Analysts continue to be stunned by the rate at which cash is rolling into Apple (AAPL). At current cash flows, the company’s hoard is expected to grow from $81 billion to $120 billion by next June, an increase of nearly $200 million a day!
So far, the company has resisted every entreaty to part with some of this dosh, either through a share buyback or a dividend. Now some are speculating that the passing of founder, Steve Jobs, and the succession of new CEO, Tim Cook, could lead to a loosening of the purse strings.
Let’s face it. Apple has had a great, decade long run. Hundreds of my readers, many of them Apple employees, are faced with the enviable problem that, having ridden the stock up from $4 to $400, they have too much of their wealth concentrated in a single asset. That is never a good idea from a risk control point of view. But every time I look for reasons to sell Apple, I find three more reasons to buy it. It’s a case of the grass being greener on my side of the fence.
Let me list just a few avenues for continued meteoric performance:
*As the Apple generation reaches the ranks of senior management, more Fortune 500 companies will begin to support their products. Thousands would love to quit carrying around a Blackberry for business and an incompatible IPhone for personal use, with the associated chargers. (note to self: short (RIMM) on the next rally).
*Despite this torrid growth, the stock trades at a discount to the S&P 500 at 12 times earnings.
*The Apple of today is essentially a spanking brand new, high growth company. The company’s only decrepit product is the IMac. The IPhone is only 5-6 years old, while the Ipad and Ap Store are only 1-2 years old and still in their infancy. The potential near term growth of these products is huge.
*IPhones only have a 5% penetration of the world market. Past market leaders like Nokia (NOK) and Motorola (MOT) have reached market shares well into double digits.
*Apple is just scratched the surface in China, where it only has six official stores (but lots of fake imitators), and is already the premium product. The growth opportunities there are massive. Everyone there wants an IPhone, and they are traveling to Hong Kong to get them.
*There was always a fear of what would happen to Apple stock after Steve Jobs was gone. That is now behind us. In the wine bars around the company’s futuristic Cupertino, California headquarters at One Infinite Loop, I am hearing that Steve left behind enough new product ideas, improvements, upgrades, and direction to keep Apple forging ahead for another five years. The vast, interlocking, synergistic ecosystem he envisioned is still maturing.
It all reinforces my view that Apple shares will reach my long term target of $1,000 sooner than anyone thinks. It is already trading places with Exxon (XOM) as the world’s largest company and most profitable company on an almost weekly basis. At $1,000, Apple would boast a market value of $930 billion, accounting for 7.5% of total US stock market capitalization, and 40% of NASDAQ.
What if multiples expand, as they should? Take Apple stock up to its past peak multiple of 36, and the company would be worth $2.8 trillion and rank 5th in the world in GDP, more than France, and just behind German. Wow!
Goodbye Steve Jobs, Hello Dividend?