Andy Batts'  Instablog

Two very important events are lined up next week for Apple Inc. (AAPL) that will provide short-term direction for the share price of the company. Apple will hold an event on October 23, where the tech giant is widely expected to introduce a smaller tablet computer, dubbed the iPad Mini, reports Reuters. Citing sources "familiar with the matter", the news agency says that device will be a smaller version of the iPad.

On October 25 Apple will release its fourth-quarter earnings report. The Q4 operating results could lay fears of an Apple slowdown to rest and help turn around its recent bout of correction. In this article I will explain how short-term investors should play Apple from here.

Short-Term Potential Positive Triggers

1. Rumors are making the rounds since Monday that Apple would be announcing a new 13-inch MacBook Pro with Retina Display. Another rumor comes on Tuesday that Apple will refresh its popular Mac Mini computer at the October 23 event, as well. Apple blog 9to5Mac reported the news, citing sources. If the company introduces a 13-inch MacBook Pro with Retina display, it will likely share similar specifications. But consumers can expect a lower entry price-point than the current $2,199 for a 15-inch model.

2. Reports from Asian component makers indicate that Apple is preparing to launch an updated line of iMacs that will be thinner than current models, Apple Insider notes. The new iMacs will also feature a redesigned case, shedding the squared-off edges in favor of a curved, teardrop appearance. While new iMacs are expected to come with the latest microprocessors and high-speed connections, Retina displays are not expected on new models. Apple has reportedly adopted a new screen lamination process for the iMacs that has complicated manufacturing of the 27-inch iMacs, meaning that the company will mostly likely debut the 21.5-inch model first, with the 27-inch unit following when production issues have been resolved.

3. The upcoming Q4 results could provide a positive trigger. Currently, the analyst community expects 28.5% sales growth and 26.1% earnings growth for the company. In case Apple beats the street by a wide margin, share price will certainly shoot up from the current levels.

Short-Term Potential Negative Triggers

1. DigiTimes reported earlier this month that Apple suppliers are facing production delays of the smaller iPad. Citing source "in Apple's supply chain", the blog reports that the iPad Mini, which will come in black and aluminum, are vulnerable to scratching because of its anodized finish.
2. Microsoft (MSFT) stole some of the spotlight from Apple as the price of Surface, the new Microsoft tablet, was leaked. Surface was listed at a $499 starting price (for a 32 GB model without a touch cover). This is $100 cheaper than the new 32 GB iPad.
3. An earnings disappointment by a significant margin could trigger a mild sell-off in the stock.

Technical Picture

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By the end of next week the stock should witness the end of a month-long correction that started in September. The 20-Day SMA line is coming down to cross the 50-Day SMA line from above. This is an extremely bearish signal. If the stock failed to close above the $660 mark on a sustainable basis in the coming two weeks, the next support is at the 200-Day SMA which is currently located near $580. The first sign that the correction ends and the uptrend resumes is a closing above the $660 mark, the meeting point of the 20-Day and the 50-Day SMAs.

How to Catch the Big Move

To cash in on the big move in the stock when correction ends, I'll adopt a simple strategy. I've gone long in the stock at $627. Any close above $660 will signal to hold on my long positions with a strict stop-loss at $580 (the 200-Day SMA). The next stop is at $710. I'll sell my longs near the previous high.

Only a sustainable close above $710 will provide a strong signal to go long for an upside target in the range of $770 - $785. Speaking of the downside, any close below $580 or the 200-Day SMA level will trigger another round of sell-off for the short-term and I'll wait to enter the counter around $530.

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

Verizon Communications Inc. (VZ), the largest wireless carrier in North America, is a in a position to tap a multibillion-dollar opportunity from the latest smartphone revolution. The world of mobile devices is exploding, and powerful mobile devices are still in their infancy. The defining product of the smartphone generation, the iPhone, was released less than five years ago. Being an early mover in this latest technology boom, we believe an immense opportunity is just waiting to be tapped by Verizon.

Smartphones Dominate New Phone Purchases in the US

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A new survey by Nielsen reveals that smartphones now account for half of all mobile phones in the US.

Almost half (49.7%) of U.S. mobile subscribers now own smartphones, as of February 2012. According to Nielsen, this marks an increase of 38 percent over last year; in February 2011, only 36 percent of mobile subscribers owned smartphones. This growth is driven by increasing smartphone adoption, as more than two-thirds of those who acquired a new mobile device in the last three months chose a smartphone over a feature phone.

