Our Analysis of Apple Inc. (NASDAQ: AAPL)

We are now in our third month of weekly sharing our “Quantamental” analysis of some of the most well-known and widely owned stocks.

This approach combines "quantitative" analysis, which consists mainly of technical analysis, with "fundamental" analysis of the company's operating metrics.

We have developed and refined this approach over thirty years as professional investors.

We have simplified our approach to three simple analyses that can cover 90% of the analysis of any individual stock.

We will apply this analysis to some of the most popular stocks each week in HX Daily.

We began our analysis in July by examining the stock of Tesla Inc. (NASDAQ: TSLA). Over the next couple of months, we reviewed most of the members of the “Magnificent Seven.”

Last week, we analyzed one of the remaining members we had yet to examine: social media platform Meta Platforms, Inc. (NASDAQ: META), or, as most of us know it, Facebook.

Today, we finish our analysis of the "Magnificent Seven" with our analysis of the largest company in the world: Apple Inc. (NASDAQ: AAPL).

Our analysis below is not a formal recommendation on the stock. Based on our analysis, we are giving our views of what is most likely to happen from here.

Here is the analysis…

1. Technical Analysis

Apple stands out amongst its “Magnificent Seven” peers in several ways.

The first is that it has had less volatility than the other members. Here is the chart of the stock price over the last decade…

Over the last ten years, it has gone from a low of roughly $17 per share to a recent high of over $230 several months ago. That is a thirteen-fold return on the stock!

This is the second-best return profile in the “Magnificent Seven.” Like many other members, the stock pulled back during the 2022 BEAR market, but it did so to a lesser extent.

When looking at the stock's trading, there seems to be considerable "brand" value attached to it. We will discuss this more below in the earnings discussion, but the stock has outperformed relative to its mega-cap peers.

Of all the stocks we have examined, there seems to be a "bid" for AAPL stock that is much stronger than any other company. This has underpinned this robust upward trend in the stock price.

Despite some skepticism, it continues to outperform. Here is the recent stock price and RSI chart…

The stock is currently trading at an RSI of 58, which is in the upper middle of the overbought/oversold range.

From a technical perspective, the stock continues to be in a strong uptrend. It is also not overbought and is trading in this new range near its all-time highs.

This is an impressive stock from a technical perspective. Based solely on the stock chart, we would add to it on any pullback.

TECHNICAL ANALYSIS = BUY.

2. Earnings Revisions

Our readers know that we think the strongest driver of near-term stock price performance is whether companies beat numbers and see positive earnings revisions.

We refer to them as “earnings” revisions, but they can also be revenue revisions. We usually look at not only the most popular measure—earnings per share (EPS)—but also other measures, such as Earnings Before Interest, Depreciation, and Amortization (EBITDA).

For AAPL, the EPS revisions are most important, and here is the chart of those estimates…

We mentioned the stock's relative outperformance during the 2022 BEAR market, and this chart shows the principal reason why.

While AAPL saw a pullback in EPS estimates similar to the other companies, it was much less than the other companies' pullbacks.

Estimates for 2024 EPS went from roughly $7 to about $6.50 in early 2023. Since then, they have recovered and are now at $6.70.

What we find interesting is that the stock price is much greater than the movement in the earnings estimates. This is part of the AAPL “premium” that we identified in our analysis of the stock.

Earnings revisions have turned higher in the recent 18 months, and the company has a good history of beating quarterly analysts’ expectations.

Here is that table…

The company missed a quarter in early 2023 and one around the COVID period, but other than that, they have a consistent track record of beating numbers.

We didn't include the full table here, but if you go back ten years, you will see that the company has an impressive track record of beating numbers. They have only missed four times over that period.

We suspect that is one of the contributors to the AAPL “premium” we see in the stock.

AAPL's path of earnings revisions is lower volatility, but they have a great track record. We think they are likely to continue this momentum, which will be good for the stock.

On this basis, we think the stock is a buy.

EARNINGS REVISIONS = BUY

3. Earnings Growth

The final measure we focus on is the actual growth in earnings.

AAPL has been a great stock over the years, but it has one of the more interesting earnings histories among the members of the "Magnificent Seven.”

Here is the table of their EPS growth over the last decade…

The company stands out both with relatively low growth compared to its peers and having had several down years.

For instance, META (which we analyzed last week) has seen a 35-fold increase in EPS over the previous eleven years. That is coming off a lower base, but the growth in recent years has also been higher.

This is true for almost all the "Magnificent Seven," including the behemoth Microsoft Corporation (NASDAQ: MSFT).

Amongst its peers, AAPL is also the only one that has seen several down years in earnings. It is only two, but none of the other companies saw more than one down year, and that was in 2022.

We were honestly surprised to see lower growth and AAPL's second down year, given the share price performance.

This context leads us to argue there is an AAPL "premium" in the stock price. It appears to perform much better than peers relative to earnings growth and volatility.

Why do we think this “premium” exists?

Remember our view that stocks are NOT companies. We think that AAPL stock is the most popular stock in the world as a "product." The company's history of success, Warren Buffett's involvement, and legendary story have made it one of the most popular stocks in the world.

There is no doubt their earnings growth has underpinned this. Do we think it will continue?

Over time, we think it does, especially because expectations are not as elevated as they are for many of their “Magnificent Seven” peers.

The power of the AAPL iOS platform shouldn't be underestimated. As decades-long customers, we have no interest in switching.

The product works well, and we are integrated into the ecosystem. The phone companies also subsidize our upgrades. Why switch out?

We think that the combination of earnings growth and the continued AAPL stock price "premium" should continue to support the shares over time.

EARNINGS GROWTH – BUY

Conclusion

Since launching our Quantamental analysis series in July, we have analyzed all the “Magnificent Seven” stocks.

Our analysis of AAPL surprised us somewhat.

Given the share price performance, we would have thought the stock's earnings performance would have been stronger.

Our conclusion is positive, but we find the stock relatively less compelling than several of the other companies.

We think you are in good shape if you own AAPL – especially if you have big taxable gains.

However, if we had new capital to deploy, we think there are better places to invest it in the "Magnificent Seven."