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

osaga said:
Scarcity increases value... for mutual funds. Because they trade above book value.

For stocks, I do think there is a psychological component (because we're dumb). The most common price for anything is $X.99.
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Most individual securities out there trade at above their tangible book value. I think you're thinking of the disconnect between the market price of a mutual fund and the market price of its holdings. Neither are book value. Book value is derived from balance sheet items:

Tangible book value = assets minus liabilities and intangibles (e.g. goodwill)

Scarcity increases value on every supply/demand curve for every kind of good, service, debt or equity instrument.

There is a psychological component to why the market constantly overprices many securities relative to their book value, but that doesn't mean that a sensible investor should cave in to that psychological component. The shrewd investor is above it.... and focuses on paying what he/she determines is a sensible price to pay, not based on what some other fool paid (i.e. the market).
 
MyTurnQuips said:
A world class leader
A PE of only around 10
And a horde of cash... I don't get it.
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Agreed, especially when you consider that if investors used the same fundamental valuation as Microsoft (a stagnant, festering whale of tech company), AAPL would be trading at $675. (P/E of 10 vs 15)
 
osaga said:
Scarcity increases value... for mutual funds. Because they trade above book value.

For stocks, I do think there is a psychological component (because we're dumb). The most common price for anything is $X.99.
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The psychological affect is transitory, at best. I've been through two splits on AAPL and strangely enough my cost basis in the stock hasn't changed one penny. Sure, many retail investors don't know a thing about how the market prices stocks, but the good new is, retail investors don't have much impact on stock pricing. Institutional investors do -- and they know that getting two tens for a twenty does not make them any wealthier. Now, if Apple declared a split and an increase in the dividend at the same time... that would make a difference.

The reasoning in the article that AAPL might get listed in the Dow if it was split is also faulty. First of all, even at $225, AAPL is not getting into the Dow, since this is a price basis index and it would still overwhelm the index. Second the Dow is an antique index left over from the days of mechanical adding machines, and today is of little to no use in gaging anything. So the question has to be asked why it would matter for AAPL to be included in the Dow. Answer: it would not matter.

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osaga said:
Agreed, especially when you consider that if investors used the same fundamental valuation as Microsoft (a stagnant, festering whale of tech company), AAPL would be trading at $675. (P/E of 10 vs 15)
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Because the markets cannot be described as a rational place, at least not over the short haul.
 
Did I catch a falling knife today? I bought some shares in the morning at $439. Boy was I surprised when I checked back later and saw the increase. :)

But I also added to my position earlier this year at $466, so you win some you lose some. :mad:

These are buy and holds, not day trading stuff. But still it was fun that I stumbled into the interday low. And just yesterday, I was thinking to myself that it was time to get in for a few more shares and I was worried about a pop this morning (yes, I know I say I don't day trade, but still with a shareholder conference coming up there is more chances for a dramatic move than during normal times). Turns out there was a pop, it just was in the afternoon. Convenient to me!
 
But what part of that cash horde is stuck in China?

MyTurnQuips said:
A world class leader
A PE of only around 10
And a horde of cash... I don't get it.
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What part of Apple's cash horde is actually stuck in China? It must be quite a considerable part with China becoming perhaps a bigger market than even the United States for Apple.

Note that cash in China can neither be repatriated to the US (the Chinese, perhaps justifiably considering the Asian currency crisis of the late 1990s, keep an iron fist of control over currency coming into and leaving their country). Neither can a Western company buy strategic Chinese assets (I think at most 50 percent can be owned of a Chinese company).

The cash in China is basically stuck there with the only outlet paying more to Foxconn to keep expanding its capacity.
 
Avatar74 said:
I think you're thinking of the disconnect between the market price of a mutual fund and the market price of its holdings.
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Yessir, thank you for clarifying.

Avatar74 said:
Scarcity increases value on every supply/demand curve for every kind of good, service, debt or equity instrument.
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If that applies to stocks, then why aren't companies with higher dilution, trading at lower valuations?

Avatar74 said:
There is a psychological component to why the market constantly overprices many securities relative to their book value, but that doesn't mean that a sensible investor should cave in to that psychological component. The shrewd investor is above it.... and focuses on paying what he/she determines is a sensible price to pay, not based on what some other fool paid (i.e. the market).
Click to expand...

A fundamental investor would rise above the madness. But there are lots of traders who use technical analysis which is based on trends (as i understand it) and that has to do with what all the other fools are doing.

Side note:

Ultimately apple's not doing well because they have "unbelievable" profits that are derived from 2 extremely volatile products. And most people don't understand why those products have staying power, or are any better than the competition's.
 
Apple might have a perceived AI gap

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
 
osaga said:
Side note:

Ultimately apple's not doing well because they have "unbelievable" profits that are derived from 2 extremely volatile products. And most people don't understand why those products have staying power, or are any better than the competition's.
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I find that statement a bit perplexing.

1) Apple, as a company, is doing fine. The stock is having a tough row because iPhone and iPad growth rate last Q did not exceed expectations, only met it. Investors have cold feet buying a $500+ stock based on information they have at hand.

