Apple Stock Jumps on Rumors of Stock Split at Tomorrow's Shareholder Meeting

TallManNY said:

Avatar,

I may be wrong, but I think last year you were pretty down on Apple's share price and the company as an investment. Do I recall that correctly? And if so, how do you like it at this price? I also recall you had objections about trading based on the P/E ratios. Is that right? I don't recall the argument (I might not have gotten it at the time.) But do these P/E ratios start to get tempting to you? They have to me. A few quarters of performance not too different from how Apple did last year and this stock price is going to look way too low, I think.

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Not yet, even on past analysis if we ignore what factors have changed their operating cash flow outlook. My objections weren't solely about Apple's P/E ratio at the time, but about the reliance upon P/E ratios in general.

think about it.... What does a P/E ratio tell you? Does it tell you what the operating efficiency of the company is? No. It tells you two things. Price and Earnings... as if one has any bearing on the other. The only question P/E ratio answers is "How many times in excess of earnings was the market dumb enough to pay for this security?" If the question is: "Should I be only as dumb as the market?" The answer is always "No." So at any given time any P/E ratio will only ever tell you "This is how dumb you shouldn't be." Not "Now is a good time to be this dumb."

It doesn't matter if "comparables" have similar P/E ratios.... Is paying sixteen dollars for one dollar smart? I don't know... but it's never as smart as paying sixty cents for one dollar.

At any rate, that has no bearing one way or the other on my thoughts on AAPL.

In the same time that another person was waiting for Apple to lose the 35% of its share price that it did, just in the hopes of getting on board with it, I had various securities producing positive returns of 25 to 65 percent.

So.... I'm more than content. It's been an absolutely stellar year for me. I don't expect that type of performance to continue so I'm not about to take uncertain/unnecessary risks with the gains I've made.

I'm busy looking for the next thing before someone gets wise to it. The next thing to me doesn't mean "when should I jump on the same old train everybody else is on" but "where's that newer, faster train with the cheaper tickets that nobody knows about just yet."

I don't get nostalgic about investments. Sure, often I look for an otherwise solid company that hit some kind of momentary speedbump in price.... but the margin of safety has to be considerable. Apple's price drop isn't due to one lawsuit or one hiccup in supply chain or one manager who got caught with a hooker... The issue for me is that nothing on their balance sheets or income statements or projected operating cash flow really makes me go "Holy *****, this is a bargain."

Avatar74 said:

How do you mean?

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You're obviously a smart guy. You had to know that i meant the fundamental valuation of AAPL is lower than that of other companies with a higher rate of share dilution. MSFT for example has 8 billion shares, yet trades at P/E of 15. AAPL has 1 billion shares, and is valued at a rate of just 10 times earnings.

Avatar74 said:

Yes and technical analysis is a sure fire way to screw yourself. As Warren Buffett once said, "I knew technical analysis didn't work when I turned the chart upside down and got the same answer." What he's basically saying is that technical analysis is self deception, not analysis. Fundamental analysis has to do with gauging the operating effectiveness of the underlying assets. Value-based investing has to do with finding otherwise solid companies that the market has underpriced relative to their intrinsic value.

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Ahmen, I totally agree with you, and appreciate your views on technical/fundamental/value based investing.

Avatar74 said:

I'm not here to characterize Apple as a good investment or bad investment... but operationally they're doing fine and will continue to do fine for some time.

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Again you had to know i was referring to their stock, not the company in general. Everyone knows the company is doing fantastic.

Avatar74 said:

Their sustainable competitive advantage is the top-to-bottom management of the entire user experience... no other computer manufacturer has that, and most consumer electronics manufacturers do it very poorly. That's what their brand moat is built on. Does that mean they're invincible? No. Not at all... but it just means that they're far from "not doing well."

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Agreed. But there is a sea of people in Taiwan, and at Google, that are trying to emulate this, eventually they'll come close enough to convince consumers that they were successful (if they haven't already). Also, I love Buffett's "moat" term.

I don't know much about the stock market, but it seems to me that Apple stocks seemed to do better when Apple just ignored Wall St suggestions.

First time I've had to say this… We miss you Steve.

I first invested in Apple after that 2005 split, buying in at around $35.

I'll be happy to see another split, as the chance to go up again will be very high.

SiPi said:

Think how glad you'd be if you bought 100 when Gil was CEO.

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Couldn't have afforded it - I bought what I could, and if I had walked away because I couldn't afford 100 shares, I'd be out...a significant amount.

Also "This how glad you'd be if you bought X shares" is true for any integer larger than the number you bought, and thus a useless counterpoint. Buy in lots of 100,000 or just don't bother.

IJ Reilly said:

You and the person who wrote the article are (literally) placing too much stock in the opinions of one person.

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I agree he alone can not wipe 130b in market cap off AAPL, however the pop yesterday no doubt about it that was all him! Don't underestimate the impact social media can have.

mrhick01 said:

I am disturbed over what the stock market has seemed to become over the last 20 or so years.

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A Wall Street casino?

SiPi said:

Ive said it before and i'll say it again.

