Apple (AAPL) needs no introduction in terms of its products and innovation leadership. There was a bearish herd of analysts who were either pleasantly surprised or blindsided by AAPL’s 1st quarter earnings report on April 23. The analysts turned on a dime and the stock spiked up 8% the next day. While Apple’s stock usually digests positive earnings surprises by consolidating its price gains over the next 2-4 weeks, the stock continued to move higher propelled by analyst estimates and opinions being raised and the subsequent response of institutional investors.
Apple recently traded above 600 for the first time since October of 2012. There were a number of positive announcements accompanying their 1st quarter earnings report including a 7 for 1 stock split, a dividend increase, raising AAPL’s yield to 2.4% and an increased stock buyback.
The Chaikin Power Gauge rating turned bullish at 567 after the earnings announcement and has stayed bullish. Strong Chaikin Money Flow indicates that the institutional buying has continued, driven by hints of product innovations and increasingly bullish Wall Street analysts. The 7/1 split brings up the possibility of AAPL being added to the Dow Jones Industrial Average, which would add some short-term demand for AAPL’s stock based on index fund buying. It will also make Apple more appealing to the small investor, driving demand as well.
There is more to the Apple story, however, than better than expected earnings and a stock split. AAPL has been upgrading its technology and is once again taking the lead as evidenced by its leap to the 64-bit A7 processor for iPhone. Apple has also funded GT Advanced Technologies (GTAT), a manufacturer of Sapphire crystal glass. This scratch resistant material could replace Gorilla Glass from Corning (GLW) in future versions of the iPhone and this time Apple controls the supply chain. If Samsung decides that this is a superior display technology, then AAPL will have its rivals scrambling on both the processor and display fronts, a clear cut edge for AAPL.
AAPL has been leading the market higher, with pullbacks minimal since the earnings related breakout. It has the potential to rally to 635-655 in the short-term if the stock market continues to favor cash rich, large cap stocks with decent yields. Any dip of 1 ½ to 3 days in Apple’s stock, particularly down to support in the 595-600 area would be an excellent buying opportunity.
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