Why shares in the world’s biggest company (that’s Apple) could be about to rip higher
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As global markets head towards the main event of the week — US inflation data on Friday night — investors are on the lookout for individual trading ideas in an environment of rising volatility.
And in his daily trading note yesterday, Pepperstone Head of Research Chris Weston flagged two trades — one in the US, one in China — that could outperform and are at least worth keeping on the radar.
For starters, Weston likes the look of the world’s largest company (by market cap), Apple (NSDQ:AAPL).
Like other tech giants, the US$2.7tn giant has benefitted from the accelerated demand for Nasdaq leaders in the wake of the pandemic.
At ~US$175, AAPL’s stock price is up by around 200% since March 2020, but Weston said it still has near-term upside based on more recent catalysts.
In particular, a recent court ruling in favour of Apple means customers now have to use its in-house payment channels within the App Store.
Apple clips the ticket at between 15-30% of each transaction, so the court ruling will provide “a boost to earnings at a time when the wind is already to their backs”, Weston said.
In response, analysts at Morgan Stanley immediately put a US$200 price target on Apple shares.
In addition, Weston also cited trading data which also indicates bullish patterns are forming around Apple stock based on the trading flows in the options market.
The most crowded trade has been to buy ‘calls’ which expire this Friday (December 10).
Most of those options have a strike price of between US$175-$US180, Weston said, leaving them “just out of the money” from Apple’s Wednesday closing price of US$175.08.
He then provided some insights into how stock prices are influenced by trading flows.
“If the price continues to head higher dealers will be forced to hedge the calls they’ve sold, which means buying Apple stock – therefore pushing the stock further higher,” Weston said.
He added that the bullish price action around Apple is also a positive trend for the Nasdaq more broadly, given that the consumer electronics giant makes up the index’s biggest weighting.
“US$200 could be in play before year-end, and not in 12 months,” Weston said.