Will Apple Boost Cash Holdings to Appeal to Investors?
At a glance, the situation looks bad for Apple (NASDAQ:AAPL) shareholders. After seeing the stock price above $702 last September, the decline has been steady and unnerving. After this week’s close at $390.53, Apple’s stock has dropped nearly 40 percent in a seven-month period. Yet investors see an easy way out — namely, a $20 billion company loan. Will Apple make this move to increase confidence and attract investors?
JPMorgan (NYSE:JPM) analyst Mark Moskowitz thinks it is not only smart, but likely Apple will make the move to take on debt in hopes of pumping up investor confidence. The reasoning is simple: Apple can borrow as much as it likes, at terrific rates, while other tech stocks fizzle out and wait for something to happen this summer.
With Apple’s stockpile of cash and new products waiting on the horizon, everything would change. Dividend yields could increase by nearly 1.5 percent, which would send investors buying back as much Apple stock as possible. Through this formula, Moskowitz believes, the stock price would get somewhere back near the fantastic highs it enjoyed through the summer and fall of last year.
In fact, many agree with Moskowitz that Apple is on the verge of a comeback. While the JPMorgan analyst projects Apple will get back to $725, others are nearly as confident, placing Apple close to or above $680 by year’s end. Christian Thwaites of Sentinel Investments disagrees, saying he sees Apple on the same path as Oracle (NASDAQ:ORCL) and Microsoft (NASDAQ:MSFT) in 2001 — what he describes as “dead money.”
Phillip Elmer-Dewitt of Fortune notes that Apple stock is at its lowest P/E ratio of all time as of the close of trading today, marking it as an apparent buy. For a point of reference, he notes the average P/E ration of the S&P 500 companies: 17.82, compared to Apple’s 5.42. Though it may be the best case made yet, the surge in stock prices would appear to require the $20 billion many believe Apple will add to its reserves. If it hopes to maintain its position as such a dominant force, it might be the only move to make.
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