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Apple Inc.: Value Trap Or Value Play?

Cursed may be the year 2015 for Apple Inc. (NASDAQ:AAPL), shares of which are suffering the most awful year since recession. First, the company came up with a weak revenue outlook and lower-than-expected iPhone sales in its fiscal Q3 earnings release in late July; then the tech icon was tagged an underperformer due to the recent Chinese economic setback as the country is seemingly the largest market for Apple’s future expansion. Its shares are down over 3% over the last one-month period (as of October 13, 2015) against about 2.1% gain in the S&P 500-based.

As if this was not enough, AAPL is up a meager 1.3% this year (against SPY’s 2.6% loss) and is fast approaching its worst performance since 2009. As per CNBC, Apple shares plunged over 50% in 2008 but never looked back since then as it kept returning at least 5% each year afterward. However, the current year might snap this wining trend (read: Apple Fails to Impress: Should You Still Buy its ETFs?).

Apple iPad growth has decelerated a long way thanks to rising competition from other markets. More bad news came recently when the company had to block the use of its Apple News service in China where it was a victim of content censorship.

Compelling Value or Risky Play?

Bullish Technicals: The Apple stock is currently in its mid 52-week range. But the current price of AAPL is trading above the parabolic SAR indicating a bullish trend for the product. Moreover, its long-term moving average is higher than the intermediate and short-term averages. It recently broke the 9-day (short-term) moving average on its way up.

The stock is trading at a Relative Strength Index (RSI) value of 48.80, indicating that it is about to enter an oversold territory and that there are fewer chances of more pricing pain, if not a great recovery (read: 3 Reasons to Buy Apple ETFs Despite Sell-Off).

Bullish Metrics: Apple has a Zacks Rank #3 (Hold) and Growth, Momentum & Value style scores of ‘A’ at the time of writing. The tech behemoth boasts return on equity of 41.5%, higher than the industry average of 33.3%. Apple’s projected sales growth for fiscal 2015 is 27.5%, which is above the industry average of 21%.

The company is still the backbone of the technology sector. The projected earnings growth for the full fiscal is 41.9%, more than double the industry average of 12.5%. Excluding Apple, the sector’s growth turned negative in Q3 instead of earnings expansion of 1.8%, as per the Zacks Earnings Trend issued on October 8, 2015.

Plenty of Long-term Drivers:  Apple’s new mobile payment system, Apple Pay can be a driver of future growth given the surge in mobile payment activity. The new iPhone 6 and 6 Plus, which could be hits this holiday season, are other drivers of Apple’s potential turnaround story, though the products did not see much enthusiasm at the launch event.

Also, there is a buzz that the company has ramped up its efforts to build the first electric car with a target shipment date in 2019 after spending more than a year on investigating the feasibility of an Apple-branded car (read: Is iCar on its Way? Apple ETFs to Buy on Optimism).

But Bumps Awaiting Too

Given the intense volatility in the market thanks to global growth worries and the resultant flight to safety, Apple stocks might be range-bound in the coming days. Apple’s P/E (ttm) stands at 12.9 times against the industry average of 12.4 times.

A few of its financial matrices for fiscal 2016 – including its revenue growth (4.9% vs. Industry average 4.4%) and earnings growth (6.8% vs. Industry average 6.6%) –  are almost on par with the industry average, raising questions like whether the company is losing its charm or if Apple is too ripe to eat now.

All in all, while the backdrop is not at all bearish, it is not too bullish either suggesting that investors should wait on the sidelines and look for better entry points. Still, investors believing that the recent crash might open up solid buying opportunities can consider Apple via the ETF or basket approach.

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