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  • Is Apple Ripe For A Significant Rebound? 0 comments
    Mar 19, 2013 12:10 PM | about stocks: CVX, GOOG, IBM, IWM, MSFT, QQQ, SPY, XOM, AAPL

    After topping at $705.07 on September 21, 2012, Apple Inc. (NASDAQ:AAPL) stock began its long journey of down turn, touching $419 on March 3, down 40.4%. As it rebounded somewhat recently, people started to wonder whether it has bottomed or not. In this article, I am looking at 10 metrics (5 technical and 5 fundamental) to see if it is a good time to get in to Apple stocks.

    1. Elliott Wave

    Because of the significant price drop, we consider a 5-wave down wave from $705.07 set on September 21, 2012 to $419 set on March 3 a couple of weeks ago. The first down wave ended on November 15, 2012 at $525.62, lasting 55 days, with a 25% drop. The second wave was a rebound wave, ended on November 29 at $589.36, lasting 14 days. The third wave continued the drop, ended on January 25 at $439.88, lasting 57 days. The fourth wave was another rebound, ended on February 11 at $479.93, lasting 17 days. The final wave slipped to the bottom, ended on March 4 at $420.05, lasting 21 days. The completion of the 5-wave down waves indicates a bottom has formed, a positive sign.

    2. Moving Averages

    For moving averages, Apple (AAPL) currently is trading under all major moving averages (50-day, 100-day, and 200-day), as shown in the following chart, indicating extreme bearish. This is consistent with the Elliott wave findings, again, may be a positive sign.

    (click to enlarge) Source: Yahoo Finance

    3. Put/Call Ratio

    Put/call ratio is often a good indicator whether investors become bullish or bearish on a stock. Following chart shows Apple's stock price alongside its put/call ratio in the last three months. It is clear that the ratio is close to the three-month low, again, a positive sign.

    Source: Optionistics.com

    4. Volume

    For trading volume, there is a rather significant change in recent days as compared to the beginning of the down turn, especially for the down days. During the first couple of weeks after September 21, 2012, Apple (AAPL) traded on average 23.8 million shares per down day. In the past couple of weeks, the down-day volume decreases to only 16.7 million shares. On the other hand, the up-day volume has increased to over 20 million shares in the past few days. This again is a positive sign.

    5. Correlation with Broader Market

    Recently, the broader market has reached historical highs. Over the past year, especially the past 6-month when Apple (AAPL) is in its down turn, its share price has a significant negative correlation with the broader market. Over the past year, its correlations with SPY and IWM are -0.45 and -0.54, respectively. For the past 6-month, the corresponding correlations are even at -0.61 and -0.69, respectively. Even with QQQ where Apple is a significant component, the correlations are close to zero. If the market is at or near the top, a negative correlation is a positive sign.

    6. P/E

    From the fundamental viewpoint, I list the five metrics that I consider most relevant for Apple Inc. (AAPL): P/E, dividend yield, PEG, P/CF, and net profit margin. For fair comparison, I list these metrics for Apple as it compares to the top 10 stocks with the largest market cap in the following table.

    5 Fundamental Metrics for the Top 10 Stocks with Largest Market Cap

    Symbol

    MarketCap

    P/E

    Dividend

    PEG

    P/CF

    Net Margin

    AAPL

    $428.0B

    10.33

    2.40%

    0.53

    7.54

    25.35%

    XOM

    $397.7B

    9.15

    2.60%

    3.20

    7.08

    10.48%

    GOOG

    $266.3B

    25.08

    n/a

    1.27

    16.02

    21.40%

    GE

    $241.8B

    18.00

    3.20%

    1.33

    7.72

    9.29%

    WMT

    $241.3B

    14.39

    2.60%

    1.61

    9.43

    3.62%

    IBM

    $237.6B

    14.37

    1.60%

    1.30

    12.13

    15.89%

    MSFT

    $235.4B

    15.44

    3.30%

    1.18

    7.71

    21.20%

    CVX

    $231.4B

    8.94

    3.00%

    5.16

    5.96

    11.76%

    JNJ

    $220.3B

    20.42

    3.10%

    2.30

    14.31

    16.15%

    PG

    $208.0B

    17.29

    2.90%

    2.42

    14.43

    15.50%

    Source data: Yahoo Finance

    Apparently, Apple's P/E is nearly at the bottom, with only the two oil companies Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) with lower P/E ratios. Therefore, from P/E ratio, Apple appears to be under-valued. Hence, it is a positive sign.

    7. Dividend Yield

    Among these biggest companies, Apple is yielding a reasonably good return for investors, especially considering the three other tech companies Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), and IBM (NYSE:IBM). With the largest cash reserve among these biggest companies, there is considerable potential for the yield to increase. I also consider this as a positive sign.

    8. PEG

    For PEG, Apple is clearly at the very bottom. As a matter of fact, if the growth rate is only half of the current expectation, Apple still has the lowest PEG among these companies. Therefore, it is a positive sign.

    9. P/CF

    For price to cash flow ratio, again, Apple is among the lowest. The fact that Apple is generating more and more cash will only make this ratio lower, if the stock price does not increase significantly in the near future. So this is a positive sign.

    10. Net Margin

    For the net profit margin, again, Apple is clearly the leader. Although there are concerns for the profit margin to drop when Apple introduces low cost phones in the future in order to compete in the developing markets, it is nothing that can affect the profit margin significantly. Therefore, this is also a positive sign.

    In conclusion, after the recent sell-off, Apple is ripe for a significant rebound, based on the analysis of five technical metrics and five fundamental metrics.

    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.

    Stocks: CVX, GOOG, IBM, IWM, MSFT, QQQ, SPY, XOM, AAPL
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  • Shall we declare $AAPL bottomed? Looks like it finishes the five-wave downturn. Looking at move up to $520 area.
    Mar 18, 2013
  • Looks like the market is at or very near the top. Expecting a 1500-point or so Dow drop.
    Mar 14, 2013
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