Buying momentum is a time-honored way to make a fortune in the stock market. The trick is to make sure that the momentum has solid underlying support now and into the future.
One stock that is quite the momentum stock both on the upside and downside is Apple (Nasdaq:AAPL).
No matter how the stock reacts to the soon to be released earnings, a compelling long-term bullish case can be made for the company.
Here’s a closer look:
I hated Apple and its products prior to 2007. Everything changed after I tried the first iteration of the iPhone. I could not believe the incredibly intuitive nature of the device. Right then, I became an Apple convert for life.
The company has had its ups and downs over its sometimes turbulent life. At the same time, it has made stock trading millionaires out of investors with the foresight and verve to buy when the time is right.
Right now, it’s prime time to add to your Apple position or purchase shares for the first time. There are very powerful bullish catalysts pending both inside and outside of the company.
We firmly believe that Apple can make all-time highs once again.
This article will lay out the reasons why we think that now is the time to buy Apple shares. But first, some background.
“Apple computers, aren’t those for artists and graphic design nerds?, I said to the high tech sales person demonstrating an early edition of the Apple Mac.
“I need a real computer, not something to paint pretty pictures on and design flowers with”, I countered the smooth talking Californian long hair’s pitch for this new-fangled computer.
He just smiled and softly stated, “You will understand one day, friend.”
I ended up purchasing an IBM desktop and didn’t think much about Apple as a computer or investment.
That is until 2007 when everything changed!
I have always had a preternatural attraction to cell phones, particularly of the smart phone variety. As an early adapting gadget freak, my obsession started with the very first Palm Pilot smart phone, then progressed through the various companies iterations and then the BlackBerry phone series, I would try a new handset every six to twelve months.
Despite my questionable feelings about Apple (Nasdaq:AAPL), the iPhone struck my fancy and begged me to give it a try. It rode in on waves of publicity in June 2007 and from the first time I touched it, I became an Apple aficionado for life. This phone was not just another gadget. It provided an intuitive connection between my mind, hand and device.
I know I am starting to sound like the long haired Californian tech sales person I turned down, but this is no exaggeration, the phone became one with me.
Now, having owned every new generation, up to the latest iPhone 6 plus, they are the only smart phones I have purchased since 2007 and I remain impressed with the iPhone’s intuitive nature, capability, and capacity. Now, owning several generations of the iPad and being addicted to the iPhone, this once Apple skeptic has become a true believer.
Obviously, I am not the only one who feels this way, but rather part of a mass movement to Apple’s products.
Investors riding this trend pushed Apple shares from under $100 at the start of 2007 to $700 in September 2012.
Presently, the shares have lagged. Despite a 20% rally at the start of 2015, all-time record iPhone sales and beating analysts estimates in the second quarter, the stock price is off over 12% from the summer high.
So why is it time to buy right now? Here are 4 reasons
Reason 1. The Fundamental Metrics
At the current price, the company is trading at just 11.8 times forward earnings and it boasts a PEG ratio of 7.8. These numbers are the most compelling they have been for the last ten years.
The middle class in China is on a monster growth trajectory.
Greater China stands to gain 326 million new middle-class citizens by 2030, ALL will be ripe to become Apple customers.
In addition, per capita disposable income in urban areas will be in excess of $30,000 USD in parity terms, up from less than $10,000 USD at present.
Forbes magazine reported that revenues from the China grew 112% year-over-year to about $13 billion during Q3 FY’15, accounting for over 55% of Apple’s consolidated growth.
However, there have been concerns that the momentum could cool down, and this has created a significant overhang on Apple’s stock in recent months.
GDP in China fell to below 7% in Q3 CY’15 and there are concerns that consumer spending could come under pressure. Moreover, the Chinese Central bank has devalued the Yuan (down by about 3% since mid-July) in response to the economic slowdown, and there’s a possibility that the trend of devaluation This may put pressure on Apple’s Chinese business, since ASPs could decline in dollar terms or volumes could take a hit if the company decides to raise prices.
We believe that China’s woes have been overexaggerated and this is exactly why the shares have not exploded higher yet. Once the fear subsides, nothing can hold the stock down.
Reason 2. Products
The newest iPhones are crushing sales records thanks to the new financing offered by Apple and the carriers. Apple music already has 15 million users — 6.5 million paid customers and 8.5 million on a free So far, Apple Music is transforming 60% of the trial consumers to paying customers.
What has me most excited in the iPhone Upgrade Program. This initiative will keep the cash flowing into the company and is downright brilliant on their part.
You see, Apple is now financing their phones to consumers. The offer is $34.41 per month for 2 years for the iPhone 6S. This adds up to $778 because it includes Apple Care warranty. If you bought the phone directly, without financing, it costs $649.00. Apple Care is a solid profit center and consumers CAN NOT finance an iPhone from Apple without it being included.
Add in the fact that Apple will allow financing customers to upgrade every year without further cost or penalty! This will create an army of iPhone users long into the future that guarantee the long term viability of the company.
Furthermore, Apple will have tons of used iPhones to sell to emerging markets such as India and Africa to hook an entirely new demographic on the device and company!!!
Reason 3. Bullish Sentiment Waves
There are bullish waves of positive sentiment hitting the company. Piper Jaffray identified Apple as their top large-cap stock pick for the remainder of 2015 with a $172 target.
Billionaire investor Carl Icahn has stated that he expects the company to be trading for double what it right now. Even dialing back these bullish calls, the average analyst targets $146 for the shares. $146 represents a 25% gain from the current price.
Reason 4. Earnings
This article is being writen the day prior to earnings being released. History has shown that shares have been trading higher 75% of the time 30 days after earnings. Furthermore, Apple has beating expectations each of the last four quarters. While that is no guarantee of what will happen on Tuesday 10.27, regardless of what happens, it may create a great opportunity to buy the shares.
The one thing that we can expect, in fact, it’s almost guaranteed, is there will be volatility. Should the shares sell off, the newly discounted price should be a great opportunity. Should the share price skyrocket, purchasing on the upside momentum makes sense.