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gw2100
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George studied medicine in China and holds a Ph.D in Microbiology from the US. He is now a Software Engineer in a private university in Atlanta. He became interested in stocks since 2007. At his spare time he like tennis, music and going to church.
  • Bullish Apple Stock Repurchase - Head I Win And Tail You Lose 0 comments
    Apr 29, 2013 2:21 AM | about stocks: AAPL

    I believe Apple's (NASDAQ:AAPL) fair share price should be at least $520. With upcoming announcements of new products and China Mobile (NYSE:CHL) partnership, return to its glory days is not unthinkable in a year or two. So buy Apple now before it is fast approaching the $460 mark by the day.

    First, Apple has a rock-solid fundamental. It has $140 billion cash, $40 billion per year earning with PE ratio of below 10.

    Second, Apple enjoys an incredible brand loyalty (Once a Mac, you cannot go back) and high customer retention rate.

    Third, there are justifiable reasons for recent margin compression besides competitive pressure from Samsung and Google (NASDAQ:GOOG) android. These can be strategic - focus on long-term market share with short-term lower profit sacrifice (as said on the Q2 2013 conference call). This makes more sense because of its high customer retention rate. This can also be caused by the high upfront cost of unibody enclosure machinery introduced for all Apple devices.

    Fourth, technically recent $385 price drop looks more like a V-shaped bottom. We may never see a below 400 price again.

    Finally, the $60 billion stock repurchase is huge, both for shareholder value and from a stock supply-demand dynamics point of view. How huge? With today's price of $417, $60 billion would buy 144 million Apple shares - that is 15% of all 940 million outstanding shares. In another words, that is 17.6% increase of earning per share for all years every year forward.

    Considering that the number one Apple share holding fund only has 1.5 million Apple shares, and the total shares of all top 10 funds together only has 10.5 million. Even if all top 300 Apple funds dump all their Apple shares, $60 billion stock repurchase can still keep Apple share price from dropping. In a possible but unlikely case, even if Apple share price does drop, $60 billion will be able to buy more shares and thus create more shareholder value.

    This concludes the thesis of this article - shareholder wins if share price increases, shareholder wins if share price decreases.

    With the above common sense in mind, are you still fearful of a price drop for Apple? Hell no. Is there a better place to put your money than Apple at its current price? I don't think so.

    Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas Stocks: AAPL
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