5 Moves That Could Drive Apple's Stock Price to $500 or Up 25%

| About: Apple Inc. (AAPL)

I love Apple (NASDAQ:AAPL), and I have five ideas that should send the stock price past $500. These ideas range from mundane to far fetched, but most importantly, I believe that they do address real opportunities for shareholder value.

1. Pay a cash dividend
Ok, so I cheated here a bit. A large dividend payment would obviously cause the stock price to drop, but I think it would cause the dividend adjusted stock price to rise 25% or more because the cash dividend currently obscures the true cheapness of the price/earnings. The company is sitting on a mammoth amount of cash and excess investments (~$70 billion) and so far, it has done nothing more than pad the company's ascension towards becoming the world's largest company. This is a nice accomplishment, but we are well past the point of strategic leeway and well into managerial hubris.

2. Split the stock 20-1
This does not create fundamental value, but unfortunately, there is a stigma attached to high priced stocks. There is a tendency to assume that high priced stocks are expensive and low priced stocks are cheap. Apple is the dominant retail electronics company in the world. They are growing sales quickly while maintaining healthy margins, and they have sizeable international growth opportunities. The stock has a trailing P/E of 12.97 and a forward P/E of 10.36 when you exclude their excess cash and investments. There is no reason that the company should trade at its modest valuations. With a more typical $20 stock price, it would not be a stretch to see the company trade to $25, or $500 pre-split. Even after this sharp move higher, the forward P/E net of cash would still be around 13, a very reasonable multiple for this company.

3. Acquire Sprint Nextel (NYSE:S)
This is our most reasonable acquisition proposal, so if this one inflames your senses, you may want to stop reading. Our reasoning for a Sprint/Apple merger is simple. The future of consumer electronics is bandwidth intensive. If you look at Apple's impressive ecosystem of products, they have done a tremendous job developing premiere products to go along with premiere operating systems, but without internet connectivity, they lose substantial value. As such, bandwidth dependence is Apple's greatest exposure at this point. This is the one leak in their model, where they have the potential to lose pricing power to a third party. Major wireless providers like Verizon Communications (NYSE:VZ) and AT&T Inc (NYSE:T) have already moved away from the unlimited data plans. This increased pricing power on the part of wireless companies will ultimately hurt electronics companies like AAPL because it cuts into consumer spending.

Sprint's enterprise value is $30 billion, well within AAPL's acquisition capacity. This acquisition idea is partially inspired by the success of Sirius XM Radio (NASDAQ:SIRI), which has good electronics but also proprietary content and their own means of content distribution. AAPL of course is different because the focus of their products is placed on the excellence of their design and software. But AAPL is not so different from SIRI. Instead of proprietary radio channels, they have applications and software. The difference of course is that AAPL does not control their own content distribution. They have AAPL stores, but physical locations are not the trend of the future, just ask Amazon.com (NASDAQ:AMZN).

In addition to the strategic brilliance, the deal is also has financial synergies, because AAPL could finance Sprint's operations at a much lower cost than Sprint's current borrowing costs, which were nearly 8% in 2010. Also, the carrier has been losing subscribers to Verizon and AT&T, as such, Sprint has the capacity to take on growth.

4. Acquire Level 3 Communications (NASDAQ:LVLT)
Apple is firing on all cylinders, but shareholders are still somewhat cautious and unwilling to give the company a premium valuation multiple because of uncertainty over the company's long term plan. As such, we think that any strategic acquisition that bets on secular opportunities will pay off huge for shareholders in both the long run and short run.

The thought process behind this potential merger is similar to the one behind a Sprint/Apple. The retail consumer giant needs to beef up its bandwidth capacity so they can maintain control of their own destiny, otherwise their electronics margins will decrease in the face of rising bandwidth costs and their dreams of an iCloud will go up in iSmoke.

Level 3 has a strong following among smart money investors, but its trailing financials are still weak. The company lost money during the last twelve months and is not expected to make money in 2012. As such, Apple will have to be comfortable with the acquisition as a long term bet on its secular growth.

The enterprise value is $10 billion and well within Apple's capacity.

5. Buy American Express (NYSE:AXP)
Stay with me on this one because the idea is not as crazy as it seems - actually it works on a lot of different levels. Apple has a lot of cash and investments that are sitting in accounts earning little money. American Express, through their Centurion Bank, lends money to individuals and businesses through their credit cards and other financial avenues at high interest rates. Even after using their cash and investments to acquire American Express, they will have the cash flows from their popular products to fund a wonderful financial operation.

Secondly, as Apple continues to develop its online ecosystem through iTunes, iCloud and the App Store, why not acquire a payment system and control that aspect of your operation? AAPL is no longer the underdog in the technology world, and they have to accept their new role as a monolith. They should fully expect to control every aspect of their customers' user experiences including the moment consumers whip out their credit cards to pay for Apple products.

Finally, the brands are compatible. I would not have suggested a pay day loan acquisition because the Apple brand is one of the company's most valuable assets. AMEX happens to be an international brand in its own right and has a reputation for being the payment option of the rich and elite. In addition, like Apple, they are an international brand with room to grow.

AXP's market capitalization is near $60 billion. With a 25% buyout premium, that puts an acquisition at $75 billion. Considering the size of the deal, management may reject the price, but there is unlikely to be another competing offer.

Disclosure: I have no positions in S, VZ, LVLT, AXP, SIRI but may initiate a position in any of these stocks over the next 72 hours. I own AAPL shares.