Apple (AAPL) was and still is one of the greatest technology companies around. The company may have fallen in a rut in the past couple of years after introducing the first iPad by only producing refresh cycles on the platforms that had been making the company boat loads of cash. Little tweaks here and there to the iPhone and iPad are great, but now is the time for Apple to come out and do something, either through a new innovation, financial engineering, or even some acquisitions. With the investor meeting looming tomorrow Tim Cook will have to drive home a solution against a full-court press from a bevy of analysts just to get the stock moving upwards again. In this article I'll provide a bit of insight as to what might come from the meeting tomorrow.
Stock Split News
There have been rumors flying for the past couple of weeks that the company may do a 2:1 stock split but truth be told a split does absolutely nothing for a company. It essentially divides the price of the stock in half, but doubles the outstanding shares, pretty much leaving everything as a zero sum game. Some people might argue that it allows retail investors who couldn't afford the $450 stock to be able to buy 1 whole share for $225. My view on this is if that investor can't afford to buy that one whole share they should be looking elsewhere. For example, Class A shares of Berkshire (BRK.A) stock have a price of $148,320. I really like Mr. Buffett, but I can't afford to shell out that kind of cash for his stock and can't wait around for him to do a stock split (Buffett is against splits). So I look elsewhere and most certainly have found other stocks to purchase that have outperformed his during that particular investment period. A stock split allows more individuals to enter the company, and we all know what happens when too many chefs are present in the kitchen, right?
Financial Engineering: Bigger Dividend and Stock Buybacks
Currently the stock yields at a rate of 2.36%, which I personally am very happy for as a shareholder. The dividend payout is $10.60/share and with 939.06M shares outstanding that comes to a total of about $9.4B paid out this past year in dividends, which can most certainly be met again this year without any doubt. What would be amazing to hear at the meeting tomorrow is for the company to put together a transparent plan for shareholders outlining a dividend growth plan for multiple years just based on the cash that is on hand with the company. I for one would love to see Apple appear on David Fish's spreadsheet of dividend champions.
For the past few years up until September of 2012 the single best investment might have been none other than Apple, at which point Apple should have been buying back its own shares! Ask yourself, what is the best advice you've ever received from a financial advisor about your retirement plan? You guessed it, the best investment you can make is to invest in yourself! If the board is smart and it can see into the pipeline and know it has some blockbusters in that pipeline, tomorrow would be the shot in the arm the stock needs by announcing an enormous share buyback (bigger than the $10B that is already allotted for this year).
You don't have to work in the technology or biotech industries to know that the value of a company is heavily dependent on the quality of the pipeline of products. I would also like to hear some kind of announcement about what else might be in the pipeline other than the notion of this iWatch. Unless the watch can do things for us like what Michael Knight used to do by calling on KIT for help on the Knight Rider TV show this product might just be like the Zune that Microsoft (MSFT) once used to produce. Something like Google (GOOG) Glass, which has been in the news recently looks like it can definitely be earth-shattering. Instead of tweaking the current platforms here and there, Apple needs to continue with radical thinking instead of evolutionary changes. Unless there was a mass exodus of the think tank that I don't know about at Apple I refuse to believe that Steve Jobs had every single brilliant idea; there has to be other luminous visionaries at the company that can come up with a new product. Any sort of hint at increased R&D spending I think should be a good thing, because it shows the company is wanting to grow from within.
In my humble opinion I believe the company needs to add a company with synergies that can be incorporated into Apple's current devices. A bolt on company with recurring revenue streams would be fabulous. Just imagine if a media conglomerate were to come under the wings, maybe something like Disney (DIS) where Apple can spinoff the theme parks business but keep the content part of the company. Netflix (NFLX) is almost on every TV set in America now and who knows, maybe if that new innovation that Apple is coming up with is an iTV the revenue from Netflix would actually be for Apple now. Or maybe Apple should even get into the enterprise arena rather than relying on consumers for revenue, maybe by getting into the software computing business via salesforce.com (CRM) to get into the commercial sector or Emerson (EMR) to allow the tentacles to be able to grow into the industrial sector and not just the commercial sector.
Just last week Apple was removed from Goldman's VIP list - a list of 50 stocks that hedge funds own, counting that stock as a top 10 holding. Apple was replaced by AIG in that renown list of stocks. Apple is only counted as a top 10 holding at 67 hedge funds, down from 109 in the previous quarter. Apple can definitely reclaim a spot on the VIP list if it knocks the cover off the ball by going for a triple play at tomorrow's analyst meeting; which I think can happen if a structured dividend plan is announced from here going forward for a few years, an enormous share buy back is announced on top of the already existing $10B repurchase program, and either a game-changing product launch via growth from within or an acquisition for growth by acquisition. I believe that if and only if all three needs are met will the large institutional shareholders be happy and propel the stock to new heights. Since the beginning of the year there have been 13 analysts who reiterated their ratings on the stock, all of which have been "buy" ratings or higher with each analyst lowering the price target. These analysts show that they still have confidence in the company but are merely adjusting their forecasted target prices to reflect the current share price. There has been one analyst who has actually downgraded the stock from outperform to neutral in that same time frame.
I'll be waiting for the news to come tomorrow before I make any additional purchases. I never go in all at once, but rather divvy my money up so that I can purchase several lots of a company that I believe in. I believe in Apple and made my initial purchase when the dividend yield was around 2%. Obviously I'm down a little bit on the stock but am waiting for all the smoke to clear after the meeting tomorrow before I can decide what to do with the rest of the cash I have allotted for Apple.
Once again, do as you wish with the information I've presented, but do your own homework. I'm not responsible for any of your actions, only you are. Please think responsibly.