2) To say the iPhone and iPad are "extremely volatile" is hyperbole plus. The definition of "volatile" is inconsistent, rapid, unpredictable change. How does that describe either of these two products that have always had sequential growth? Then you cap it off with "extremely." A bit overwrought don't you think?
 
deadwalrus said:
In that case I'll sell you 4 quarters for a dollar. All day long. LET'S DO THIS.
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So you make nothing either? Cool bro. Can I get change for my parking meter? I love all of the people that think they know anything about markets on MR. Gets me every time.
 
Chupa Chupa said:
Splits are for suckers. I don't believe it will happen because it's not the instant cash bonanza Greenlight and the other institutional investors are looking for.

For all you who are looking to jump in if Apple splits -- why? If I take a slice of pie and cut it in half it's still the same amount of pie. So if you are that bent on buying Apple now, then do it. $1000 worth of Apple is $1000 worth of Apple. Why get caught up on how many shares you have (yes, dividend is adjusted too). If Apple announced a reverse split would you then short the stock because that is your logic.
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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.
 
JohnPhamlore said:
What part of Apple's cash horde is actually stuck in China? It must be quite a considerable part with China becoming perhaps a bigger market than even the United States for Apple.

Note that cash in China can neither be repatriated to the US (the Chinese, perhaps justifiably considering the Asian currency crisis of the late 1990s, keep an iron fist of control over currency coming into and leaving their country). Neither can a Western company buy strategic Chinese assets (I think at most 50 percent can be owned of a Chinese company).

The cash in China is basically stuck there with the only outlet paying more to Foxconn to keep expanding its capacity.
Click to expand...

I doubt very much money at all is in China. While Apple may earn a lot of money in China, the vast majority of its expenses are incurred in China to buy the manufacturing of its products. Presumably Apple uses the cash it already has in China first to pay those expenses, partly for the reasons you mention. And when it is done with the Chinese cash, it uses other overseas money.

Now overseas in general perhaps in tax advantaged countries like Bermuda and the Cayman Islands? Or in a major market like Europe where Apple does not have major expenses. Sure. Tons of cash. I think it is supposed to be about $90 billion of the cash pile is overseas and has not been repatriated and subject to US taxation yet.
 
Chupa Chupa said:
2) To say the iPhone and iPad are "extremely volatile" is hyperbole plus. The definition of "volatile" is inconsistent, rapid, unpredictable change. How does that describe either of these two products that have always had sequential growth?
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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.
 
DipDog3 said:
1. Buy a lot of AAPL shares at a low price.
2. Tweet about a stock split rumor.
3. AAPL's price goes up.
4. Sell shares & PROFIT!!!!

Why didn't I think of that???
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You forgot,

5. Dismiss rumor of split to lower price to buy back shares / short stock when split doesn't happen
 
osaga said:
If that applies to stocks, then why aren't companies with higher dilution, trading at lower valuations?
Click to expand...

How do you mean?

An increase in the supply of apples immediately dilutes the value of apples, not pitchforks. Likewise, an increase in the supply of AAPL would dilute the per share value of AAPL, not the per share value of INTC or GOOG.

AAPL's per share price is about half that of GOOG's. AAPL has three times as many outstanding shares. Google's annual revenues are around $50 billion. Apple's QUARTERLY revenues are almost $50 billion. Consequently: If Apple had the same number of shares as Google, their per share price would be closer to $1400. Make sense?

A fundamental investor would rise above the madness. But there are lots of traders who use technical analysis which is based on trends (as i understand it) and that has to do with what all the other fools are doing.
Click to expand...

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. So, it's not important to the fundamental investor what the fools think at any given time... It's only important to know "What price should I pay, so that I can then sell it to the fool at a price he's dumb enough to pay that I am not."

apple's not doing well because they have "unbelievable" profits that are derived from 2 extremely volatile products. And most people don't understand why those products have staying power, or are any better than the competition's.
Click to expand...

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. 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. But I'm not really discussing whether I think they are overpriced or underpriced by the market. Even if the market underpriced them, and even if they had some supply issues or legal setbacks, nothing has put an irrevocable dent in their operations for at least the foreseeable future. Does that mean they're invincible? No. Not at all... but it just means that they're far from "not doing well."

"unbelievable profits?" Well, no. They have a margin commensurate with other luxury products... and they have the foot traffic to prove that demand vastly outstrips supply in terms of their products and stores. They do about $5000 per square foot in sales at their Manhattan store, which is almost three times what Tiffany & Co. does just down the street. They don't exactly have high schoolers formulating their pricing and supply chain strategies...
 
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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.
Click to expand...

Yes, you are missing something. Think about the market cap of the company. If there are twice as many shares (for example 2 billion shares instead of a billion), then when the shares go up $1, the market is saying the company has increased in value by $2 billion. So better performance is needed to move the value of a company up by $2 billion instead of $1 billion.

But usually companies don't split unless they are really confident about things. There are practical issues like if your shares trade for less than a dollar you become a penny stock and get dropped from the exchange (I think). Also there are psychological things where directors don't want to see low share pries. So people saying this is meaningless are not entirely accurate. It can be a signal from management that they think things are going to go really well in the future. Often management is right about these things. So you do see stock splits that are followed by gains and we remember those. But on average large company stocks that split don't outperform other lager companies.

