Make us your home page
Instagram

Is Apple stock now a good buy?

Last week, Apple CEO Tim Cook showed up more or less bearing champagne and roses for his company's investors.

Aside from solid revenue growth and iPhone sales, he said Apple would fatten up its dividend and increase its stock buyback program to put more money back in stockholders' pockets. Perhaps most surprisingly, the company also announced a 7-for-1 stock split come June, meaning Apple's individual shares, which trade for around $525 now, will soon be available for far less.

Cook told analysts that the move was meant to make Apple shares "more accessible to a larger number of investors" — which I take to mean retail investors who might blanche at paying north of $500 for a single share of a company. But does the stock split actually make this a good time to go buy that Apple stock you wish you'd purchased in 1999?

Maybe.

Here a word of caution is necessary: Most of us have no business trying to pick stocks and are better off plopping what little savings we have into index funds that track the overall performance of the market. With that said, there is some interesting research suggesting that company shares tend to get a boost in the wake of a split.

David Ikenberry, dean of the University of Colorado's business school, has found that shares overperform significantly for about a year after a split announcement. According to the Wall Street Journal, one investment advisory service has even created a model portfolio consisting of nothing but stocks that have recently been bifurcated, which it says has delivered a 14 percent annual return over the past decade, compared to 8 percent for the S&P.

Tech companies have tended to forgo splits, letting prices rise, whether or not it freaks out Main Street investors.

This is somewhat curious. After all, stock splits don't create any new value. They just bust up shares into smaller, more affordable pieces.

"The stock split itself, the mechanical splitting of the shares, is a non-event," Ikenberry explained to me. Rather, stock splits tend to bode well for companies because they are a sign of confidence.

Most companies like their stocks to trade within a certain range. It can't be too high, because even if the fundamentals justify a lofty price, retail investors get intimidated (instead of looking at factors like price-to-earnings ratios). But it also can't be too low, because everyone gets squeamish when shares scrape bottom. If a company is willing to cut its share price in half or in thirds with a split, it usually means management believes the business is in good enough shape that they won't have to worry about shares dipping even further down the line.

"So it's self-selection bias," Ikenberry says. Companies that split their stocks fare well because they tend to be strong companies in the first place.

Notably, tech companies like Apple and Google have tended to forgo splits, choosing to let prices rise. But now Apple seems to be thinking about the little guy.

"Apple to me is the poster child for a company that wants to do this," Ikenberry says. "They're an iconic retail brand. Like Walt Disney. And Coca-Cola."

Which is to say, maybe this is just another sign Apple is starting to look like most other big companies — albeit, one that's a whole lot more profitable.

Is Apple stock now a good buy? 04/27/14 [Last modified: Sunday, April 27, 2014 5:38pm]
Photo reprints | Article reprints

    

Join the discussion: Click to view comments, add yours

Loading...
  1. Lost Highway: As FHP struggles to recruit, speeding tickets plummet

    State Roundup

    TALLAHASSEE — The number of speeding tickets written by Florida state troopers has plunged three straight years as the agency grapples with a personnel shortage and high turnover.

    A Florida Highway Patrol Academy class in the late 1980s. Typically, graduating classes had about 80 recruits. But the most recent class has less than half that as the agency continues to struggle to fill vacancies. [

Florida: Highway Patrol]
  2. Kidpreneurs — and adults — capitalize on gooey, squishy Slime craze

    Retail

    First it was Play-Doh. Then Gak. There have been dozens of variations for sale of the oozy, gooey, squishable, stretchable kids' toy through the generations.

    Aletheia Venator and Berlyn Perdomo demonstrate the stretchiness of their slime. - Berlyn Perdomo and her friend, Aletheia Venator, both 13, make and sell slime which can be seen on their instagram site @the.real.slimeshadyy [JIM DAMASKE   |   Times]
  3. The last farmer of Florida's prized Zellwood corn is thinking of packing it in

    Consumer

    MOUNT DORA — Hank Scott steps out of his pickup between the long rows and snaps off an ear that grows about bellybutton-high on the forehead-high stalks.

    Hank Scott, co-owner of Long and Scott Farms, shucks an ear of corn on the farm in Mount Dora, Fla., on Wednesday, May 10, 2017. The farm specializes in Scott's Zellwood Triple-Sweet Gourmet Corn. LOREN ELLIOTT   |   Times
  4. Law firm's Russia ties prove nothing about Trump

    Business

    The statement

    "Law firm @POTUS used to show he has no ties to Russia was named Russia Law Firm of the Year for their extensive ties to Russia. Unreal."

    Sen. Chris Murphy, D-Conn., stands during a media availability on Capitol Hill, Monday, June 20, 2016 in Washington. A divided Senate blocked rival election-year plans to curb guns on Monday, eight days after the horror of Orlando's mass shooting intensified pressure on lawmakers to act but knotted them in gridlock anyway — even over restricting firearms for terrorists. (AP Photo/Alex Brandon)
  5. Pasco county lawyer disbarred for taking woman's money

    Real Estate

    NEW PORT RICHEY — The Florida Supreme Court on Thursday disbarred Pasco County attorney and former congressional candidate Constantine Kalogianis.

    The Florida Supreme Court on Thursday disbarred Pasco County attorney and former congressional candidate Constantine Kalogianis. 
[2016 booking photo via Pasco County Sheriff's Office]