Chasing Value: Apple $50 Billion + $484 Million

Apple stock still seems to be bogging compared to say, Google or Amazon on a day like today. Apple now has target prices over $400. It's gotten into the top three in U.S. computer sales and recently passed RIM to grab the #2 spot in smartphone sales. Apple got beaten down on earnings just because they didn't sell 5 million iPads and that was because of component shortages. Apple seems to be changing the industry and still Wall Street doesn't acknowledge Apple's importance and questions the relatively high share price. Why are Google shares worth over $600 and Apple not worth $300. I can't understand that.

I didn't see that P/E ratio of cash being such a problem. In that case, I do hope Apple can acquire some company that will complement it to help Apple be worth its present share price and higher.

Sheldon. Apple, like Google, Microsoft and many "American" companies that want to maximize shareholder value, have their cash parked overseas away from the grubby hands of the American Govt. Having the cash grow at some low rate overseas vs bringing it back to the US and being taxed at 35% in USD's being debased by Bernanke doesn't make sense to anyone with accounting 101 experience. Per Apple's latest earnings report, 57% of their revenue came from overseas and China is poised to be their growth driver.

irieblue,

If the dollar is being "debased" then there is good reason to bring it back into the USA now & using it.

BTW, I think you'd find that other developed nations have a much higher tax rate than the USA.

But Sheldon,

AAPL Management has decided not to provide a dividend. What can we do about it? It's not like my few hundred shares make a squat of difference in the BOD votes.

Dan,

The voice of the people will be heard, Wall Street speaks loudly -- look at the relative PEG I mentioned, less than "1.0"? Wall Street is screaming. Cisco acted and so will Apple (or Jobs). When the volume is turned up it will reach his trusted advisers.

Few would argue with the fact that there are no large synergistic companies that would help Apple and no small ones that require $50 B.

It seems to be lost on everyone that Apple could pay a 2% dividend without touching the cash war chest.

If Apple announced a 2% yield and a $20 B stock buy back plan over the next three years, they would still have $50 at the end of that time while the PEG would move back to the 1.5 to 2.0 level where it should be. Apple stock might jump 20% almost instantly.

As a long time AAPL share holder, I do not

(1) Think it makes sense to do a share buy back when your stock price is at all time high. Why? That's the dumbest use of capital. The stock is at an all time high for a reason.

(2) Paying A dividend when you have double digit earnings and revenue growth is a waste of money. Earnings growth is like crack to wall street, they will pay up for this level of earnings growth. When AAPL gets to a 100 billion per year in revenue growth, then and only then should they need to revisit the dividend issue.

Dividends are for companies who don't have double digit revenue growth.

Dan Did you not see the article this week about google's effective tax rate of 3% because of their irish offshore holdings. All of these companies have figured out that re-patriating cash to the US is not a good thing. Witness microsoft's raising of a corporate bond yielding some 3% when they have a ton of cash. Why? because it was cheaper than bringing their cash back to the US. it's not rocket science really it isn't

irieblue,

You certainly do raise some good points. However, you ignore that they could have bought back stock cheap ($239 in recent weeks).

Also stock buyback plans allow management to buy on dips at their discretion -- nobody is suggesting to do a share buyback at an all time high -- this argument is a straw man on your part.

You also have the earnings story backwards. Earnings per share will grow much more rapidly with less shares and or cash -- not more.

Good points, bad points and it is probably about the world economy and where the money really is. Questions remain about how much Apple is sitting on but regardless of whose estimate one chooses, it is still quite a pile of cash and there is no shortage of opinion on how it should (or should not) be spent.
Actually, this is not about Apple as they are but one of many that are doing something similar. Since all have about the same answer, which is to say something akin to uncertainty, frequently in vague terms, this theme does little to quell fears. The general economy does not seem to support the continual upward move of the street but this weeks earnings are expected to support it? I am certainly not the only one that expresses the view of falsehood or reality or is it simply a missentrepretation of fact and data? The Fed's beige book expects growth to be lackluster which support corporate caution. Interest rates remain low and the credit markets remain screwed up. The consumer has had the crap beaten out of them and the vast majority is in no mood, nor position, to continue avid consumption.
All in all it boils down to something (attributed to) Lee Iaccoca which was, lead, follow, or get out of the way. That is the mainstay problem - no one wants to lead and to that end, conditions will remain static with a great potential of finding the very unwanted abyss.

Even at $309 per share, is it still a good time to buy Apple? I recognize that Wall Street has a difficult time trying to figure out what Apple's value should be. And that is because Apple operates like no other company. In my mind, their innovation and implementation of new products puts a sky high limit on the share price. I have bought and sold several times, each time making a profit. Should I go for it again?

Terry,

If you were to follow the advice of the top investors of the last 250 years the answer would be no.

Buffett, Munger, Graham, Lynch, Icahn, Kerkorian, Dreman, Drunkenmiller, Soros, Heebner, Miller, Price, Berkowitz, Grantham to name a few would not buy something at its high that depends on constant invention to keep its momentum going.

Is there money to be made, probably. Is there more money to be made somewhere else definitely.