(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of AAPL.)
Apple Inc.'s (AAPL) stock has almost doubled over the past 3 years, topping the S&P 500's rise and defying bears who have said the stock's big gains are over. Now, options traders are betting the iPhone maker's shares will rise even more over the next three months, by as much as 15 percent from the stock’s closing price of approximately $221 on September 12.
The bullish sentiment is also reflected in technical charts and in the rising optimism of some analysts, who immediately raised their price targets following the debut of the newest iPhone lineup this week.
The option trades are overwhelmingly bullish for Apple's stock. The volume of call options trades, which bet the stock will rise, outnumbers by 3 to 1 the volume of bearish put options. The $225 calls expiring on January 18 have almost 18,000 open contracts. To earn a profit, a buyer of the calls would need the stock to rise by 7%.
Even more bullish are the bets placed at the $250 strike price. The calls have 43,000 open contracts, a massive wager worth more than $14 million. Apple would need to rise almost 15% to $253 to earn a profit if held until the middle of January.
The technical chart also suggests the shares will rise in the coming weeks to around $240, based on the trading channel. Momentum in the stock has been bullish, based on the relative strength index. It has been trending higher since the beginning of February.
Analysts are forecasting revenue to rise by more than 5 percent in fiscal 2019 to $277.4 billion. Meanwhile, earnings are forecast to climb 15.5 percent to $13.59 per share. These estimates are likely to rise after learning the new pricing structure for the latest iPhone models. Analysts currently have an average price target on the stock of $224.40. But some have already started raising their price targets, while some see shares rising as high as $275.
To be sure, positive sentiment alone cannot move Apple's stock higher on a sustained basis. The ultimate test will be whether enough of Apple's loyal consumers are willing to pay steeper prices for the latest iPhones.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.