AAPL 7 for 1 split

[Zaap]

Any other Apple investors excited for this tomorrow?

After the split you'll have 7x the number of current shares at around $90 each.

I'm planning to buy as many sub $100 shares of AAPL as I can- if it'll even be possible to pick up shares at that price. It'll be interesting to say the least what AAPL is going for on Monday morning as trading may get locked on Friday after the split.

Last time Apple did a split was a 2 for 1 in 2005.

Anyway, I predict seriously good things for shareholders. Personally, I think Apple's been undervalued for a while and this 7 way split was an awesome idea to bring it back to a realistic share price (lower, but more valuable on higher volume). I guess we'll see.

 

[manly]

really? I think Apple is fairly valued. At $620+ valuation, I hope they stop buying back shares because it's no longer a good deal for shareholders. IMO there are only two drivers for a true Apple breakout (the current AAPL run-up is mainly due to buybacks and optimism, there's very little organic growth right now):
* The iPhone captures market share in the Far East. iPhone already dominates North America & Japan, so adding a few percentage points here won't make much difference
* The feds allow a tax amnesty for bringing back overseas cash (say 10% tax rate), and Apple brings back boat loads of cash for a special dividend.

I think some of the price action you're already seeing reflects people's assumption that the stock split will drive retail demand. I'm extremely tempted to sell my shares if it hits the all-time high of $100 post-split. It's been a great ride, but there have to be better upside opportunities out there.

IMO Tim Cook is starting to "game" his own stock. Steve never gave a fuck because he knew that if Apple executed, the share price would take care of itself.

 

[Zaap]

Interesting outlook.
I'm not even concerned with the current run-up. I was actually hoping that wouldn't happen so the stock would split as far below $100 as possible.

It's funny, but believe me, I've had the same thoughts as you about dumping out of my positions in AAPL many times in the past "This can't possibly continue! There's better uses for this money..." and then virtually always what followed were gains that made my head spin.

Even though it's just a trick of volume, I feel $620+ isn't attractive to many people who'd otherwise like to own a peice of Apple. But at > $100 I think there's a tremendous floodgate of demand that's about to be unleashed.

At any rate, it should be interesting!

 

[manly]

well Zaap, it's not even an outlook per se. Look at the results over the past 18 months. Revenue has inched up, but net profits have not. EPS has grown only due to buybacks, but if AAPL is no longer undervalued, those buybacks rapidly drain the company's domestic free cash flow.

I've held AAPL for a long time, I even got out of it before it made the huge jump to $700. My market timing tends to be terrible, but thankfully they've rewarded my patience through some of the down swings (2009 and 2013).

My point is that unless there is some new driver for EPS growth, AAPL will be locked into some trading pattern. The swings may be fairly massive (see last year), but historically the P/E ratio has rarely surpassed 15. When the share price zoomed to $700, the P/E ratio was clearly exuberant at 18. People like to say the P/E ratio ex-cash is still low, but all that cash is parked overseas and Apple won't repatriate it at a 24% tax rate. So shareholders for now shouldn't be thinking of that cash hoard.

It's all about the law of large numbers, a $170B company with a $550B market cap just doesn't have much upside potential left. It's still a phenomenal business, with a pretty strong "moat"; but unless the iWatch or iTV turns into huge hit, what's going to drive growth again?

And seriously, a watch or TV? People hardly wear watches anymore, and TVs have long ago turned into a cut-throat commoditized business. If I had to choose, those are two things I wouldn't want Apple to bring to market.

I'm not a swing trader but if you didn't accumulate shares < $600, I think it's a bad idea to do so now at $645+.

 

[Zaap]

Apple's never been a "get rich quick" pick for me. To me, that's where all the dry analysis of them always misses it. (It's one of those if only I had a buck for every time I've heard analysts insist Apple was a bad bet... oh wait a minute... I do!)

I'm in AAPL long term. For dividends. I'm not worried about what they're going to come out with next week, next month, next year- at least not from an investment standpoint. (From a pure tech standpoint, Apple bores me to tears- quite ironic!) Apple's real strength remains in long term customer loyalty- the cult like status they enjoy, and I think it'll remain.

As for growth potential, I read somewhere that Apple's at something like 7.1%, while the average for most of the S&P 500 is only around 2.1%. People always compare Apple to past-Apple levels of performance- which often is so off the charts phenomenal, it's unrealistic to expect from them forever. Many companies only wish they could perform at Apple's worst.

 

[manly]

I'm no master investor, so take my commentary with some large grains of salt.

You can't be serious about dividends. The yield is 2%; I wish Apple would pour its free cash flow into higher dividends than buybacks > $620. But 2% isn't going to matter (to me, it's a rounding error) if AAPL replays its dog days of 2013. And like I said, if there's ever a federal tax holiday, the overseas cash will finally be distributed to shareholders.