I think Apple has only one significant competitor, Google, and they don't want their stock number to be massively less than Google. There is absolutely no logic to that point, but I think it is a factor. Otherwise, I think Apple should be in the Dow and they can't be unless they put their stock somewhere in the double digits. So they would really need a 10 for 1 split.

Being the Dow would help the price a little bit for two reasons. One there are folks who buy the Dow and mutual fund indexes who buy it to track it. So more buyers of the stock. And two (and this is just my analysis (read: I'm making this up)) it gives you just a little more clout with the government to be a Dow company. Your stock price basically gets announced (indirectly) every day and that announcement is seen as influencing the moods and fortunes of the nation. I bet that has subtle effects over time. Especially if you need a US government bailout or some other favor (like a tax holiday to bring back your overseas cash).
 
TallManNY said:
I doubt very much money at all is in China. While Apple may earn a lot of money in China, the vast majority of its expenses are incurred in China to buy the manufacturing of its products. Presumably Apple uses the cash it already has in China first to pay those expenses, partly for the reasons you mention...
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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?
 
Avatar74 said:
H
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. So, it's not important to the fundamental investor what the fools think at any given time... It's only important to know "What price should I pay, so that I can then sell it to the fool at a price he's dumb enough to pay that I am not."
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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.
 
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.
Click to expand...

If you have a share at $100 that increases 5% in value the next day, you have gained $5. If you have two shares at $50 each that increase in value 5% the next day, you have gained $5.

If you gained $5 on your single $100 share, there's no reason you'd make $5 per individual share if the shares were suddenly worth half as much. What if they did a 100:1 split and you had 100 shares at $1 apiece, would those make $5 each the next day? No.
 
Chupa Chupa said:
I find that statement a bit perplexing.

1) Apple, as a company, is doing fine. The stock is having a tough row because iPhone and iPad growth rate last Q did not exceed expectations, only met it. Investors have cold feet buying a $500+ stock based on information they have at hand.

2) To say the iPhone and iPad are "extremely volatile" is hyperbole plus. The definition of "volatile" is inconsistent, rapid, unpredictable change. How does that describe either of these two products that have always had sequential growth? Then you cap it off with "extremely." A bit overwrought don't you think?
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1) Yes, Apple the company is plenty fine, I was referring to their stock price.
2) Nokia and RIM would agree that the phone market is "extremely volatile."

Here is an example of something that might happen soon:
Google/Motorola, is actively working on a smart phone (called project X) to contend with the iphone. I'll bet that they'll make something really nice and google will subsidize it (because they want to dominate in mobile ad revenue). Samsung sorta goes away, Apple becomes a just a high end brand, and Motorola dominates. The key for Apple's ongoing success will be innovation and ecosystem. Most consumers will need a really good reason to pay the $200 extra for an iphone in the future. I don't think it's impossible for Apple to stay on top, but sadly, the burden is squarely on their shoulders. All Google needs to do is copy and be cheap. Apple has to innovate and charge more than their competitors.
 
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mrhick01 said:
It is a useful explanation, but it does seem like stock manipulation nevertheless.

I am disturbed over what the stock market has seemed to become over the last 20 or so years. Admittedly, my knowledge is rudimentary, only having researched enough over the years to be "investment club"-level savvy. It seems like the overall increase of the market is less about the strength, fundamentals and future of corporations, but merely how they can puff up their numbers for short-term gain. It appears to operate more like a casino and less like an exchange that exists to support American corporate financial strength.
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I was disturbed by this more than 20 years ago. It's not a new phenomenon. The market mirrors humanity - we tend to have a short attention span. We prefer quick rewards to deferred gratification. Since shareholders have a vote, companies that sell shares to the public are unlikely to operate in a manner contrary to human nature. Perhaps humans have become even more short-sighted and greedy than we used to be, but I doubt it. Aesop's fables (Grasshopper and Ant, Tortoise and Hare) have been around for quite a while.

As far as I'm concerned, the market is peripheral to corporate financial strength. The market exists to promote liquidity when selling and buying shares in companies. When a company needs to raise capital, that liquidity is a good thing. It's easier to offer shares to the public than to track down potential investors.

When a company is not selling shares (which is most of the time), the market's relationship to the company's prospects becomes less distinct. At that point, it becomes a vehicle for investor-to-investor transactions, and a barometer of investor sentiment about the company. Market sentiment can either entrench CEOs and boards of directors or drive them from office, it can affect banks' willingness to lend money to the company or call a loan. It can affect corporate morale and enrich or impoverish employees who received stock as compensation. It can make a company a target for takeover, or make that company capable of using its share value to take over another.

But for day-to-day operations? A company survives or falls on what it produces and how well it sells those products, how well it employs its capital, etc. Apple seems to have done that very well.

We certainly have a clash of long-term vs. short-term viewpoints at the moment. Giving a wad of cash to Apple shareholders is definitely short-term thinking - it damages the company's actual financial position (capital available for investment), but it has the potential for increasing short-term share price.
 
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