Apple's Recent Stock Price: Explanations

Apple is trading at $546.  As recently as April 9, it touched $640.  A year ago, it was $332.  So the stock appreciated 93% from a year ago to its high, and has retreated 15%.  The retreat is making investors nervous because a $94 price drop sounds much worse than a 15% decline on the heels of a 93% run-up.  Why is Apple’s stock gyrating so much? Psychology.  Trading.  Institutional Ownership.  Any or all of these may move around a stock irrationally and create a buying opportunity for long-term investors (ie, be the one who bought at $332 and still has a 67% return to date).  Other potential explanations include chatter about subsidy reduction on the iPhone and some data out of Asia that suppliers to the iPhone have cut their orders.  Let’s take these in order.

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Apple is trading at $546.  As recently as April 9, it touched $640.  A year ago, it was $332.  So the stock appreciated 93% from a year ago to its high, and has retreated 15%.  The retreat is making investors nervous because a $94 price drop sounds much worse than a 15% decline on the heels of a 93% run-up.  Why is Apple’s stock gyrating so much?

Psychology.  Trading.  Institutional Ownership.  Any or all of these may move around a stock irrationally and create a buying opportunity for long-term investors (ie, be the one who bought at $332 and still has a 67% return to date).  Other potential explanations include chatter about subsidy reduction on the iPhone and some data out of Asia that suppliers to the iPhone have cut their orders.  Let’s take these in order.

The stock has appreciated over the past year, and for good reasons.  Apple has outperformed even the highest expectations in terms of revenues, gross margin expansion, and product adoption.  It has entered China and the sales there, although just beginning with only four stores, can be a catalyst into the next 3-10 years.   However, because the stock price is such a large number, Apple has limited attractiveness to retail investors.  After all, if you are a retail investor with a $10,000 account and you want to be diversified, you limit investment in any one stock to 10%.  You could purchase almost two shares.  It is a daunting stock price for some.  Again, Apple should split 10:1. (It would also provide more stability in the stock price.)

Thus, the ones that can trade hundreds or thousands of shares at a shot are the institutions, who themselves are subject to their investors’ scrutiny.  Over the period of time that Apple has appreciated 93% then back down to just 67%, Nasdaq has remained flat.  Institutions have pressure to deliver performance.  Apple is performing.   When stocks pop up on news like a strong earnings report, technical analysts believe it creates a “gap” (up) that ultimately must be “filled”.  So, it was considered a “gap” when Apple popped up $55 to $615 following its earnings report.  Technical analysts believe the gap will ultimately be filled, meaning the stock will drop back to $560 before embarking on a legitimate slow (not sudden) build to $615.  Therefore, when institutions need to prove performance to their investors, they may take profits at the $615+ range, and wait to reinvest when the stock fills the gap, or at the $560 range.

These chartists suggest that the next level for Apple to drop to is $537.  They determine this by looking at a complex set of lines overlaid onto a stock chart, such as moving averages, support lines, volume activity, etc.   They do so without looking at fundamentals.  If investors believe in technical analysis, with today’s close at $546, that is only $9 away.  Why wait?

Once the stock starts to fall, it loses support.  Investors may wonder if someone knows something they don’t, and (in traders’ terms) “pile on” the trades and sell too.  They would rather get out quickly then find something out too late.  If one does their homework, one can sit back and reasonably look at the long-term trends in the stock.  IDC predicts that 981M smartphones will be sold in 2015, Apple will most likely sell at least 250M of them.  Right now, Apple has a 24% market share with smartphones, and it has not yet released the iPhone 5 which is anticipated to include LTE, have a larger screen, different form factor and a nano Sim card.

The two rumors right now are that carriers may cut subsidies to iPhones and that iPhone demand may diminish.  The focus is on the iPhone.  This is reminiscent of the iPhone introduction.  At that time, the chatter focused on the decline in growth of iPods and potential cannibalization of iPods by the iPhone.  The iPhone was such a great success that no one even talks about iPods anymore.  Similarly, the iPhone is a popular product, particularly with the carriers.  The iPhone brings in customers, sells data contracts and has improved customer loyalty.  Moreover, Apple has brought in carriers at different points meaning that their contracts with carriers are most likely staggered.  Who wants to be the first carrier to push Apple away, ie push their customers to the other carriers?  Currently, customers have more loyalty to the iPhone than to the carrier.