I'm not sure what you mean by growth potential, so let's assume profit growth which is the most important/common metric. EPS peaked at $44.xx in FY 2012, tanked by about 10% in FY 2013 as Apple correctly shifted to lower margin products. Estimates for the current FY ranged from $42 to $44 so its just getting back to where it was 2 years ago. So the 7% projected growth could be referring to FY 2015 ( last I checked, consensus estimate is for $47 which is about 7% higher). Keep in mind EPS reflects share buybacks over the past 18 months. It would actually be a little lower otherwise. So they've had to spend a lot of free cash flow and sell some bonds (cheaply) to keep Carl Icahn off everyone's backs.

Again, all else being equal, it is incredibly difficult for ANY company the size of Apple to continue growing. Imagine a solid but unspectacular 11% YoY revenue growth (not even talking net profit). That takes Apple from $180B in rev in 2014 to $200B. But that answer just begs the question: where does Apple find another $20B in annual revenue? Either they launch a gargantuan hit product, OR the iPhone 6/iPad Air 2 just hits it out of the park in East Asia. The law of large numbers is no joke.

And if you're in it long-term, than a split that drives retail demand shouldn't matter to you one iota. The only thing that should is whether or not the stock is undervalued based on its future prospects. Right now with a P/E that has already crept above 15, I'm pretty sure it isn't undervalued.

I do hope you're right that the stock defies gravity and creeps up to $100, because that is my exit point.

 

[Zaap]

I'm no master investor, so take my commentary with some large grains of salt.

You can't be serious about dividends. The yield is 2%; I wish Apple would pour its free cash flow into higher dividends than buybacks > $620. But 2% isn't going to matter (to me, it's a rounding error) if AAPL replays its dog days of 2013.

Come on, over-emphasizing yield with a stock like Apple? Look, not everyone bought a handful of shares of Apple at $700!

Apple is the largest dividend payer in the world. Their initial dividend offering was so high it actually drove the entire market to pay higher dividends... I'm talking RATES not yeild. Cash. I don't care about a high yield on crap stock vs. an average yield on a phenominal stock.

Not only does Apple pay the highest dividend, they're committed to raising it every year. I guess someone buying Apple at the top of the market might not feel like $12.44 a share is all that. Sure thing, maybe you can spread $640+ around and buy a higher rate a few nickels here and a dime there.

Also: I prefer PEG ratio to P/E for valuing Apple. Its still low, and therefore Apple is still undervalued. I've seen people for years argue til they're blue in the face over which is the better measure, but for my money PEG definitely is more meaningful for Apple.

 

[manly]

How's the PEG ratio low? Yahoo Finance has it at almost exactly 1.0 (5yr estimate), which is what Peter Lynch defines as fairly valued.

But if the P/E is 15, and the estimated one-year EPS growth rate is 7.5%, then the PEG is actually 2.0. I'd actually assert it's mathematically impossible for a company as large as Apple to have a "low" PEG ratio. 5 year projections are highly unreliable, so I'd stick to the 1 year projection, personally.

Apple's PEG ratio used to be 0.50 (and perhaps even lower), but it hasn't been that way for years.

I don't see how you can accuse me of over-emphasizing yield, when your own statements are you'd possibly accumulate some shares at < $100, partly for dividends. Even if your avg. cost basis now is $300 pre-split, your yield is a respectable 4% but your capital appreciation would be > 100%. Like I said, the dividends they pay out per share is a rounding error to me compared to the likely trading range of the stock going forward (say $500 - $730 pre-split).

Not trying to spark a debate here, you'll do what you do with your money. But again, the law of large numbers is no joke. Historical earnings:
FY 2012 - $44.xx
FY 2013 - $40
FY 2014 - maybe $44 again

At any rate, I've still got skin in this game too. Good luck to you.

 

[Zaap]

Apple's PEG ratio is 0.96 compared with the average of 1.82 among similar dividend paying mega-caps. I consider that low in that the average in the same arena is pretty high.

Bottom line for me: Nobody I know of is paying its investors more cash in dividends than Apple right now. Consider that for some long-holders, the dividend per share is higher than what those shares initially cost!

Looks like Apple will open at $92. My reason for picking up more shares: I simply believe that the appearance of a "low" price for Apple, and their likely DJIA status will drive the price up, whereas at $620+ it was going to be a much longer road. I didn't have much faith in Apple hitting $700 and higher before the split- now I'm betting it'll hit that fairly rapidly, and in the long term, surpass it.

Guess we'll see how this shakes out! Good luck to you too.