You can read the full story here.

Verizon's Compelling Fundamentals

Verizon has an attractive fundamental outlook based on increasingly favorable growth prospects. The following points should be considered while analyzing the future growth of the company.

• Expanding Subscriber Base: Verizon continues to increase its subscriber base and average revenue per user (ARPU). Its wireless unit gained a net 1.2 million subscribers in the second quarter of 2012 - a strong result in an industry where subscriber gains have tapered off now that nearly everyone has a cellphone. Of the new subscribers, 888,000 were on contract-based plans, which are the most lucrative. Verizon Wireless has 94.2 million retail subscribers. The profit margin at Verizon Wireless was the highest ever, as average monthly fees for contract-signing subscribers rose 3.7 percent to $56.13. Verizon is benefiting from the growing popularity of smartphones, which come with data fees.
• Verizon Wireless Tops Industry in Customer Loyalty: For the ninth consecutive quarter, Verizon Wireless leads the industry in customer loyalty among U.S. wireless customers with postpaid contracts. With postpaid churn (turnover) of 0.84 percent, the company reported the lowest customer churn rate of any of the nation's major wireless providers in the latest quarter.
• Improved Competitive Position: The rollout of 4G services along with the new devices, as well as iPhone will provide huge potential for future growth. Further, the company's expansion into cloud computing business through Terremark and CloudSwitch will boost its competitive position against its major rivals, AT&T (T) and Sprint Nextel (S).
• Improved Product Cycle: The company has already launched many smartphone devices with more to be launched in the upcoming years. These will help them to increase its market share as well as retain customers.

Verizon Emphasizing on Wireless Business

The company operates in two segments, wireline and wireless. The wireline segment provides voice, internet access, broadband video and data to consumers. The wireless segment offers wireless voice and data products, and other value-added services, as well as sale of equipments.

The launch of iPhone and other smartphones serves as negative catalysts for VZ's own wireline customers since more customers will convert to wireless in the near future. The wireline business also faces competition from competitive local exchange carriers, wireless carriers, long distance providers, and cable operators.

The company is spending hugely to subsidize the iPhone, an effort to become the most dominant player in the smartphone and tablet revolution. While in the short-term this is surely affecting profits, these kinds of initiatives are undoubtedly long-term positive, especially when the wireline business is expected to generate flat revenues.

Verizon Wireless: The Future of Verizon Communications

Verizon Wireless leads the way with the nation's largest 4G LTE network, covering nearly 75 percent of the U.S. population; an extensive lineup of 4G LTE-enabled devices, such as the Samsung Galaxy S® III and DROID INCREDIBLE 4G LTE by HTC; as well as HomeFusion BroadbandSM, which provides high-speed, in-home internet access via the company's 4G LTE network.

Verizon Wireless has invested more than $70 billion since it was formed - more than $6 billion on average every year - to increase coverage and capacity of its premier nationwide network and to add new services. Verizon Wireless is a joint venture with British mobile network operator Vodafone Group Plc (VOD), in which VZ holds 55.0% stake while VOD holds the remaining 45%.

(Source: CNBC, Forbes & MarketWatch)

Verizon Communications: Share Price Outlook

In the short-term the share price of the company is undergoing a mild downtrend as indicated by the RSI and MACD indicators. It's interesting to see if the 50-Day SMA holds. The 20-Day SMA is approaching southwards to cut the 50-Day SMA line. If the 50-Day SMA breaks, the stock could correct up to $41. We believe this correction is an excellent opportunity to enter the counter.

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The company's long-term growth rate ranges from 3.0% to 5.0%, with the average being 4%. Verizon enjoys a strong financial position with ample cash that will provide enough financial flexibility. The company continues to focus on maximizing free cash flow, maintaining a strong balance sheet and reducing debt.

The chart at the right shows the returns to an investor from both price appreciation and dividends (dividends are assumed to be reinvested). Verizon Communications is up 36.84% over the last year vs. S&P 500 or its tracking ETF (SPY) up 22.60%, AT&T up 40.54%, and Apple (AAPL) up 65.62%.

