A Turn-Around In Apple Sentiment Should Push the Stock Back to All-Time Highs

(This is an excerpt from an article I originally published on Seeking Alpha on May 5, 2014. Click here to read the entire piece.)

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This quote is from a piece I wrote in early March titled “Apple’s Post-Earnings Buyback Fails To Sway Growing Negative Sentiment In The Stock.” At that time, I was wringing my hands over what I believed was a surprising litany of signs pointing toward negative sentiment on Apple (AAPL). {snip}

If institutional investors do not reload, the 7:1 split planned for holders of stock as of the close of trading on June 2nd will help bring more retail investors into the stock…{snip}

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Apple's grinding recovery continues
Apple’s grinding recovery continues

Source: FreeStockCharts.com

Short interest has turned around dramatically. {snip}


Short interest in Apple is on the decline again
Short interest in Apple is on the decline again

Source: Schaeffer’s Investment Research

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Options trading seems to support an interpretation of a retreat in bearishness. {snip}


A crescendo of bearish bets in Apple options
A crescendo of bearish bets in Apple options

Source: Schaeffer’s Investment Research

These signals provide an illuminating backdrop for the fundamental reasons traders and investors might place stronger hopes on Apple: major changes to the company’s “capital return program” and valuation.

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Apple's Annual Valuation Versus Profit Margin from 2004 to 2013
Apple’s Annual Valuation Versus Profit Margin from 2004 to 2013

Source: MSN Money

According to MSN Money, the current valuations are as follows: 14.8 P/E, 12.1 Forward P/E, 3.1 Price/Sales, 3.9 Price/Book. Using $10.2B in net profit and $45.6B in revenue I come up with a 22.3% net profit margin for the previous quarter. A small adjustment higher in willingness to pay for AAPL from improving sentiment should easily send the stock back to all-time highs.

Overall, the tide seems to be finally turning for AAPL. Improving trader and investor sentiment sits at the core of the recovery story in the shares. Next up, new products to seal the deal…?

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on May 5, 2014. Click here to read the entire piece.)

Full disclosure: long AAPL shares and call options

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