Even if subsidies were to be reduced, which would be bad business sense, investors may want to focus on Apple’s most recent unsubsidized success, the iPad.  This category was just born and is just getting underway.  Many forecasters suggest that the tablet category will overtake the computer category in just a few years, making it the fastest adoption in consumer electronics…since the iPhone.

There have been rumors that some Asian suppliers have cut their orders and that is interpreted that Apple reduced its orders to said Asian suppliers.  We have seen this story before where analysts get some scoop on an Asian manufacturer, create a flurry in the stock and later learn that Apple changed suppliers.  Long-term investors should not trade on data points, particularly if they can’t be verified.  Long-term investors should focus on the catalysts in Apple stock:  China, iPad, iPhone 5, and increased traction in the education, government and corporate markets.

Apple, today, trades (less cash) at, seriously, 8x next year’s earnings.  People are clamoring over Facebook, which is going public around 50x next year’s earnings.  Apple sells products that people want and will pay a premium for over other “similar” products in the market because of the ease of use, the entire Apple ecosystem to which they are attached and the tangible benefits association with them.  Facebook sells ads.  The ad market can be fickle and unpredictable.    Look at Apple’s previous 10% dips, even in the past year, in May, July, September and October. In each case, the stock rebounded within 6 weeks.  Long-term investors who build a position now in Apple stock will be very happy by the holiday season.

Report: Apple starting production of a 4″ iPhone 5 in June

By Tecca | Today in Tech  –  The size of the new iPhone 5 will rival its Android competition Wish that iPhone in the palm of your hand was a little bigger? According to the  Wall Street Journal , your prayers are about to be answered: The new iPhone 5 will feature a 4-inch display, a half inch larger than current iPhone 4 models — and closer to 4″ or larger Android phones that are now commonplace.

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Kickstarter Project Connects Your Mobile Device to the Real World [VIDEO]

By Zoe Fox | Mashable  –  A new Kickstarter project wants to build an even closer connection between our real lives and mobile devices. [More from Mashable : The Genie Makes it Easier to Create Time-Lapse Videos] The Rowdy Robot team has created a device called Tōd, which it hopes the Kickstarter community will be eager to fund

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New golf apps promise to fine-tune your game

Tech It Up!  –  By Ryan Derousseau If only perfecting your golf swing was as simple as playing Angry Birds. Well, while the idea of developing a PGA-quality swing will never be that easy, a growing array of mobile apps, now enhanced by cloud technology, really could help take a stroke or two off your game. Apps for golf enthusiasts are nothing new, being among the first tools available for the iPhone

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Tech It Up! – 

Apple stock surges on earnings report

Motley Fool analyst Joe Magyer, Apple’s rally in after hours trading indicates that the stock is still strong. “The stock is up over 6 percent; in market cap, that’s the equivalent of Yahoo plus Netflix and all of Chipotle, just in after hours,” he said.

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Motley Fool analyst Joe Magyer, Apple’s rally in after hours trading indicates that the stock is still strong.

“The stock is up over 6 percent; in market cap, that’s the equivalent of Yahoo plus Netflix and all of Chipotle, just in after hours,” he said.

Apple’s stock had been falling in part due to chatter that carriers may want to cut back on subsidies for the iPhone. Earlier this month, BTIG analyst Walter Piecyk downgraded Apple from buy to neutral in part, Fortune reported, because he believes carriers will be less open to subsidizing the iPhone. When AT&T posted profits due in part to paying fewer subsidies on iPhones due to lower sales, Apple’s stock fell further, closing at $560.28.

Yet while AT&T and and Verizon reported lower iPhone sales, Apple reported Tuesday that it had seen strong phone sales in overseas markets.

Magyer said that he expects Apple to get a good bit of its share price back, though not all of it.

“The market got a bit ahead of itself with the stock — no stock is a buy at any price — and the market has been practically been tripping over itself to pat Apple on the back.”

Apple investors brace for more turbulence

By Poornima Gupta | Reuters  –  SAN FRANCISCO (Reuters) – Apple Inc’s results will be dissected more closely than ever next week, after a share swoon raised concerns on Wall Street that the stock’s gravity-defying rally may be losing steam. Five straight days of stock losses for the world’s most valuable company sparked fears it had ventured into dreaded bubble territory and was overdue for a strong pullback. Shares reversed course on Tuesday, gaining 5 percent.

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By Poornima Gupta | Reuters – 

Apple stock losses drag down the Nasdaq

Apple stock has propelled the Nasdaq composite index forward for most of the year. But in the past few days, Apple stock has done just the opposite.   For most of the year, Apple stock has propelled the Nasdaq forward.

