Someone is gobbling up the shares. It's about time.
The simplest explanation for why Apple's share price is up 9% in the past two weeks is that more money being poured into the stock than is being taken out.
Where's that money coming from? We can make some educated guesses.
- Apple. In April the company announced that its board had allocated an extra $35 billion for share repurchases, bringing the total Tim Cook is authorized to spend buying back Apple shares to $175 billion.
- Warren Buffett wannabees. The discovery two weeks ago that Berkshire Hathaway purchased about $1 billion worth of Apple in the March quarter may have been the signal other value funds were waiting for. The stock jumped 3.7% in one day.
- Hedge funds. On Thursday CNBC Halftime's Jon Najarin spotted two "extremely large" trades in Apple on the midwest stock exchange—one for 5 million shares, the other 7.5 million. "That's an awful lot of billions that someone just plunked down," he told listeners, exaggerating a bit. "Most probably a hedge fund."
According to every sell-side analyst with a published price target, Apple is still deeply undervalued—that 9% bump notwithstanding. As Marc Andreessen put it in January, the last time the stock closed above $1o0 a share: "Apple trades like a steel mill on its way out of business."
Could those trades have been Apple repurchasing stock?
Is there any way to tell?
As for how to tell – AAPL has 59% institutional ownership right now. If that goes up next quarter, then that tells us that hedge funds were buying.
At least when it comes to the tech sector.
The difference, of course, are those incredible Apple margins, and equally incredible cash stash, neither of which Amazon can “fall back” on. All of Apple’s growth can be expected to show up eventually in an increased stock price. When it doubles it’s revenue, expect to see it’s (average) stock price doubled as well. Also it’s dividend.
BTW, I totally agree with you that, right now, AAPL is worth far more than it’s stock price. And that’s actually a great opportunity for young investors (which sadly I am not). That doesn’t mean we won’t see future periods where the stock price is seriously stupid, just as we have for many, many years in the past. But Apple is doing everything right to make sure that there will be a continued very handsome upward growth in the stock price. Amazon? Not so much.
Quick edit: My research shows me that actually Apple’s stock price follows generally it’s earnings per share growth, not it’s revenue growth. That’s the beauty of it’s massive stock buyback program: It is actually using it’s spare cash to leverage cheap loans to reduce it’s stock float, which boosts it’s EPS. So it’s quite likely that Apple’s stock price will double in considerably less than 4 years!
When Buffett talks, people listen. Whether it was him personally overseeing the AAPL buy or not, it is still the same philosophy. Any intelligent long-term investor can read the writing on the wall that spelled-out AAPL was a great buy below $100. Where and when it goes from here is anyone’s guess.
Based on Buffett’s example, AAPL was “a great buy” below $108. That was the average price during the period Berkshire Hathaway was buying AAPL. And it is (a great buy below $108). It is an even better buy now.
Some of us may play with our IRAs speculatively, but even adding them in, the majority of shares are held by pension plans, foreign investors (probably, mostly institutions such as pension plans, insurers and other professionally-managed shops), and other institutions. Fifty years ago, it was very different—private, taxable investor accounts held the great majority of shares.
Retail illiteracy may play a part, but of course, the majority of private share ownership is by wealthier people (certainly, very little by people with below-average incomes), so most of any bad judgement is probably herd-following by the pros. They’re used to (when *I* was a manager, I certainly saw my peers note) the idea that it doesn’t matter how well-thought-out your projections are, when the overall market seems to run against you.
I’m traveling outside of the US now, so I may not be as plugged in as I once was. But it seems to me the last couple of weeks are a microcosm of what happens with Apple. Google’s I/O spooked a lot of tech types to think that Apple would be steamrollered by a tech that Google mastered, and that Apple hasn’t announced much of anything about (Artificial Intelligence, aka Machine Learning). The price swung down as if the iPhone would be obsolete in a few short years. And then, it pretty much recovered, as other tech types (mostly, Apple fans), pointed out that Apple is NEVER first to a technology, that it has many initiatives in the area, and that Google’s track record for profiting or even making good products from their moonshots, is nearly zero.
Yes, maybe some big hedge fund bought close to a billion dollars (a small percent) of Apple shares. But why did they do so? It seems the typical old “have a hunch and bet a bunch,” driven by volatile ideas about Apple business, is at play. Certainly, hedge funds don’t just randomly bet a few hundred million dollars; some investors had to have come to the conclusion that Apple was badly oversold.