Verizon is attractive for income-oriented investors based on its dividend yield of 4.5%. The company has paid a cash dividend to shareholders every year since 1984 and has increased its dividend payments for 7 consecutive years. The stock is currently trading at an estimated 2012 PE of only 17.70, there's plenty of room to grow for the stock. Given an attractive fundamental outlook, we expect the share price of the company to trade in the $53 to $57 range within a year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Hewlett-Packard, (HPQ) the troubled tech giant, has some serious challenges ahead of itself. These include declining printer sales, enterprises downsizing their services, execution issues and PC profits coming under pressure. New CEO Meg Whitman took some much-needed strategic initiatives to revitalize the company. Last few days' move in the shares of the company suggests that finally the shares may have bottomed out.

HP's revenue and margin performance was better than expected in the fiscal second quarter, 2012. This better performance came from the PC business, where revenue was basically flat last year. Printing was quite weak (down 10%), while services was a bit soft (down 1%) and ESSN (Enterprise Servers, Storage and Networking) was down 6%. Second quarter revenue fell 3% from last year, but rose 3% sequentially and beat most estimates by around $1 billion. (For more information click here.)

New CEO Meg Whitman Making Smart Moves

Whitman took the bold step of merging HP's PC and printer divisions. She also opted to open source the much acclaimed webOS operating system and oversaw HP's support for ARM's (ARMH) low-power chips. She decided in May to cut 27,000 jobs, or 8% of the company's total workforce.

UBS analyst Steven Milunovich acknowledges that Whitman is "making smart moves" such as centralizing the firm's strategy, sales and marketing, but warns that this may not be enough to succeed. UBS initiated coverage on HP with $16 price target on Tuesday this week.

"We question whether HP is 'better together' and that it might be 'smart to be apart,' specifically spinning off printers and PCs," he explained, in a note released this week. "HP lacks the pure enterprise focus of IBM (IBM) and EMC (EMC) yet will have trouble competing for consumers without strong tablet and phone businesses like Apple (AAPL) and Samsung."

(Source: Barron's)

Negatives Discounted in HP Stock Price

Shift to Software Development is Positive: The $11 billion purchase of software firm Autonomy has driven HP's net debt burden to $21 billion as of April. But the company's software revenue grew 22% year over year with a 17.7% operating margin, including the results of Autonomy. Software revenue was driven by 7% license growth, 17% support growth, and 72% growth in services. To help improve Autonomy's performance, Bill Veghte, HP's chief strategy officer and executive vice president of HP Software, will step in to lead Autonomy. HP's shift towards IT should eventually be EPS accretive, much like IBM and Cisco (CSCO).

Restructuring Initiative Seems Successful: The company is in the midst of a major restructuring process and gross margin improved in second quarter by nearly a point from the first quarter, while falling about a point and a half from last year. Reported GAAP operating income and adjusted operating income performance were directionally similar - both declined from last year by more than 20%, while showing a single digit sequential increase.

(Source: HP)

Stock Closed Above 20-Day SMA and Headed Towards 50-Day SMA

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The downtrend that started in 2011 in the stock of HP may have finally ended. The last few days' move in the stock from $17.41 to $19.75 indicates that the stock may have bottomed out. This is partially confirmed by the fact that the stock closed above the 20-Day SMA at $18.53 on Monday. A final confirmation will come when HP will start to trade above the $19.88 mark, the 50-Day SMA. The RSI and MACD indicators are signaling bullish move ahead.

Last Friday the stock rallied 4.05% before closing at $18.26 backed by the news that the company wins ruling against oracle over Itanium server support. Again on Monday the stock rallied 2.35% and closed decisively above the 20-Day SMA. According to the news Oracle Corp. (ORCL) is contractually obligated to continue developing software for Hewlett-Packard's Itanium-based servers, a California judge ruled.

Conclusion: Stock Trading in the Deep Value Zone

The company bought back $10 billion of shares in the fiscal year that ended last October. HP still pays a hefty 2.92% dividend to its shareholders. With an estimated PE multiple of as low as 4.45 for 2012 and an estimated PEG ratio of 1.05, the valuation of the $34,823 million market cap company looks certainly cheap.

HP scores 80% in the Cornerstone Value strategy of selecting value stocks. Last week the stock traded very close to the price of $16 that has been set as the target price of HP by UBS. Maybe the worst is over for the HP stock.

Disclosure: I am long HPQ.