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Apple stock has propelled the Nasdaq composite index forward for most of the year. But in the past few days, Apple stock has done just the opposite. 

Could Apple's Stock Hit $1,000?

Two analysts have predicted that Apple‘s stock is headed to break the $1,000 barrier. What would Apple need to do to pull off this trick and become the world’s first trillion-dollar company

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Two analysts have predicted that Apple‘s stock is headed to break the $1,000 barrier. What would Apple need to do to pull off this trick and become the world’s first trillion-dollar company.

On Monday, Topeka analyst Brian White published a report that predicted that the company’s stock would hit the $1,000 mark within the next 12 months. The primary driver for this according to White would be Apple’s branching into new markets and expansion in China.

Next came Piper Jaffray analyst Gene Munster who also predicted that stocks would break the $1,000 barrier, but that this would happen by 2014, a year later than White’s prediction.

“Shares can reach $1,000 based on our belief Apple will continue to win in global mobile devices,” Munster said in his report. Munster also set a shorter-term target of $910.

So, can Apple stock hit $1,000 within a year or so? Well, given that timescale of a couple of years (say to April 2014), we can make some assumptions:

• Two new iterations of the iPhone (this year and next)
• Two iterations of the iPad (early 2013 and early 2014)
• Random hardware refreshes (iMacs. MacBooks, MacBook Pros and so on)

Are these updates alone enough to take Apple’s stock up to the $1,000 level in two years? Let’s first look at some historical data.

Back in early April 2010 Apple stock stood around the $240 mark. Currently Apple stock stands at around $620. Let’s add some notable product releases to this timeline:

Looking at this, it seems that it was the release of the iPhone 4S that had the greatest effect on Apple’s stock price, taking the company from around the $360 mark all the way pas the $600 barrier.  Quite a significant leap. But sales of the iPhone 4S were exceptional, especially given the pent-up demand resulting from Apple releasing the handset later in the year than expected (based on when earlier models had been released). If Apple can maintain this level of demand for new products (which seems quite likely, the new iPad sold 3 million units in its first weekend) then this could well lift Apple stock close to the $1,000 mark in a year or so.

This is just the hardware that we know of. Apple might also have something in the pipeline that we’re not aware of yet. A television is one of the most popular rumors, and both White and Munster thinks that a release is imminent, but I’m still not convinced that Apple wants to enter such a cutthroat market. Established names are already hemorrhaging money on high-end televisions.

But there’s more than just new hardware in Apple’s future. Apple is expanding its market into countries such as China, which offers massive scope for growth. 3G wireless subscribers in this country could reach 230 million by the end of this year, adding millions of new potential iPhone buyers, White said.

Given Apple’s existing product lineup, its plans for expansion into big emerging markets such as Chine, and then factoring in new innovations that we don’t know about, it seems quite possible for Apple to stock to hit four-digits in the next couple of years, barring any missteps by Apple.

On Campus, Wall Street Still Carries Its Cachet

On a recent Saturday night in Cancun, Mexico, Kyle Carnes partied with his friends on spring break, listened to a live band and watched fire twirlers spin flaming sticks on the beach. He couldn’t quite relax, though. Every few minutes he had to check his iPhone

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On a recent Saturday night in Cancun, Mexico, Kyle Carnes partied with his friends on spring break, listened to a live band and watched fire twirlers spin flaming sticks on the beach.

He couldn’t quite relax, though. Every few minutes he had to check his iPhone. Mr. Carnes was waiting to hear whether he had gotten a final interview for a summer internship in New York at a major European bank.

Winning the three-month internship would put him a step closer to his dream job: working on Wall Street.

The financial industry may be in retreat, with tighter regulation, smaller bonuses, layoffs and persistent questions over its ethics and culture. But for hundreds of students like Mr. Carnes, a 20-year-old junior at Tufts University in Medford, Mass., Wall Street still is seen as the ultimate launch pad to a successful career.

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“Don’t get me wrong, we know it’s not the Gordon Gekko age anymore,” Mr. Carnes says. “It’s a tougher business and there’s a lot more scrutiny, but we also know that once you get accepted into the ranks of the banking elite, you can do any job you want afterward.”

Universum, an employer-branding firm that each year asks 6,300 MBA students where they have applied or plan to apply, found that big banks remain in the top echelon, where they have been since 2007. Goldman Sachs Group Inc. (GS) has either been third or fourth on the list during that period. Morgan Stanley (MS) and J.P. Morgan Chase & Co. (JPM) have hovered in or just out of the top 10.

