Apple Approaching Fundamental And Technical Harmony

Apr.25.14 | About: Apple Inc. (AAPL)


Eight variables determine Apple's stock action.

The dividend catalyst will move shares in the aftermath of earnings.

Tim Cook is in sync with fundamental and technical timing.

With an earnings beat, Tim Cook has put Apple stock in a position to succeed sooner than it otherwise would have. Earnings surprises have been difficult to come by in the Cook era. The latest stock rise of 8% is its biggest single day jump in more than two years. Now that we have a healthy dose of momentum accompanying AAPL, here's a list of four fundamental and four technical variables to watch as we move forward:

Fundamental Variables

1- Positive uncertainty. Instead of relying on "product sequels" in 2014 the market expects a new Apple franchise. iWatch speculation is at a fever pitch following Nike's decision to fire its Fuel team. The fall release of a larger screen iPhone 6 has pundits speculating it will become an "Android killer." From a fundamental perspective, Apple is poised for a return to double digit revenue growth over the next 18 months.

2- iPhone leadership. Of the existing products, iPhone is the most important to the stock. After two years of sluggish growth, iPhone broke out with 17% year-over-year growth in units sold and 14% growth in revenue. The 4S was a major contributor in emerging markets. As Apple competitors fall by the wayside the iPhone is in position to take market share. This is the quarter that Apple took back leadership from Samsung (OTC:SSNLF) on a global scale.

3- China growth. Besides Alibaba, no company is better positioned to profit in China than Apple. Apple's Chinese revenue rose 13% to $9.3 billion as the China Mobile rollout began in its infant state. As China Mobile's 4G infrastructure ramps we expect iPhone sales to enjoy the spoils over a three-year period. This is why Tim Cook referred to the partnership as a watershed moment. Jim Cramer has a bullish take that Apple will become the great China story of 2015 as consumers take hold of the larger screen iPhone.

4- Retail Expansion. Apple's new retail chief Angela Ahrendts will join the company next week. I hope she's well rested because she's going to be busy. The former Burberry CEO will oversee expansion plans as Tim Cook announced Apple will triple its store count in China over the next two years. The company is in need of a retail face lift after years without any updates.

Technical Variables

1- Wall Street's rotation. During the Yellen Correction in March capital began to flow out of stocks with high price/sales ratios and into stocks with low price/earnings ratios. Revenue growth without profits is no longer en vogue. Today we're seeing it with Under Armour (NYSE:UA) and Facebook (NASDAQ:FB). Despite reporting stellar growth percentages the total net income isn't enough to send shares higher. Apple is perfectly positioned to benefit from Wall Street's sentiment shift.

2- The buyback effect. Cook boosted the buyback by $30 billion which promises to keep EPS growth in double digit territory over the next 18 months. As the supply of shares is decreased, it will put upside pressure on shares as institutions buy Apple after a two year hiatus.

3- The dividend precedent. Cook boosted the dividend by 8% which will reinforce the positive technical action we've seen surrounding recent dividend payouts. In February AAPL rose from $496 to $546 on the dividend payout and re-investment. In November the action was muted as shares went from $510 to $525. In August shares surged from $432 to $501. Owning Apple until May 20th for the dividend payout and re-investment of dividends into AAPL appears to be a good bet. Such precedent suggests a stock rally from $565 to $619 will occur during the May dividend window.

4- The 7-for-1 stock split. Why did Apple choose to do a 7-for-1? Nobody knows for sure but speculation exists that Apple will be added to the Dow Jones Industrial Average once its price is below $100. The Dow weights its holdings by stock price which is why Apple has been excluded despite its worthy market cap. Adding Apple to Dow funds will stimulate demand but even more important might be the elimination of psychological barriers that have technically plagued shares at the $700 and $1,000 benchmarks. All of a sudden those insurmountable price points become insignificant price points at $100 and $142.85.

Tim Cook's timing of the stock split, dividend and buyback looks to be perfectly in sync with a return to fundamental growth. There's no question that this earnings report marks a pivotal point in Apple's breakout. As long as Apple is appreciating as its own asset class there is little reason to diversify into other holdings. Most of us remember what it's like to invest in Apple when it's running time. There's nothing else like it. Today we sold the 5% allocation of UA and we're also selling a 15% allocation of QQQ in order to free up additional cash for Apple.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.