Apple Inc (AAPL) stock has been gradually ascending post Berkshire Hathaway’s Q2 stock shedding, lingering at levels above the sell-off point. The tech giant still presents an enticing prospect, notably due to its robust free cash flow (FCF), making current valuations seem appealing. Exploit this opportunity by engaging in the sale of short out-of-the-money (OTM) puts.
Trading at $226.18 on Monday, Aug. 26, AAPL has held steady in recent weeks after hitting a peak of $234.82 on July 16th of the same year. These figures stand notably higher than the levels at which Warren Buffett divested half of Berkshire Hathaway’s (BRK.B) stake during Q2.
Apple’s vigorous FCF generation is anticipated to persist, hinting at potential stock value upsurge in the future.
An Aug. 5 Barchart article underscored AAPL’s undervaluation, projecting a 25% increase in stock price to $262.50 per share.
Since the article’s publication, AAPL has soared by 7.6% from $210, while analysts have cued an uptick in revenue forecasts over the last three weeks. Consequently, the implied worth of AAPL stock surpasses the previously envisaged $262.50 barrier.
Recalibrated AAPL Stock Price Projection
Previously expected revenues for the financial years ending September 2024 and 2025 stood at $385.6 billion and $418.99 billion, respectively. However, recent data released by Seeking Alpha discloses elevated average sales estimates of $390.4 billion for 2024 and $420.32 billion for 2025.
These adjustments translate into a 30 basis points surge in the 2025 revenue forecast, albeit a subdued rise compared to the 2024 figures.
By leveraging FCF margins to predict Apple’s 2025 free cash flow and applying a 3.0% FCF yield to assess stock valuation, market capitalization stands to ascend to $4,380 billion (or $4.38 trillion). This figure leaps almost $1 trillion from the current $3.43 trillion valuation.
Consequently, AAPL stock could potentially see a 27.7% appreciation, setting the target price at $288.64 (1.277 times the Friday closing price of $226.03). These revisions originate from the augmented revenue projections distilled over the past three weeks.
Leveraging OTM Put Options
For existing investors, one strategy to capitalize on this potential upswing involves vending short out-of-the-money (OTM) put options to generate income streams. For instance, scrutinizing the September 27 expiration option chain, particularly at the $215 strike price put option, boasts premiums amounting to $2.11 on the bid side with a mid-price of $2.14.
Venturing into this trade sanctions the investor to garner $211 on an immediate basis for each put contract sold.
While refurbishing a 0.98% monthly return, investors weather the storm for AAPL stock to ascend. In scenarios of a 5% slump to $215, the envisioned purchase at the strike price remains a possibly beneficial overture throughout the upcoming year.
Bolstering this approach, the breakeven hovers at $212.89, constituting a 5.6% downturn from the contemporaneous price level and offering a protective buffer.
Ergo, AAPL stock appears to be an economical venture currently. Mitigatively maneuver through selling short out-of-the-money put options within short-term expiry windows to amplify income streams.
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