Buy 100+ or dont bother at all.

So glad i sold out when i did.

Stock splits always bring the wrong kind of investors in to the mix.

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Could you elaborate on that last sentence?

firewood said:

According to tear-down estimates, the total spent on assembly costs in China is a small fraction of the total manufacturing cost.

But can Apple use the cash it accumulates in China to buy the more expensive components from Korea and Japan to build iPhones and iPads to be shipped and sold in the U.S.?

What are the tax implications of that?

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I wasn't thinking, but I guess you are right that the most expensive components are made in Korea and Japan. But yes, Apple can use cash that is overseas and not repatriated into the US to make purchases from companies in Korea, Japan and China. While China may restrict removal of foreign currency, the cash Apple earns in China from sales is presumably earned in Chinese dollars (Yuans). So it most likely would have to be exchanged to US dollars or the local currency to make purchases from Korea or Japan. But I still suspect that Apple net spends more money in China than it makes from China sales, even if it isn't the tens of billions of dollars I was thinking of which goes to the big ticket parts like screens, processors and batteries.

As long as the cash doesn't come back to the U.S., Uncle Sam can't tax it. The money is sitting in an Apple subsidiary formed under the rules of some other country.

Hmm stockprice still down 33% the last 6 months, apple needs better products not fooling around to artificially inflate its stock price .

laurim said:

I understand that your stock is worth the same immediately after the split BUT, afterwards when the stock goes up a dollar per share, aren't you making $2 for every original share now that you have twice as many shares? Am I missing something here? Every time my P&G stock split, it bounced back up to a high price soon afterwards so it was a really good deal.

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Look at it in terms of percentages. If a share worth $100 splits, you now have 2 shares @ $50. if the share goes up $1, that is 2%. You end up with $102 in the end. If it didn't split, you'd have... $102.

Stock splits send a signal, and generally it is interpreted as a sign the company feels good about future cash flows. It's generally understood that the split causes prices to rise before the split, but not after - by then the positive feelings are priced into the stock.

RonDMC said:

I agree he alone can not wipe 130b in market cap off AAPL, however the pop yesterday no doubt about it that was all him! Don't underestimate the impact social media can have.

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The doubt about it is total. Whatever happens someone can always claim to know why it happened, but that is a far cry from demonstrating any kind of causation. This article is another example of the problem of inventing causes to rationalize an effect. Just because AAPL goes up on the same day some rumor is making the rounds does not mean the rumor caused the price to increase.

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Cyrax said:

Look at it in terms of percentages. If a share worth $100 splits, you now have 2 shares @ $50. if the share goes up $1, that is 2%. You end up with $102 in the end. If it didn't split, you'd have... $102.

Stock splits send a signal, and generally it is interpreted as a sign the company feels good about future cash flows. It's generally understood that the split causes prices to rise before the split, but not after - by then the positive feelings are priced into the stock.

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Wrong on both counts. How stock values change has already been explained several times in this thread, and yours isn't correct. And if splits were all about feeling good, it would've made more sense for this to have happened two or three years ago. Unless you are saying that Apple should not have felt good about their cash flows at that time.

lol,, quite the jump!!

user418 said:

Could you elaborate on that last sentence?

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Stock splits create the perception that a stock is more accessible to small "Main Street" retail investors.

Retail investors are notoriously bad. Adding more of them is essentially saying "You know what this stock needs? More panicky herd animals who follow trends and have a tendency to buy high and sell low."

IJ Reilly said:

You and the person who wrote the article are (literally) placing too much stock in the opinions of one person.

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Nope.

http://www.networkworld.com/community/node/82539

Rogifan said:

Nope.

http://www.networkworld.com/community/node/82539

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Another person buying into random causation theories still proves nothing, except that people do dearly love their random causation theories.

AidenShaw said:

But after it dropped $130B - wasn't it perhaps a more reasonable buy?

ps: Your avatar looks like a famous gay porn star photo - but won't post a NSFW link....

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Kass is manipulating the stock. He tweets that he's hearing rumors of a stock split and the when the stock jumps he tweets that he's selling off some of his position and then later tweets that the spilt rumor was "baseless". When called out on it he defends himself by saying this rumor was all over the place. Yet his tweet seems to be the first anyone heard about it.

osaga said:

You're obviously a smart guy. You had to know that i meant the fundamental valuation of AAPL is lower than that of other companies with a higher rate of share dilution. MSFT for example has 8 billion shares, yet trades at P/E of 15. AAPL has 1 billion shares, and is valued at a rate of just 10 times earnings.
Agreed. But there is a sea of people in Taiwan, and at Google, that are trying to emulate this, eventually they'll come close enough to convince consumers that they were successful (if they haven't already). Also, I love Buffett's "moat" term.

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I don't think you get P/E. It's nothing more than how enthusiastic the market is about a company's prospects for long-term growth. Microsoft continues to profit tremendously with little capital and investments. Their software has very little competition and there is a high-cost to entry in the market. Their returns and margins have been consistent for the last decade. The price is good too because you're not paying much for growth. But Apple's price relies on continued innovation and consumer loyalty. It can't possibly keep up the rate of growth for the next 10 years, which is why the price has been adjusting downward. Competition is also lowering Apple's margins. Since Android is free and there are many companies that have similar hardware, Apple has no economic moat.

