Apple Inc. (NASDAQ:AAPL) sentiment toward the stock is improving this year
Apple (NASDAQ: AAPL) received a vote of confidence on Wednesday when Evercore ISI analyst Amit Daryanani reaffirmed his outperform rating for the technology giant’s shares. While investors should never rely solely on an analyst recommendation for their investment decisions, Daryanani does have an interesting point about why he thinks sentiment toward the stock is improving this year.
Supporting Daryanani’s bullishness on Apple stock is his take on the company’s fast-growing services business. The lucrative segment’s rapid growth and management’s increasing focus on it are causing investors to reevaluate the way they think about Apple, the analyst argues.
It’s about services
In a note on Wednesday (via Barron’s), Daryanani increased his 12-month price target for Apple stock from $215 to $217. This potential upside in share price appreciation, combined with Apple’s 1.5% dividend yield, represents a possible 8% return from where shares are trading today. Notably, the return would come on top of a nearly 30% gain for Apple stock year to date.
While Daryanani lists a number of factors that make the stock a buy, including a likely improvement in Apple’s consolidated gross profit margin due to a decline in memory chip prices and increased Mac sales thanks to the launch of new versions of the computers, the analyst is particularly optimistic about Apple’s services business.
“We think AAPL remains a ‘revaluation’ story as the focus shifts from growing the install base to monetizing the install base,” said Daryanani. In other words, investors are assigning greater value to the opportunity for Apple to grow its services business.
It makes sense that investors have grown more optimistic about Apple stock as management has shed more light on its services segment, which includes revenue from services like Apple Music and iCloud and digital stores such as the App Store. When Apple reported its results from the first quarter of fiscal 2019 earlier this year, the company began reporting its services gross margin for the first time. The move likely prompted many investors to assign a greater value to the segment. With a gross margin of 63% at the time, investors learned that services boasted far better economics than Apple’s hardware business (the company’s products segment had a 34% gross margin during the same period). Not only was Apple’s 63% gross margin for services higher than some analysts were expecting, but it’s widening. Apple’s fiscal second-quarter services gross margin was 64%, up from 63% in Q1 and from 62% in the year-ago period.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 193.60.
The projected upper bound is: 212.09.
The projected lower bound is: 191.45.
The projected closing price is: 201.77.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.
An engulfing bearish line occurred (where a black candle’s real body completely contains the previous white candle’s real body). The engulfing bearish pattern is bearish during an uptrend (which appears to be the case with APPLE INC). It then signifies that the momentum may be shifting from the bulls to the bears.
If the engulfing bearish pattern occurs during a downtrend, it may be a last engulfing bottom which indicates a bullish reversal. The test to see if this is the case is if the next candle closes above the bottom the current (black) candle’s real body.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 54.9225. This is not an overbought or oversold reading. The last signal was a sell 3 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 57.99. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 26 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 64. This is not a topping or bottoming area. The last signal was a sell 3 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 0 period(s) ago.
Rex Takasugi – TD Profile
APPLE INC closed down -1.480 at 201.750. Volume was 28% below average (neutral) and Bollinger Bands were 46% narrower than normal.
Open High Low Close Volume___
203.310 204.390 201.710 201.750 20,172,714
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 201.68 193.73 187.89
Volatility: 20 34 40
Volume: 20,887,636 28,230,828 33,243,052
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
APPLE INC is currently 7.4% above its 200-period moving average and is in an upward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of AAPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on AAPL.O and have had this outlook for the last 19 periods.
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