Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Implications for Stock Market - Nadeem_Walayat
2.Odds of Winning Walkers Crisps Spell & Go olidays K, C and D Letters - Sami_Walayat
3.Massive Silver Price Rally During The Coming US Dollar Collapse - Hubert_Moolman
4.Pope Francis Calls For Worldwide Communist Government - Jeff_Berwick
5.EU Referendum Opinion Polls Neck and Neck Despite Operation Fear, Support BrExit Campaign - Nadeem_Walayat
6.David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - Mike Gleason
7.British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - Nadeem_Walayat
8.Gold Price Possible $200 Rally - Bob_Loukas
9.The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - Michael_Swanson
10.Silver Miners’ Q1’ 2016 Fundamentals - Zeal_LLC
Free Silver
Last 7 days
Stock Market Crash Death Cross Doom Prevails - 23rd May 16
Did AMAT Chirp? Implications for the Economy and Gold - 23rd May 16
Stocks Extended Their Rebound On Friday - Will They Continue Higher? - 23rd May 16
UK Treasury Propaganda Warns of 3.6% Brexit Recession, the £64 Billion Question? - 23rd May 16
Stock Market Support Breached, But Not Broken! - 23rd May 16
George Osborne Warns of 18% Cheaper House Prices - BrExit for First Time Buyers - 22nd May 16
Gold Bull-Phase I Continues to Confound (The Trek to “Known Values”) - 22nd May 16 r
Avoiding a War in Space - 22nd May 16
Will Venezuela Be Forced to Embrace the US Dollar? - 21st May 16
Danish Central Bank Stumbles with Its Currency Peg to the Euro - 21st May 16
SPX Downtrend Underway - 21st May 16
George Osborne Warns of More Affordable UK Housing Market if BrExit Happens - 21st May 16
Gold And Silver 11th Hour: Globalists 10 v People 0 - 21st May 16
David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - 21st May 16
Gold Stocks Following Bull Analogs - 20th May 16
The Gold Chart That Has Central Banks Extremely Worried - 20th May 16
Silver Miners’ Q1’ 2016 Fundamentals - 20th May 16
Stock Market Rally At the End of the Road? - 20th May 16
British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - 20th May 16
NASDAQ 100, FTSE, and British Pound - When Rare Market Data Screams, Listen  - 20th May 16
Unintended Consequences, Part 1: Easy Money = Overcapacity = Deflation - 19th May 16
The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - 19th May 16
Stock Market Final Supports Are Broken - 19th May 16
Gold - Pro-Inflation? Anti-USD? - 19th May 16
Further Stock Market Uncertainty As Indexes Gained On Friday, Will Uptrend Resume? - 19th May 16
What This U.S. Presidential Election Tells Us About Her Millennial Generation - 18th May 16
Stock Market Trendline Broken on Fed Announcement - 18th May 16
An Incredibly Simple, Rarely Used Way to Book 170% Investing Gains - 18th May 16
Statistically Significant Stock Market Death Cross? - 18th May 16
Precisely Wrong on US Dollar, Gold? - 18th May 16
What You Can Gain From One Tech CEO's $355 Million Loss - 18th May 16
The ‘Tide’ has turned… NEGATIVE For STOCKS!!! - 18th May 16
Goldman Sachs's - Regulatory Climate is Chilling Deals; Hatzius Not Worried About a Recession - 18th May 16
Bitcoin Price Remains above $450 - 18th May 16
Crude Oil Price Trend Forecast 2016 Implications for Stock Market - 17 May 16
Could the National Debt Really Grow as High as $31 Trillion by 2023? - 17 May 16
Gold Price Possible $200 Rally - 17 May 16
Crisis Investing - Jim Rogers on “Buying Panic” - 17 May 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

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

© 2005-2016 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

Catching a Falling Financial Knife