As much as I like to believe that stocks are driven by fundamentals, I realize that is not always the case. Actually the more I invest, the more I think equities behave like sports teams. They can have all the right pieces, but unless they have momentum ("The Big Mo") and chemistry, they continue to lose games they have no business losing. One doesn't have to look much farther that the current Los Angeles Lakers to confirm this thesis. Despite having three certain hall of famers (Bryant, Nash, Howard) and a possible fourth (Gasol), the team has struggled early in the season losing all 8 preseason games and is also off to a slow start in the regular season. I have every confidence that by the end of the season, the team will be a force to be reckoned with in the playoffs, but they may be painful to watch until after the All Star break as they work out the kinks.
Apple (AAPL) kind of reminds me of the Lakers right now. Despite having wonderful products, impressive sales growth, cheap valuations and tons of cash on hand (Over $100B), the company cannot get out its own way right now. I wrote on its recent challenges and slip ups the other day. For the first time since the nadir of the market in March 2009, the stock is trading under its 200 day moving average (See chart).
A better representation of Apple's dismal performance recently is the monthly chart comparing its performance against the overall market (See chart). As one can see, for the first time in several years, the stock is substantially underperforming the S&P.
As much as I love Apple (I hold a long bull market put spread position on the shares) and think the shares are cheap, I am holding off adding to my position until the company regains the "Big Mo." I think there are a few things on the horizon that could help the company to do that.
A. It straightens out the supply problems that have plagued the rollout of the iPhone5. Obviously this would provide additional revenue to the company as demand is strong for the latest version of the company's franchise product line. I see this happening, but not as fast as I would like.
B. It finally makes an announcement around "Apple TV." Given the amount of new products the company is already trying to manage (Mini-iPad, iPhone 5), I believe this is unlikely in the near future.
C. The stock pops solidly above its 200 day moving average of around $586 a share. This is probably the most likely short-term catalyst.
D. The next earnings report beats expectations and makes up for last quarter's disappointing results.
As much as I like Apple's valuation here, I think it is an "avoid" until one or more of these events occur. Investors wanting to get in the stock prior to these catalysts might want to think about selling slightly out of the money puts on the stock. The market is offering some decent option premiums here (I personally like the AAPL January 570 puts for $35). Using this strategy will allow an investor to either pick up a nice premium and/or get a lower entry point on Apple while awaiting the company to regain its previous positive momentum.