Today marks Apple’s (AAPL - Analyst Report) ascent back into triple digit territory, as the company broke the $100/share barrier for the first time after the 7:1 stock split that took place earlier this year in June. The all-time high was $100.72 post-split, or roughly $705.07 pre-split, which took place almost two years ago, September 21, 2012, and Apple shares are once again closing in on peak prices.
The $100 Milestone
AAPL shares rose today, as the company acquired a patent that will aid in facilitating the commercialization of the long awaited iWatch. According to the US Patent and Trademark Office, one of the 48 recently granted patents is a curved touch screen display that will most likely be put to use in the design and development of the highly anticipated iWatch gadget. It is important to note that no AAPL product currently features this patent or technology.
Is AAPL Stock Set to Skyrocket?
It is AAPL’s seasonal cycle of new products. It is one of the most watched technology companies, and there seems to be little doubt that its stock is likely to rise. There are many factors that will help propel AAPL’s stock higher in the coming months.
First and foremost, the hype is going to be intense, especially when the iWatch and iPhone 6 are rolled out of the factory next month. Investors should not forget to see how analysts are reacting to AAPL’s new line of products and the buzz that shrouds them. Analysts may increase their price targets for the stock assuming brisk early sales, and this could help to push the stock up well above its current $100/share level.
Traders and investors should not forget that AAPL’s share buyback program is also in full swing. The program lowered its share count by 9% while increasing its yield as well. This move should assist in boosting EPS, and could help to keep share prices firm. It is also noteworthy to mention that some institutional investors who are momentum focused may be likely to jump on the bandwagon with retail investors who are looking to hold on to the stock for some time at least until the hype quiets down.
According to Morgan Stanley, AAPL’s recent acquisition of Beats by Dr. Dre, is set to refresh the company with new ideas and concepts, though the benefits will probably be further down the pipeline. The most likely route seems to be integration with current products, such as a Macbook Air or Mac Pro with Beats sound quality inside.
The increase in research and development spending is also a positive factor that will help increase future revenue for the computer and technology behemoth. AAPL’s gross margin is also stabilizing after a rough period in 2012-mid 2013. The advent of the iWatch will likely increase gross margin, whilst iPhone 5c and iPad mini with retina display have kept the gross margin hovering and slowly but steadily climbing up.
Apple’s App Store is an ever-growing business and source of income, despite the fact that iTunes has not been delivering too well due to declining music sales. This is partially to blame on the streaming music services offered on the internet. Once again, perhaps the Beats acquisition will be of use when it comes to a music streaming service or something of the like.
Bottom Line: Should AAPL Be in Your Portfolio?
As of late, Apple has been enjoying positive social sentiment. The stock currently maintains a moderately bullish social sentiment on StockTwits of about 94% bullish. However, we currently have AAPL as a Zacks Rank #3 (Hold), as there is likely to be a better buying opportunity if there is a sub $100 pullback for the stock.
AAPL has also positively surprised in earnings season last quarter by 4.92%, however, investors should be wary this quarter, as the Zacks Consensus Estimate Trend has seen analysts revise and lower their EPS estimates from $1.33/share to $1.28/share for the current quarter. However, EPS estimates have been revised and increased for the next quarter, current year, and next year.
Perhaps most importantly, AAPL has surprised positively over the past four quarters, yielding an average EPS surprise of 6.51%, and the company generally does a great job of managing earnings season expectations.
Given these factors, and especially the rising long term earnings estimate revisions, it appears as though AAPL is an intriguing longer-term bet. While the company may have some growing pains in the current quarter if recent estimates are any guide, it seems poised to continue its success and become a popular, and outperforming, stock for retail investors once again.
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