Best of the Week
Most Popular
1.Oil Wars 2016 - US vs Russia vs Saudi Arabia vs Iran - Nadeem_Walayat
2.Crude Oil Price Crash Triggering Global Instability, Trend Forecast 2016 - Nadeem_Walayat
3.Stock Market Crash - Last Week was The 2nd and Final Warning... - Clive_Maund
4.Stock Market Crash Apocalypse or Bull Market Severe Correction? - Nadeem_Walayat
5.TShipping Said to Have Ceased… Is the Worldwide Economy Grinding to a Halt? - Jeff_Berwick
6.Crude Oil Price Crash Catastrophe, Independant Scotland Literally Begging to Rejoin the UK - Nadeem_Walayat
7.Summers: Global Economy Can't Withstand Four 2016 Fed Hikes - Bloomberg
8.Gold And Silver: New World Order: Public Be Damned, Preferably Dead - Michael_Noonan
9.Rigged U.S. Ttreasury Bond Market Double Barreled Hidden Q.E. To Infinity - Jim_Willie_CB
10.Major Stocks Bear Market Awakening - Zeal_LLC
Last 5 days
UK Interest Rates, Economy Forecasts 2016 and 2017 - Video - 10th Feb 16
World Markets Are in Sync - 10th Feb 16
If You Miss Buying Gold – You Will Regret, it Later - 10th Feb 16
The Fed Doesn't have a Clue! - 10th Feb 16
How Far Can Gold Price Go? - 10th Feb 16
It's Stock Market Panic Time! - 9th Feb 16
Gold Stocks Picks for Patient Pickers - 9th Feb 16
Oil Price Collapse U.S. Recession Odds 2016 - 9th Feb 16
Preparing for Crisis - It's About Risk Mitigation and Capital Preservation - 9th Feb 16
Top Silver Mining CEO: Don't Laugh, We Could See Silver $100+ - 8th Feb 16
Gold, Investment Leadership Changes Permanent? - 8th Feb 16
Stock Market Panic Decline Begins... - 8th Feb 16
How to Save Money By Growing Your Own Homegrown Tomatoes Indoors From Seeds - 8th Feb 16
US Economy Slides One Step Further Towards A Recession - 8th Feb 16
Gold Bear Market Bottom : Mr. Bear has left the PM Sector for Greener Pastures - 8th Feb 16
Stock Market At Important Support - 8th Feb 16
David Cameron Humiliated in Poland Over Refusal to Stop Taking UK Benefits, BrExit or Super State? - 8th Feb 16
Why Crude Oil Prices Could Continue FALLING From Here - 7th Feb 16
Stock Market S&P, NAS Best, Most Reliable Answers Come From The Market And You - 7th Feb 16
Stocks Bear Market Continues - 7th Feb 16
Silver COT Paving Way for Sustained Upside Breakout Sharp Rally - 7th Feb 16
US Dollar Double Top, Gold Prospects Brightening Rapidly - 7th Feb 16
Gold And Silver - Is A Bottom In? Nothing Confirmed - 7th Feb 16
Gold Stocks Something has Changed - 6th Feb 16
UK Interest Rates, Economy GDP Forecasts 2016 and 2017 - 6th Feb 16
Gold Price, Mining Stocks Rocket Higher - 5th Feb 16
Crude Oil Price Bottoms and Blues - 5th Feb 16
Gold and Silver: Ripe for a Recovery! China May well Change the Game - 5th Feb 16
How Pension Plans are Responding to Financial Repression - 5th Feb 16
Senior Gold Producer Goldcorp Takes Large Stake in Nevada's Gold Standard Ventures - 5th Feb 16
Tips for Smart Oil and Natural Gas Investing 2016 - 5th Feb 16
Another Corporate Giant Is Leaving the U.S. – What This Means for You - 4th Feb 16
TPP is Economic Warfare, Trade Can Make Everyone Worse Off / Governments are Stupid - 4th Feb 16
Gold and Stock Markets Inflection Points Galore - 4th Feb 16
Putin Cries Dyadya (Uncle), Is Saudi Arabia Listening? - 4th Feb 16
Gold Price Golden Bottom? Video - 4th Feb 16
Look North for Value-Priced Growth in Healthcare Biotech Stocks - 4th Feb 16 - TLSReport
BrExit EU Referendum - Britain's FINAL Chance for Freedom From Emerging European Superstate - 4th Feb 16
HUI Now Confirming Gold Price Move Higher - 4th Feb 16
Crude Oil Price Forecast 2016 As Good As It Gets - 4th Feb 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Financial Crisis 2016

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

Biggest Debt Bomb in History