FluJunkie said:

Couldn't have afforded it - I bought what I could, and if I had walked away because I couldn't afford 100 shares, I'd be out...a significant amount.

Also "This how glad you'd be if you bought X shares" is true for any integer larger than the number you bought, and thus a useless counterpoint. Buy in lots of 100,000 or just don't bother.

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Your personal finances are not of my concern.

Watch this space: shareholder greed and the quest to satisfy their need for increased returns, always destroys companies.

Solomani said:

A Wall Street casino?

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+1

I wish people would wise up and realize the stock market is a game that 99% of us are playing blind from the outside. Quit rewarding insiders and the wealthy by throwing money at these corporations. You're not doing the rest of us any favors by bringing legitimacy to a legalized form of corruption.

laurim said:

I understand that your stock is worth the same immediately after the split BUT, afterwards when the stock goes up a dollar per share, aren't you making $2 for every original share now that you have twice as many shares? Am I missing something here? Every time my P&G stock split, it bounced back up to a high price soon afterwards so it was a really good deal.

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This is exactly the grand illusion of a stock split. A stock is going to go up or down on a % basis. So where Apple commonly has $10 swings pre-split, it will be $5 swings for, say a post 2:1 split. Splits DO NOT create value, they just divide up the same pie into more slices.

If it's a good company the stock will continue to rise, but the split has nothing to do with that, and, again, the PE ratio and other stock valuation metrics remain unchanged.

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firewood said:

Not at all. Compare Apple's current growth with Nokia, RIM and 3Com's Palm division's sequential growth spurts from a few years/decades ago. Historically, industry-wide in smart mobile, sequential change can rapidly change from one direction to the other (to zero in the case of small tablet pioneer Palm).

Any growth in these two products, much less sequential growth, was completely unexpected by tons of pundits circa just a few years ago.

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But where is the actual sales volatility in the iPhone and iPad? Please show me.
Volatility would suggest sales are all over the place, but they are not. They are up and up. It's only expectations that are volatile here.

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osaga said:

2) Nokia and RIM would agree that the phone market is "extremely volatile."

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Not really a good example. Both companies rested on their laurels far too long after the iPhone appeared. That's not volilitily, that's poor planning. There is a difference. Volatility is when fads change on a dime like a tsunami. Apple's iPhones are black and white and all of the sudden consumers want red and yellow phones. Your post was specific to the iPhone and iPad, and so far these products have not proven to have uneven Q over Q sales. Could Apple fall victim to the BB and Nokia curse? Absolutely, and it might be why Apple shares are flat. But that isn't what you wrote.

Anybody know if there will be a liveblog of the shareholders meeting which starts at noon Eastern time?

FluJunkie said:

Stock splits create the perception that a stock is more accessible to small "Main Street" retail investors.

Retail investors are notoriously bad. Adding more of them is essentially saying "You know what this stock needs? More panicky herd animals who follow trends and have a tendency to buy high and sell low."

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Well I doubt the stock split actually does this since I don't think any study has showed that stocks that split do better than the average market after their split.

But yes if you want to play in a game and you want to win then you want more bad players in it. Like playing poker in Vegas on a Saturday night. The more tourists in town for a wild weekend (that includes three hours of poker while knocking back drinks) sitting at your table the better. The more panicky retail investors who are in over their heads and have to cash out after a 30% drop because they can't afford to lose their retirement savings, then the better for folks who can take advantage of that. And I'm much closer to being part of that crowd than I am to being a hedge fund guy taking a million dollar position.

But I don't think a stock split really pulls in enough new retail investors to make any difference. The folks who care about the absolute size of a stock price just don't control enough money in their investments to do anything. And this is especially the case for a company like Apple that has a market cap of hundreds of billions. The only small thing I think it does is signal that the board doesn't think it is about to be embarrassed with a stock that gets crushed soon after the split.

JohnPhamlore said:

There's one striking similarity when one sees commercials on TV from IBM or other major tech companies. Look at what they're claiming "smarter planet," smarter this, smarter that.

The general belief is that we are about to enter a golden age of applied artificial intelligence and robotics.

I would be concerned that there is a gap between what is seen as the future and what Apple can invest in this future. Despite its enormous cash horde, Apple apparently cannot make acquisitions that would bolster its own artificial intelligence efforts such as Nuance, Wolfram Research, or preferably both. Neither does Apple have the equivalent of someone with say a Ph.D. in EECS from Cal Berkeley as does the CEO of Qualcomm.

http://en.wikipedia.org/wiki/Paul_E._Jacobs

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Can you explain?

SIRI is a pretty big deal as far as an AI asset. Much of what they would gain by acquiring Nuance would be negated by SIRI.

The only competitors they have with significant AI assets are Microsoft, with Kinect, and Google, with anything that comes out of X Lab.