[Note: if you are wondering why Apple's stock is mow trading at less than $100 rather than around $600 it's due to the stock split that happened at the beginning of June 2014]
In this article we guide you through the pros and cons of investing in Apple, explain how to buy Apple shares, assess what affects the value of AAPL, and examine who owns Apple shares. We also answer your questions about the Apple Stock Split which took place in the first week of June.
If you were to invest in Apple you would effectively become a joint-owner of the company and, along with all the other shareholders, you would have a say in the decisions the company makes.
As a reward, your investment could grow as the company enjoys successes. You will also benefit from a share in the profits of the company in the form of dividend payments every quarter.
However the value of your investment can also decline. Tying your money to the success of any company is risky business. Should you take the risk with Apple?
Should you invest in AAPL shares?
This is a big question that only you can answer. First things first: Apple's share price is incredibly volatile. Don't invest if you want to make a quick buck. And definitely don't invest if you can't afford to lose your money. We're talking about the company whose share price hit the heady heights of $700 (£465) in September 2012, only to plummet to $389.47 (£259) in April 2013. (Remember that these share prices would need to be split adjusted now that Apple's 7:1 stock split has taken place).
To find out is how much Apple is worth today click here. On 12 June Apple closed at $92.29 (to put that in perspective, pre split that would have been $646.03.
Should you invest in Apple? It depends on a number of factors. If you are hoping to make a fast buck then we wouldn't recommend Apple (at least not right now). To be frank, the only people who make short-term gains are the big funds who plough millions into the stock only to take it out again a few months later (more on them below). Over the long term it could be possible for normal investors to make money out of Apple stock, however.
Can you afford to invest in AAPL? Pre the share split we would have said that Apple shares aren't cheap. But now that AAPL shares have been adjucted in the 7:1 split, they are cheaper than they have been for a very long time, and a long way below their September 2013 price of $700. You can find out what Apple is currently worth at Yahoo Finance. The fact that an Apple share can now be bought for about £54 puts them in the reach of more people, certainly, but you need to factor in other costs of ownling shares. If you only buy one Apple share you may be paying almost the same again in fees.
Can you afford to lose your money? You should only invest in Apple if you don't mind the fact that you could lose some of your money. As with any stock market investment, you can lose as well as gain money. We have been lucky enough to have very low interest rates for some time (maintained at 0.5% by the Bank of England - changing soon). These low interest rates mean the rates of interest offered by many straightforward investments right now are very low. For example, some ISAs offer just 0.5% interest. In this current market, you could see much a bigger percentage increase on Apple shares. Then again, you could also see a loss in the value of your investment.
Are you an Apple fan? Key to your decision of whether to invest may be that you are an Apple fan with good knowledge in the company, and an interest in Apple that means that you follow the highs and lows of the company with interest. Nobody can predict the future, but at least you have good knowledge of what happened in the past.
What to believe: If you are serious about your investment you must take any reports claiming to have an insight into what Apple has up its sleeve, or claims that Apple's share price will hit $1,000 with a pinch of salt. Nobody has a crystal ball so don't believe reports that claim to be able to predict what will happen over time. It's nice that people have faith in the stock (some of the time) but they may well have ulterior motives in getting you to invest your money. As Asymco's Horace Dediu said: "The opinion of those who are highly paid should be treated with suspicion." Be wary of analysts who work for financial services, noted Dediu, their paychecks "are not tied to accuracy of foresight".
Unfortunately, reports based on the words of these analysts and other so called experts, along with supposed "leaks" from the Far East, may cause changes to the value of the stock. Apple's stock has been known to soar or plummet on completely unfounded rumours and speculation.
What does Apple's 7:1 Stock Split mean?
On Friday 6 June each share of Apple's stock was split into seven in a 7-for-1 stock split. In the run up to the change Apple's share price has been performing well, hitting a 52 week high of $625.71 on Tuesday 27 June.
