Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

What Apple (Nasdaq: AAPL) Must Do to Soar Again

Companies / Tech Stocks Feb 17, 2013 - 05:50 PM GMT

By: Investment_U

Companies

Jason Jenkins writes: The story of Apple (Nasdaq: AAPL) is an intriguing one.

Steve Jobs created a brand as strong as Coke (NYSE: KO) or Nike (NYSE: NKE). That’s a statement in itself. Apple’s brand loyalty is so strong, a Marco Rubio anti-Apple tweet induced responses of party switching. Who knew smartphone preference could be a political party deal breaker.


For years it was just assumed the value of Apple’s stock would skyrocket – forever and ever. Why not? It gave us the iPhone and iPad. Senator Rubio learned you don’t bad-mouth an iPhone.

Innovation led to record-breaking quarterly profits and expectations. Soon, analysts and pundits were talking of $1000 a share and $1 trillion in market value. Just the mention of those accolades being possible is like hallowed ground in the financial world.

But something happened on the way to market immortality. The stock has plummeted since September of 2012. It’s currently gone from $700 per share to hovering in the mid-$400 range. There isn’t a clear consensus in the market of what’s happening. Some think this is a blip, while others believe Apple’s future is in trouble.

But here’s what is really going on with Apple.

Apple’s Capital Allocation Problem
Not familiar with capital allocation? Well here’s the definition:

It is the manner in which a corporation allocates its financial resources and other sources of capital to processes, projects and employees. Specifically, it is a corporation’s process to maximize capital allocation so that it generates the most wealth for its shareholders.

If that’s too textbook for you, here it is in layman’s terms. Apple got too much cash, and it isn’t giving the vast majority back to its shareholders. It also doesn’t seem to be investing much of it to increase value…

How much cash is too much? Apple is sitting on $137 billion in cash and will be adding another $40 billion a year to that number. Investors want some of that cash returned to shareowners.

If Apple does that, it would definitively bump up the share price and maybe swing it back up the path to where it was late last summer.

So what is Apple currently doing? The current quarterly dividend is $2.65. That adds up to about $10 billion a year. Apple also repurchased nearly $2 billion in stock last quarter. This was done to offset share dilution from equity compensation.

So now the market wants Apple to explain what it’s doing with all this extra cash. Why the modest dividend, and why isn’t it buying back more stock? And renowned value mutual fund manager Bill Miller believes other major “brands” out there show us, if Apple changed its capital allocation, its stock could skyrocket 50%.

Here’s the thinking behind the statement. At Apple’s current price, it’s trading about nine and a half times earnings. Most analysts predict that for 2013, Apple will probably grow about 15% to 16%. Growth is expected to be around 12% to 14% for 2014. If you look at a company like McDonald’s (NYSE: MCD), which pays out 100% of free cash flow to shareholders… It trades at 15 to 16 times earnings. Thus, your price bump.

Not All Cash is Created Equal
There is a little problem with the analysis mentioned above. Not all of the $137 billion is available to give back to shareholders. Around $85 billion aren’t located on U.S. soil. If Apple brought the money back, it would have to pay taxes on it, and the company hasn’t given any indication it’s willing to take on that burden.

But a major overhaul of how Apple handles its cash may be the only game changer that could have the company soar again. A 15% dividend hike will not be adequate. You need to get value investors to join the party, and the only way that is likely to happen is a dividend in the 3% to 4% range.

Good investing,

Source: http://www.investmentu.com/2013/February/what-apple-aapl-must-do-to-soar-again.html

by Jason Jenkins, Investment U Research

http://www.investmentu.com

Copyright © 1999 - 2013 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014