Apple Stock Climbs Off Lows As Earnings Optimism Builds: 3 Other FAANG Stocks Dominate Earnings Calendar

Apple (AAPL) is among a group of large-cap technology stocks set to report in the coming week, along with Amazon (AMZN), Google parent Alphabet (GOOGL), Meta Platforms (META), Advanced Micro Devices (AMD) and Qualcomm (QCOM).

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Apple stock surged more than 7% in late October after earnings and revenue topped expectations.

With the stock market in a confirmed uptrend amid improving sentiment, Apple could have another positive response to earnings. Apple stock, though, is still far off highs and below its 200-day moving average.

Apple Stock Climbs Off Lows

Apple still faces overhead supply issues as it works its way higher. But Apple stock is holding gains well after jumping above its 50-day moving average on Jan. 23.

For the current quarter, the Zacks consensus estimate is for adjusted profit to fall 8% to $1.94 a share. Revenue is expected to decline 2% to $121.2 billion. Results are due Thursday after the close.

The quarter ending in December is typically Apple’s strongest in terms of revenue. But Apple has been dealing with production woes in China that reduced the availability of iPhone 14 Pro models during the holiday season.

When Apple reported earnings on Oct. 28, total revenue of $90.15 billion topped expectations. IPhone revenue growth was solid, up nearly 10% to $42.6 billion, but just below the $43.2 billion consensus.

Mac revenue was a bright spot, up 25% to $11.5 billion. That was well ahead of the $9.36 billion consensus. Other product revenue, which includes Apple Watch and AirPods, also topped expected expectations, up 5% year over year.

Top Stocks To Watch

A host of other top stocks are on the earnings calendar, including oil drilling technology provider ChampionX (CHX), which is setting up in a cup-with-handle base with a 32.85 buy point. Cup-with-handle bases have been launchpads for many big stock-market leaders in the past.

ChampionX shows several quarters in a row of triple-digit earnings growth. Annual estimates are also strong: Full-year profit is expected to soar 98% for 2022 and another 58% this year. Results are due Wednesday after the close.

In the semiconductor sector, Allegro Microsystems (ALGM) reports Tuesday before the open. The chipmaker pulled back sharply after topping a 34.24 entry but ultimately found support at its 21-day exponential moving average. It soared past an alternate entry Thursday in heavy volume. Group peer Microchip Technology (MCHP) is approaching an 80.60 entry ahead of its earnings report Thursday after the close.

Chip giant Qualcomm (QCOM), meanwhile, has powered above its 200-day may moving average. Several recent above-average volume price gains have lifted QCOM’s Accumulation/Distribution Rating to B. Results are due Thursday after the close also.

Separately, two Leaderboard stocks — Caterpillar (CAT) and insurer Chubb (CB) — are also on the earnings docket.

Caterpillar has been a steady performer after joining Leaderboard in early January. Results are due early Tuesday. Look for adjusted profit in Q4 to be up 47% to $4.95 a share, with revenue up 15% to $15.89 billion.

Chubb reports Tuesday after the close. The Switzerland-based property and casualty insurer has been a solid performer since its addition to the Leaders list in late November, when it was clearing a 216.10 entry.

Options Trading Strategy

A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the options trading strategy works and what a call option trade recently looked like for Apple stock.

First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might have already broken out and are getting support at their 10-week moving average for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.

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In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.

Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price. A put option gives the holder the right to sell 100 shares of a stock at a specified price.

You earn profits when the stock falls below the strike price with a put option.

Check Strike Prices

Once you’ve identified an earnings setup for a call option, check strike prices with your online trading platform, or at cboe.com. Make sure the option is liquid, with a relatively-tight spread between the bid and ask.

Look for a strike price just above the underlying stock price (out of the money) and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.

Choose an expiration date that fits your risk objective but keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.

See Which Stocks Are In The Leaderboard Portfolio

This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most you can lose is the amount paid for the contract.

Apple Stock Option Trade

Here’s what a recent call option trade looked like for Apple.

When Apple stock traded around 143.60, a slightly out-of-the-money weekly call option with a 144 strike price (Feb. 24 expiration) came with a premium of around $4.55 per contract, or 3.2% of the underlying stock price at the time.

One contract gave the holder the right to buy 100 shares of Apple stock at 144 per share. The most that could be lost was $455 — the amount paid for the 100-share contract.

When taking the premium paid into account, Apple would have to rally past 148.55 for the trade to start making money (144 strike price plus $4.55 premium per contract).

A call option for Qualcomm was also reasonably priced. When QCOM stock was trading around 133.94, a weekly call option using a 134 strike price (Feb. 24 expiration) offered a premium of around $5.50, or 4.1% of the stock price.

Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight

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