Markets pulled back four consecutive days last week before rallying sharply on Friday. The Dow Jones was down 0.41%, the S&P 500 fell 0.04%, while the MSCI Emerging Markets Index dropped 0.97%.
The single biggest gainer in your portfolio was AutoNation (AN), which rose 3.08% on good news from the U.S. car sector last week and moved back to a BUY. The iShares MSCI Spain Capped Index (EWP) dipped below its 50-day moving average and is now a HOLD.
This week’s Bull Market Alert recommendation takes you back to former investor darling Apple Inc. (AAPL). After years of outperformance, 2013 marked the year that Apple went from “hero to zero.” In a year that the S&P 500 is up close to 28%, Apple — the S&P 500’s biggest component — has risen a mere 5.23%. And that’s after Apple has rallied over 27% since June.
From a short-term trading standpoint, a major catalyst for a further move upward in the stock is confirmation of a deal that would expand Apple’s presence in China.
China has been a tough nut for Apple to crack. Apple’s market share in China is a mere 8% of all handset sales, compared to 20% for Samsung. On its face, that is surprising. With China as the world’s biggest market for both luxury goods and for smartphones, you’d think Apple’s iPhones would be among the market leaders.
Part of the reason Apple iPhones have fared poorly in China is that they are not offered on the inferior 3G network run by China Mobile (CHL), China’s largest mobile operator.
But Apple’s fortunes in China are about to change for two reasons.
First, just last week, the Chinese government authorized the country’s three main wireless-telecoms operators to move ahead with the next generation of network technology, known as 4G or LTE in the United States. That will allow Apple’s iPhone to work on all of China’s networks.
Second, Apple is already working directly with China Mobile — the world’s largest mobile-phone operator with more than 700 million customers — to unveil a 4G iPhone for the Chinese market. A deal with China Mobile would add 5 million to 10 million iPhone sales in calendar year 2014 and be worth $9 billion to $10 billion to Apple.
So what is Apple’s potential in China? Just look at Japan as an example. Apple’s iPhone accounted for an amazing 76% of all smartphone sales in Japan in October. If Apple achieves even a fraction of that success in China, it will mint money in the Middle Kingdom for years to come.
Apple stock, of course, has other things going for it that should drive the stock higher. Apple CEO Tim Cook is under pressure from activist investor Carl Icahn to return $150 billion of its cash hoard to shareholders — though Icahn reportedly reduced his demand to $50 billion last week.
And with Apple trading at a trailing price-to-earnings (P/E) ratio of 14 and a forward P/E of only 11, the tech giant is pretty cheap. Any deal with China should provide a big boost for the stock.
So buy Apple Inc. (AAPL) today and place your stop at $512. If you want to play the options, I recommend the February $600 calls (AAPL140222C00600000).
Portfolio Update
Bank of Ireland (IRE) fell 7.17% last week. Bank of Ireland received the first of several European Financial Stability Facility (EFSF) assistance installments back in February 2011 — payments that would ultimately total $24.2 billion. IRE took delivery of its last $3.7 billion installment on Wednesday, formally ending its participation in this program. IRE is a BUY.
Google Inc. (GOOG) rose 0.97%. In yet another pursuit designed to change the world, Google is entering the world of robots. Andy Rubin, the “father” of Google’s Android operating system, is now working on a new program to design robots that will be able to perform industrial tasks. However, these robots will be fully mobile and intelligent, unlike the typical “dumb,” stationary automobile assembly-line robots commonly in use today. One day, these robots may even be human personal assistants. Google recently acquired seven robotics companies in an effort to capture some ready-made, best-of-breed technology. GOOG is a BUY.
AutoNation (AN) gained 3.08% on good news last week. AutoNation announced last Wednesday that November total retail new-vehicle sales figures were the highest for November since 2001. It also highlighted same-store sales gains of 8% year-over year. This news appears to have lit the fire under AN’s stock price. AN also moved above its 50-day moving average (MA) and is now a BUY.
iShares MSCI Spain Capped Index (EWP) fell 3.16% last week and dipped below the 50-day MA. However, EWP has good price support at $36 and may reverse once again. Moody’s also raised its Spanish government bond rating last Wednesday from “Negative” to “Stable” and expects Spain’s strong export performance to continue. EWP is a HOLD.
Trina Solar Limited (TSL) fell 10.21% last week. A Barron’s article published last Wednesday featured several solar stocks and listed a “Buy” rating on Trina Solar. TSL moved higher on the news but dipped later in the week. TSL is a HOLD.
Stratasys (SSYS) closed the week flat. Analysts at FBR Capital initiated coverage on SSYS at “Outperform” last week and set a price target of $155 — a robust 33% move above Friday’s closing price. FBR Capital categorized SSYS as an attractive stock in a high-growth business and ranked it above competitor 3D Systems. SSYS is a BUY.
db X-trackers Harvest China ETF (ASHR) remained flat over the past five trading days. An international equity analyst for Deutsche Asset and Wealth Management made positive comments on China last Friday, noting that investor sentiment toward China is upbeat and improving. ASHR is a BUY.
ProShares Ultra Russell 2000 (UWM) dipped 1.84% as it pulled back slightly from its 52-week high last week. Looking back to 1978, the Russell 2000 has managed to make an average December gain of 2.83% a remarkable 80% of time. UWM is a BUY.
Finally, my colleagues at Eagle have been working hard on re-designing the www.EagleDailyInvestor.com site. Go check out the new site now and come back every day for exclusive stories, market commentary and analysis you won’t find anywhere else!
Latest Special Report
As a courtesy, I want to bring to your attention my latest special report, the newly updated version of The Top 12 Stocks You Should Buy Right Now, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle.
