1. Apple Weekly Action: The hedge funds have been making money in Apple while everyone else scratches their heads as to why the stock has stalled since November. We've looked at the effect of the weekly options on Apple stock that began last June and have concluded that the big money is taking advantage of greedy weekly options players. A quick historical recap of Apple action: from the March 2009 lows through November 2009 Apple should have beeen bought and held in a portfolio, from December 2009 through November 2010 Apple should have been traded according to the slingshot hedge fund pattern and from November 5, 2010 through May 26, 2011 investors needed to buy Apple at the Monday low and sell it at the Thursday high. In this latest round of hedge fund manipulation the stock routinely gets pounded on Friday afternoons and Monday mornings as hedge funds profit from the weekly options action. If we exclude such action from our calculations, the stock would be priced at $490 today. Knowing that Apple is trading according to a weekly pattern provides us with a foundation to make correct interpretations as to current Apple stock action. What does it mean when Apple surges into a Friday close (after selling off 7 of the last 8 Fridays) and then rises $10 on Monday? It means the big money is abandoning the weekly gimmick and is hugely bullish ahead of the WWDC Steve Jobs keynote; Apple option LEAPS should be owned. Hedge funds are going out of their way to buy this stock ahead of the iCloud announcement and individual investors should take heed.
2. The Biggest Catalyst of the Year: Speaking of iCloud, in April we mentioned that Apple's foray into the cloud would be the most important investment catalyst of the year for the stock. The appetite for cloud stocks on Wall Street is increasing by the minute but thus far Apple has been left out of the cloud centric run. The moment the visionary of the century takes the stage to explain what Apple plans to do with the ginormous capacity at the North Carolina data center and unveil how the iCloud will change modern computing as we know it, it's safe to say Apple will become a leader of the cloud stock movement. With the App Store and iCloud exclusive to Apple's ecosystem it will further widen the gap between Apple and its competition. Anyone still trying to make a living by selling desktops and laptops is in trouble. The tide has shifted. The growth story in tech is now focused on mobile hardware, mobile advertising, profitable apps, social networking, NFC banking, etc. ... Whoever can develop the most popular cloud platform will be rewarded by investors. Apple stock is departing from the weekly "death march" its been on since November because of the iCloud and the positive uncertainty surrounding the event.
3. It's All About the Software? On May 6th Morgan Stanley analyst Katy Huberty met with Apple executives and came away with the following announcement, "Apple views product cycles as software driven."; Apple executives went out of their way to take the emphasis off of new hardware and place expectations on the software release. Initially this didn't make a lot of sense. When Apple originally changed its name from Apple Computer to Apple Inc. it was because they wanted to be viewed as a mobile hardware company that included the iPod, iPhone and eventually iPad. Hardware pricing power is where the money's at. Why would Apple try and convince us that now they want to be known as a software company? It's because Apple World has gotten too big. The company is unable to meet global demand for its products. They have already split up iPhone launch dates between a U.S. launch in July, an international launch in September, the Verizon (NYSE:VZ) and white iPhone launch in the spring, etc. ... Steve Jobs no longer wants consumers to be obsessed with launch dates. There could end up being twenty different iPhone launch dates throughout the year but there is only one iOS launch. No matter which version of the iPhone you own, when the new iOS comes out you are able to update your software and essentially get a brand new iPhone whether you have the 3GS, the 4, or the 4S hardware. He wants investors to focus more on quarterly sales than launch sales. Good things happen if Apple can shift attention towards the software. From this perspective, everyone gets a new iPhone on June 6th! The status quo has become overwhelmed in irrelevant minutia. New customers should buy an iPhone when ready and current customers should replace an iPhone when needed. Apple has gotten too big to be tied to any particular dates.
4. Time to Unlock Value: The elephant in the room regarding Apple stock is the historically low valuation. The majority of blogs no longer mention Apple products, instead, they each have their own way of explaining Apple's single digit forward p/e ratio or Apple's increasing rate of change of cash. The company is growing at approximately 100% per year and yet the stock can't keep up. Apple executives are talking about it. Nobody is happy. It's as if Apple is making 3-point shots but the scorekeeper is taking away 3 points every time the ball goes through the net. Can Apple do anything to unlock the real value of the company? Yes. Will they do something about it? They have before. It's unlikely Apple wants to buy back shares or issue a dividend because they love the security of their cash hoard but it is likely they will split the stock. Stock splits come and go like fads. Sometimes they are popular and other times they aren't. Google's (NASDAQ:GOOG) $600 price tag made it cool to have a high stock price but it appears those days are coming to an end as the Google run has sputtered. Baidu (NASDAQ:BIDU) stock had stalled until it issued a 10 for 1 split on May 12, 2010, since that time the stock has almost doubled. In this day and age, it's important for companies to stay one step ahead of the manipulative shenanigans of the hedge funds who control up to 50% of daily volume. A split, buyback, or dividend would shake things up just enough to keep the hedgies on edge. We anticipate that Apple investor frustration among the executive team and the Board of Directors will be enough to force Apple to make a move. The company split its shares in 2005 and in 2000. Now seems like the right time to do it again.
Disclosure: I am long AAPL.