to $3 trillion,” noted Suva.

“By 2025, the EV hardware market is estimated to exceed the combined smartphone, PC, tablet and wearable hardware markets,” Suva said in a note.

Analysts Thoughts.....

Several equities analysts have recently commented on the company…..

  • Cowen increased their price objective on shares of Apple from $133.00 to $153.00 and gave the company an “outperform” rating in a research report on Friday, January 22nd.
  • JPMorgan Chase & Co. set a $150.00 price objective on shares of Apple and gave the company a “buy” rating in a research report on Thursday.
  • Deutsche Bank Aktiengesellschaft set a $160.00 price objective on shares of Apple and gave the company a “buy” rating in a research report on Monday, February 15th.
  • Credit Suisse Group increased their price objective on shares of Apple from $120.00 to $140.00 and gave the company a “neutral” rating in a research report on Thursday, January 28th. They noted that the move was a valuation call.
  • Finally, Smith Barney Citigroup increased their price objective on shares of Apple from $125.00 to $150.00 in a research report on Friday, December 18th.

Two analysts have rated the stock with a sell rating, eleven have given a hold rating and twenty-seven have assigned a buy rating to the company’s stock. Apple currently has an average rating of “Buy” and an average target price of $133.01.

Summary.....

The 5G upgrade cycle will force all smartphone users to eventually upgrade, supporting iPhone sales and higher margins for years to come. Additionally, the growth in wearables and services could add to that revenue growth. Moreover, even with Apple's rising valuation, it still trades at a slightly lower multiple compared to other companies, despite higher cash flows and profit margins.

This gives Apple more potential for higher returns.

Apple Inc. has a 12 month low of $53.15 and a 12 month high of $145.09. The stock has a market cap of $2.03 trillion, a price-to-earnings ratio of 37.13, and a PEG ratio of 2.75 and a beta of 1.28. The company’s 50 day moving average is $130.70 and its two-hundred day moving average is $123.14. The company has a current ratio of 1.36, a quick ratio of 1.33 and a debt-to-equity ratio of 1.51.