A madness has taken over Apple (AAPL) stock.
It's a frenzy of speculation that drove it past $700/share, and another one that has now driven it toward $470, with all the momentum downward.
One difference between Tim Cook and Steve Jobs is that Jobs didn't really care about the shareholders, only the product. That relentless attention to details was a great, great thing, but it's not really what we hire CEOs for, even in the 21st century.
Cook, as CEO, is responsible for the shareholders, and he has shown some care for us, instituting a dividend and becoming far more transparent, both in product announcements and in delivering financial results. No, he's not Jobs. Elvis has left the building. But it's clear, over a year into his tenure, that he's not really Jackson Browne, either.
He's more like Ahmet Ertegun, who ran Atlantic Records during its glory days. That is, he knows talent, signs talent, gets the most out of talent, and that's a talent of a sort as well. (Ertegun also wrote songs like "Sweet Sixteen." Betcha Cook can write a few lines of code.)
Current speculation is that Apple has, without Jobs, run out of tricks. But that's plainly not the case. We know they're working on a TV, which could do to video what iTunes did to music. Apple still has margins that are the marvel of the hardware industry, it has far more control of its supply chain than any rival can imagine having.
So why isn't it worthy of a market multiple? With the average Standard & Poor's stock selling at about 14.5 times earnings, Apple opens tomorrow at something under 11, despite having, according to TechCrunch, $137 billion in cash. Discount that cash, as people are wont to do, and you get a PE of roughly 7. And did we mention the dividend?
All this tells me Apple will, in time, come good, for investors who bought at $500, at $600, even at $700/share. But there are some things that Cook could do, simple things, that would probably break the speculative fever, in both directions, make Apple boring again, and make it an investment stock again instead of a speculative one.
First, hike the dividend. When you have under 1 billion shares, giving investors $2.5 billion/year is insulting, especially with that cash horde. Some yield will bring steadier, buy-and-hold investors into the shares, and that's a good base on which to continue building. Better widows and orphans than speculators and short-sellers, don't you think? I do.
Second, do something I sort of suggested last year and split the stock 10-1. Now instead of "plunging" $56/share you've just lost $5.60, and chances are you don't plunge at all.
The Apple crazy has some reason behind it. With a market cap of nearly $500 billion, you're practically shorting Apple if you don't own it. It's hard to make money on a stock that everyone owns so speculating - using leverage - is the only way to make money on it. You play the momentum, you turn the stock into a casino, and you poke it to make it move, so you can actually get something out of it.
But that's not healthy for the company. It's not healthy for the stockholders. The crazy needs to go away. Apple needs to become boring again. My guess is that, at some point, probably after the stock has hit some bottom near $400, Cook will act.
So I'm holding, and I think you should too. If you want to cut your basis in Apple, nibble at it. You will be amply rewarded.