Something bizarre happened to Apple's shares last week that made very little sense based on the corporate events of the day. I believe I understand why Apple (AAPL) rose so significantly on Samsung's (OTC:SSNLF) big day. It only takes some connection of the dots and a little imagination to discern the likely driver. Only time will tell the truth, but for now, consider this possibility.
It was Samsung's big day. Apple's toughest competitor in mobile telephony made a big show of its introduction of the Samsung S IV last Thursday evening in Manhattan's Times Square. It was an event reminiscent of past introductions by Apple, and perhaps a sign that the competition had finally caught up. It was a sign of Samsung's confidence that's for sure. After all, it is Samsung (005930.KS) and not Apple which holds the leading smart phone market share on a global scale. It's because Samsung is willing to sell at lower price points in markets that demand it, but it is true just the same.
Apple's shares had been drifting lower since last September. While many have speculated about the reason, I said not too long ago that The Problem with Apple is Apple. I suggested that Apple's valuation has been penalized because of investor skepticism about its ability to keep up its stellar growth. To do so, it would need to continue to innovate, and I suggested it should be with new product market entry like an Apple television. Google (GOOG) has been rising while Apple has been falling, because of where current innovation is perceived to be. The days kept passing and the stock kept falling. Finally, investors began to sound off and actually complain, and so even more attention was focused on the post-Steve Jobs innovation challenge to Apple. Some investors are asking for Apple to return some cash, or to do something in their favor and stop this bleeding.
That's exactly what I think happened last week. Apple already has a big shareholder buyback plan in place. When would there be a better time to buy a ton of shares than on the first day of trading after a competitor's challenging product event? When buyback plans are announced and approved, they simply allow for a certain amount of purchases over a certain time span. They do not describe how the shares should be acquired to the daily time scale. On one day you might buy more than on another day.
Add to that possibility, the excitement that the CNBC appearance of Legg Mason's (LM) famous fund manager Bill Miller generated about Apple. Not only did Miller describe the many ways Apple was cheap, even noting that its Enterprise-to-EBITDA value was less than that of Safeway (SWY), Kroger (KR) and Hewlett-Packard (HPQ) based on next year's data; but he said his fund was now overweight Apple shares and had just completed its acquisition plan for the stock. He spoke of a "dramatic" capital event possibility, and he mentioned how the Apple team was actively soliciting ideas on how to create value. He even spoke of the upside for Apple LEAPS if the stock could reach back to its old highs. It was quite a positive discussion, as you can see for yourself here.
If Apple was not buying enough of its own shares, well then investors who saw Miller's interview certainly were. That's why I think the stock reached higher on a day when logic would have implied otherwise. What happens next is going to depend on Apple and its product innovation. I favor the shares long-term on valuation and my belief that a little bit of innovation will go a long way with the support of Apple's brand and operating system. However, I'm not sure if we have seen the low or not. That should simply depend on whether that innovation comes before or after the company's next earnings news, in my view.