Connie Jao, a 20-year-old junior at the University of Southern California, starts her internship in early June at a large bank in New York—a position she snared in part by reaching out to a USC alumna for help. Ms. Jao says she isn’t deterred by the brutal hours that young analysts are expected to work.

“You’re putting in so many hours so the ratio [of pay] isn’t as glamorous as people think it is, but it’s not really a monetary issue for me,” Ms. Jao says. “What attracts me to this is the learning experience and getting to build a network.”

For all of Wall Street’s image problems over the past few years, the lure of “bulge-bracket” firms like Goldman, Morgan Stanley and J.P. Morgan remains strong.

“Students still want to begin their career at a brand-name employer, and banks have done a good job getting their message out to them,” says Patricia Rose, director of career services at the University of Pennsylvania.

At the Philadelphia college, 33% of those who graduated in May 2011 and found a job went into financial services. In 2010, the figure was 34%, the same as in 2009, which was a slight decrease from 38% in 2008.

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High pay, long one of the strongest lures of Wall Street, still entices. Even though bonuses are lower than in the past, base salaries remain higher than in most other industries—many first-year employees with undergraduate degrees can earn total compensation in the low six figures. An associate with an MBA can earn a salary of up to $150,000, plus bonus, according to Options Group.

Just as important, students say, financial jobs get them in the door for prestigious positions, greater success and monetary gains later in their careers.

Others say they simply enjoy the cut-and-thrust of the markets. Stephen Reisert, a 20-year-old sophomore at Cornell who plays Division I soccer, has been trying to get an internship this summer in sales and trading.

“Things are so fast-paced and unpredictable, like on the soccer field, and that’s appealing to me,” he says.

To be sure, Wall Street’s own vicissitudes, and the rise of other “hot” sectors such as technology, are deepening the competition in the war for young talent. At Harvard, the number of seniors who took jobs in finance dropped to 17% last year from 28% in 2008.

Many of the most sought-after students are heading to Silicon Valley. Liz Wessel, a 21-year-old senior at the University of Pennsylvania, interviewed with a half dozen top banks her junior year. She ultimately accepted an internship with Google Inc. (GOOG), which led to a job offer. “Many of my finance friends tell me their job is making rich people richer,” she said. “My job is going to help develop products that will change the world.”

Google and Apple (AAPL) were the top two most popular companies among American undergraduates studying business last year, according to a survey of more than 22,000 students by Universum.

Wall Street’s drastic shrinkage since the crisis also is playing a part. At Dartmouth College’s Tuck School of Business, 12% of the graduating MBA class will accept investment-banking and sales and trading positions in 2012, a decrease from 23% in 2008. School officials say that is because there are fewer jobs available.

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The number of analysts starting this summer may shrink by as much as 20% from last year, says Chirag Saraiya of Training the Street, a firm that prepares incoming Wall Street analysts.

A smaller Wall Street, however, means stiffer competition for those who want to get in. James Gorman, Morgan Stanley’s chief executive, recently called the idea that people don’t want to work on Wall Street “ridiculous.” Between 78% to 84% of the undergraduate and business-school students whom the firm recently offered jobs accepted them, and most of those who didn’t went to rival banks, he said. That rate is in line with past years, according to a Morgan Stanley spokeswoman.

Mr. Carnes, the Tufts junior, argues that Wall Street remains “the premiere job offer after college.” But he is biased. He heard back from the European bank after he returned from vacation: He landed a final interview.

—Aaron Lucchetti contributed to this article.

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Will Apple's Stock Split?

It never ceases to amaze me, but when I’m meeting someone new and the topic of what I do for a living comes up, there’s one question I get more than any other: “So, will Apple ( Nasdaq: AAPL   ) split?” To me, it’s a largely insignificant question, and Tim Cook has signaled that there is “very little support” from the company’s board to split the stock. Still, people are clearly interested in a stock split, so let’s see what it means for investors and whether a split might make sense even if Apple’s not considering one today. Splitting 101 The basics of splitting is that companies might reduce their value per share but give shareholders a proportional level of extra shares.

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It never ceases to amaze me, but when I’m meeting someone new and the topic of what I do for a living comes up, there’s one question I get more than any other: “So, will Apple (Nasdaq: AAPL  ) split?” To me, it’s a largely insignificant question, and Tim Cook has signaled that there is “very little support” from the company’s board to split the stock. Still, people are clearly interested in a stock split, so let’s see what it means for investors and whether a split might make sense even if Apple’s not considering one today.

