Apple (NASDAQ:AAPL) has had a great run up from the low $500's to the mid $600's following the Q2 earnings beat on April 23. The Worldwide Developers Conference, June 2-6, was positive for the stock. Apple impressed developers with the features of Yosemite, Apple's new operating system. Yosemite further integrates with the iOS bringing the Mac and mobile devices together, and it is expected to be available later this year. Rumors abound regarding a 4.7" iPhone 6 in August, a 5.5" iPhone 6 in September, an iWatch in October and a new version of apple TV. In addition, Apple's acquisition of Beats has been received positively after much debate and consternation.
Many articles and research write-ups have been published over the past week about where the Apple will go from here. At $92.22, Apple is 10x forward earnings and 9x forward free-cash-flow after adjusting for net cash. The valuation is not stretched. Margins increased in Q2 to 39.3%. Margins appear to have bottomed in Q3 2013 at 36.9%. Sales and earnings per share are expected to grow in the 6%-7% and 8%-9% range respectively. The complaint of a lack of innovation seems to have faded for now, at least until after this round of new products is released.
The main arguments to sell Apple are technical in nature. "Apple has run up in a short time period." "Apple will hit technical resistance in the $95-$100 area." "Apple is due to consolidate or pull back post-split." "The RSI is above 80." Or "Apple has priced in all the good news, and the new product releases will be a sell the news event." These all make sense at first glance, and may very well turn out to be the case. Portfolio risk management is always importance, and allocations should be constantly monitored and adjusted by trimming or adding. But technicals alone should not constitute a reason to sell a stock. When trading more macro instruments like commodities or interest rates, technicals take on more importance. Technicals always matter to a certain extent, because they are self-fulfilling. For an individual stock, technicals should align with fundamentals to produce a more reliable trading signal. Apple fundamentals are positive and improving, so the technicals should be discounted. Markets tend to move toward the point of most pain for market participants. Given the underweight of the average institutional investor, more pain looks to be to the upside for now, probably to a new all-time high for Apple.
Disclosure: I am long AAPL.