The rumor mill in Silicon Valley went into overtime on Friday when the shares of Apple (AAPL) briefly tickled $505/share. The plunge took the company valuation close to an all time low. With nearly $150 billion in cash on the balance sheet, was it time for the firm to announce its first ever share repurchase plan?
Such a maneuver would make all the sense in the world. The bulk of the company’s cash hoard is parked in overseas bank accounts earning a couple of basis points a year. While other enterprises with such an embarrassment of riches would be on the hunt for takeover targets, Apple’s unique culture rules out all but the most minor, niche acquisitions.
Founder, Steve Jobs, infused the present managers with a strong “non invented here” bias that eliminates anything but pure organic growth. Even it’s new mapping function, which could have been purchased from any number of third party venders, was developed in-house, with much grief resulting.
However, since Steve’s tragic early departure, Apple has started to adopt more mainstream American management strategies. It started paying a dividend earlier this year for the first time in its history. It would be a short step to a share repurchase. At the very least, you can bet on Apple boosting its current dividend in coming months, a move that will draw in more traditional value and income players, further elevating the share price.
Management, more than anyone else, can clearly see the ballooning long-term outlook for the company’s products in an ever-growing market. Apple is now basically a telephone company, with iPhone earnings accounting for 76% of the total. Its share of the global market for smart phones is now at 5% on its way to 15%, where providers have historically peaked.
The multiple for the operating company alone, ex-cash is now 6, compared to the 36 we saw at the top of the top of the dotcom boom. Please excuse me if my arithmetic is a bit simplistic here, but doesn’t 6 X 3 mean there is a potential peak for the stock 18 times higher that the $500 we saw on Friday? We could see something like this by the 2020’s, at the top of the next technology bubble. What better investment for Apple to make, but in Apple?
The real insanity of this swan dive in Apple shares is that it is happening during the run up into the peak Christmas selling season, traditionally the most profitable quarter of the year. If you don’t believe me, then check out my stationary closet, which is chock a block with various Apple products for my vast extended family. I bought them early because I knew I wouldn’t be able to physically get into the store in December.
Such a move would spark a snap back rally of at least a $100 in the shares. We are close to such a pop anyway, as most of the capital gains and tax selling for 2012 is already done. This is why I never hedged my downside exposure in my existing Apple position, and in-fact doubled it from a 10% to 20% weighting in my model trading portfolio in the Thursday meltdown.
Leaving no stone unturned, I called Apple’s technical support, using the guise that I wanted to know how to make a bigger cursor, because the default one was impossibly small for these astigmatic eyes to see across multiple screens (answer: system preferences—universal access—mouse and track pad—move the slider bar to the right). I asked him what the stock was going to do. The guy said he never looked at the share price because he never intended to sell it. Hmmmm. Is it time to jack up my 20% weighting to 30%?