Splitting 101
The basics of splitting is that companies might reduce their value per share but give shareholders a proportional level of extra shares. Simply put, a $100 company would now trade at $20, but you’d now own five shares for every one you used to own.

On a practical level, there has been no change in value. Proponents of splitting will point to the added “liquidity” of the stock. In other words, it’s easier to make a purchase of a $100 stock than a $10,000 one. Behavioral studies have also shown that investors prefer stocks well below the $100-per-share range and that companies that split do outperform the market in the short timeframe after splitting and also over the long run. Finally, we come to options. A stock that’s expensive on a per-share basis can be expensive to execute options strategies on. Apple at $600 per share means that an option represents $60,000 in stock.

Of liquidity
First, let’s address the liquidity issue. Comparing Apple with many of its large-tech peers that trade at far lower share prices, Apple isn’t affected by its higher share price.

Company Name	Average Shares Traded (3 Months)	Average Value Traded (3 Months)	Percent Market Cap Traded Per Day
Apple	18.4 million	$11 billion	2%
Microsoft (Nasdaq: MSFT  )	52.4 million	$1.7 billion	0.6%
Cisco	41.6 million	$850 million	0.8%
Google	2.7 million	$1.7 billion	0.8%
Intel (Nasdaq: INTC  )	41.7 million	$1.2 billion	0.8%

Source: Yahoo! Finance. Average value traded is at today’s prices. Percent market cap traded is at today’s market cap.

A quick note: Since Apple’s seen surging share prices the past few months — and, to a lesser extent, other tech peers have seen their own jumps in this time as well — this does inflate the average value traded per day. However, what the results do show is that even after accounting for Apple’s 48% rise over the past three months, a significantly higher value of its shares trades every day. On March 14 alone, nearly $30 billion worth of Apple stock traded hands!

Looking beyond Apple, Google — a company whose own shares trade for more than $600 per share — sees volume on par with other tech peers; and priceline.com, which sits at $714 per share, sees 1.7% of its market cap traded each day.

The conclusion: Tech companies with higher share prices appear to have even more trading and liquidity than their low-priced peers do.

The next Berkshire?
A follow-up question I often get is “So, could Apple be the next Berkshire Hathaway (NYSE: BRK-A  ) and refuse to split shares even as they hit obscenely high levels?” As a bit of background on Berkshire Hathaway, Warren Buffett’s investment vehicle: Its Class A shares have long been the priciest shares on the New York Stock Exchange. Today, they trade for $122,170 apiece. The company eventually created a “B” class of shares, but even those soared past $3,200 before a recent split was enacted to accommodate Buffett’s purchase of Burlington Northern.

While Apple could definitely see its per-share price continue to rise, by $2,776 per share it’d pass the current value of the entire IT sector (including Apple itself). The following chart shows the milestones Apple would pass on its way to overtaking Berkshire Hathaway’s share price. In short: not going to happen.

The best reason to split?
However, of all the reasons to split, the reason with the most tangible effect hasn’t been included. Berkshire Hathaway, in spite of its mammoth market cap, was never included in indices such as the S&P 500 because of the difficulty rebalancing with its large share price. As Apple becomes larger and larger, a common question is “Who’s left to buy its shares?” By paying out a dividend, Apple can now be purchased by yield-focused funds that control a sizeable amount of assets.

Another opportunity for Apple to increase its ownership is inclusion in more indexes. Notably, despite being the largest company in the world, Apple isn’t in the Dow Jones Industrial Average (INDEX: ^DJI  ) . That’s in large part because of the Dow’s wonky price-weighting methodology. As Bespoke Investment Group noted last September, if included in the Dow without a split, Apple would constitute 22% of the Index. Since then, Apple has soared, only moving that percentage higher.

Bottom line
While it can be frustrating for individual investors that buying a single share of Apple means shelling out $600, that hasn’t meaningfully affected the company’s trading volume. In the end, it’s big institutions that are buying large lots of Apple, and they aren’t affected by its share price. At some point, I believe you could see Apple split its shares, but Tim Cook and company seem perfectly content to leave them unchanged throughout this year.

More ideas for the road
If you’re in the hunt for more ideas of how to play Apple’s record performance, we’ve created a new report just for you. The report is “3 Hidden Winners of the iPhone, iPad, and Android Revolution” and details the hidden component plays inside the iPad, which are profiting as Apple reaches record sales levels. To get the names of these three amazing companies — all of which are in the new iPad – grab a copy of the free report now.

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