Apple Stock Outlook for March

If today was one or two years ago, making general forecasts about the stock price of Apple Inc. (AAPL) would have been a lot easier. The answer is UP. By then, it was very clear that Apple’s stock price was more bullish than a bull and buyers were in control of the market. That can be attributed to the fact that it was at that time when Apple released its groundbreaking iPhone 4 and iPad together on the same year and investors were gaining more confidence about what else Apple could possibly offer.
After Steve Jobs, the genius behind Apple, died in October 2011, many thought that it was the end of Apple and its stock uptrend would already turn to the opposite direction. The stock did fall but only for a month. After which, it soared back until it reached its peak on Sept. 11, 2012, the date when it released the iPhone 5 in the market. Apple stocks went as high as $705.07.
The movement of Apple (AAPL) stock price for the past five years is graphed below:

Then just after that, Apple already faced several disappointments from investors and buyers alike. One was due to the problematic Apple Maps which led Cook to issue a public apology. Another was the voice-detection software, Siri, which was termed as “underwhelming”. Incrementally, investors were already gaining an impression that Timothy Cook was no Steve Jobs and that Apple’s commitment to provide users with the highest standards of quality died with the former. Since then, the stock was rolling down the hill. The chart below shows a closer view of the stock after reaching its peak.

Notice how Apple is on a downtrend even until today. In fact, Apple just hit the lowest stock price it ever had after 57 weeks on January 24, 2012 when it closed at $420.50.
Now the question is, how would Apple’s stock outlook probably be for March?
In analyzing how the Apple would do in March, we will use both fundamental and technical analyses.

Fundamental Analysis

GROWTH AND BALANCE SHEET

Apple reported a significant increase of 17.7% from the last year quarter resulting to $164.69  billion revenues. Correspondingly, the net income of AAPL rose to $41.75 billion. However, while Apple continued to perform well in the industry, analysts are casting doubts about its market successes in the long term after it has been overtaken by Samsung in the previous year. Furthermore, Apple has not been able to surprise the market for quite a time, breeding a growth in investor frustration. This frustration might have been further fueled with CEO Timothy Cook announcing in the General Stockholders’ meetings that the company is not going to increase dividends this year.

Moreover, the issue on Eidhorn Injunction has already been resolved. Einhorn’s lawsuit, though, was part of a broader plan to get Apple to distribute some of its $137 billion cash pile to shareholders. Einhorn has been aggressively pressing Apple to get its stock moving upward after falling 39 percent off its highs. However, nothing was mentioned in the recently concluded meeting about any plan for stock split nor dividend announcement. We’re pretty sure that Apple investors are pretty worried about this.

VALUATION

Apple is the biggest-ever US-based company with total assets of $176 billion. AAPL has a PEG ratio of 50%. Current PE of Apple stands at 9.52, considerably higher than its competitors in the industry. The stock is currently trading at 421.48. The beta of 1.04 implies high volatility, such that the AAPL stock will be more volatile than the market. This also signifies a higher rate of return but conversely poses more risk. The company has a current annual dividend yield of 2.52%.

Apple has not yet made any formal announcements about its next breakthrough products but Cook tried to reassure investors that it has a “great stuff coming”.  But, the question was whether the investors really felt reassured or not.  Even if Apple is going to have a “great stuff” coming, investors fear that it might have outrageous defects again like the one before and might not be able to gain market dominance like it had in recent years. There have been rumors that the next “big thing” might be an iWatch or an iTV but even those didn’t seem groundbreaking for most analysts.

RECOMMENDATION

For the month of March, we initiate our coverage with SELL. The company has demonstrated a pattern of bearish technical signs. The annual dividend yield of 2.52% might captivate buyers but the overall market sentiment shows that it will be a matter of time before AAPL stock recovers from the recent downtrend.

For trading we suggest:

Buy the March 13  put with a strike of 425 priced at $11.45 per contract

Sell the March 13  put with a strike of 415 priced at $.6.90 per contract

Net Debit to start: $4.55

Maximum risk: Net debit