Apple (NASDAQ:AAPL) is the most undervalued stock on the market today, having turned down sharply in recent days due to extreme profit taking as the stock has produced extreme profits in the past 12 months, up roughly 50% in that time. Right now people are focusing on the stock’s volatility and it being down 21% even after the pop earlier this week. That means they are missing the bigger picture.
- Apple may have the pre-eminent brand in cell phones, the best smart phone on the market and surging demand for the iPhone 5, but the company’s overall market share in the cell phone market is below 4%.
- The Apple Mac family is the premium brand among mass market desktop and laptop computers, commanding prices often twice that of competitors – and is the only product picking up share in a declining PC market (see Intel’s recent earnings announcement) and yet it still has, by my calculations, less than 5% of the worldwide desktop and laptop market.
- The Apple iPad family is dominant – totally dominant, 65%-85% share – in the tablet market. That market is growing more than 50% a year. That being said, if you bundle low-end laptops and netbooks with tablets – as many market research types do – Apple still has a relatively small share of that market, perhaps under 20%.
- And here is a kicker – the largest cell phone carrier in the world, China Mobile, with 640 million or so subscribers, does not yet carry the iPhone— “yet” being the key word here. Who knows when they will announce picking up the iPhone and iPad?
- How about another kicker for the short term – ChangeWave Research (part of the 451 Group) surveys show pent-up demand for the iPhone 5 is by far the greatest they have seen for any iPhone. This means a terrific calendar Q4 and Q1.
How to play this? To my mind, if you are even half as bullish as I am about Apple you can play this several ways depending on your appetite for risk.
Conservative: Consider selling to open (shorting) the AAPL December $520 put. You pocket enough cash to produce a 12-14% annualized return. Who in their right mind would not want to own Apple at $520, especially since that price is a serious technical support level for the stock?
Moderate: Buy to open the AAPL January $520 LEAP. It is around $25 out of the money and AAPL typically runs in the weeks before earnings. These expire the week before earnings come out in January, and according to those ChangeWave surveys, iPhone sales could be a real shock to the Street.
Speculator: Find some loose change under the couch cushions you can afford to lose and buy to open the AAPL January $620 calls. If the stock goes back to its all-time high before earnings come out, you have a 10-bagger. No kidding.
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