Existing shareholders and those who bought shares before the 2 June were awarded six additional shares of AAPL stock (each worth a seventh of the original value, with the market value of the company remaining the same) when split-adjusted trading began on 9 June.
When Apple's split adjusted stock ended trading on Monday 9 June it was worth $93.70 per share ($655.9). Which was up from the $92.22 from the previous trading day ($645.54). By the end of the first week of trading the share price had headed back to $92.29 ($645.54).
You can read more about Apple's stock split here.
This isn't the first stock split for Apple. The most recent was in February 2005 and before that in 2000. The first Apple stock split was in May 1987.
How much will my stock be worth after the split?
If you owned five shares of Apple stock worth $600 each at the time the split took place, that's a total of $3,000 worth of Apple shares. After the split each of your shares would have been split seven ways, so you will have 35 shares, worth just under $85.72 each, but your total share of Apple will still be $3,000.
The stock split is not a certain way for Apple to increase the value of its shares - indeed after stock splits other companies have seen their stock decline sharply in value. However there are a number of reasons why splitting the stock could pay off for Apple's investors.
Why did Apple split its stock?
During a conference call with analysts in April, the company said: "We want Apple stock to be more accessible to a larger number of investors."
This may be to attract institutions that have a rule about the maximum price of a share. By cutting the price of its shares Apple stock may appeal to more potential buyers.
For individual investors the split might make the stock more appealing - if the value of Apple's shares had hit $1,000 each it might have ruled out a number of small investors. The change is unlikely to have any real impact on the value of the shares though.
However, the new value should give the stock more potential, because it's psychologically more appealing, and perhaps open Apple up to being included in the Dow index (which would add to the prestige of AAPL).
Why did Apple split 7-for-1?
Analysts had expected Apple to make a stock split announcement, but the 7-to-1 ratio was a surprise.
It is possible that Apple set on that number because when it hit its peek the Apple stock was worth $700 a share. Dividing that by seven gives you $100 - which is neat, and seems to be attainable in the current context based on the high prices we have been dealing with.
Another reason for this particular division might be to avoid any comparisons with Google. Google had hit $700 around the time that Apple did, but it headed on up to $1,000 after, while Apple plummeted. Now Google has split its stock 2-for-1, well, not exactly 2-for-1. Google performed a 'dividend adjustment' with the second share not having any voting rights; this means there are now two types of Google stock (GOOG was worth $560 and GOOGL was worth $569.35 on 28 May 2014).
What happened last time Apple split its stock?
On 28 February 2005 it went from $42.53 ($85.06) to $42.88. A year later the stock was worth $65.46. Obviously there are numerous reasons why Apple's share price increased that year.
As you will see if you read on, there are many things that affect the value of Apple's stock, and we advise that you try and keep an open mind when you read claims that the stock is going to rocket due to an unannounced product. It's a risky business...
The highs and lows of AAPL stock
No doubt, many of the new AAPL investors in 2012 decided to invest money in the company after reading reports that suggested that Apple's stock was set to climb all the way to $1,000 a share based on the success of the iPhone and iPad, while those who invested in 2013 were likely enticed by claims that Apple is working on new product categories including smart watches and television.
Over the past year or so the iPhone has continued to be popular, as has the iPad, but Apple has been criticized for failing to grow market share – particularly in the smartphone market. The issue is that in many countries smartphone ownership is at saturation point, while in emerging economies smartphone ownership is on the rise, but the iPhone is too expensive for these markets. Indeed, even in the UK there is a market of new smartphone adopters who are turning to cheaper Android devices because Apple doesn't offer a cheaper iPhone.
There is much debate to be had over whether Apple should be chasing marketshare with low cost devices, or focusing on selling higher priced products with bigger margins to fewer people. iPhone users are said to be worth four times more than an Android user because iPhone users spend more money online and on apps than Android users. Android phones have been described as "dumbphones" because users don't do anything financial with them. When it comes to deciding which platform to invest in third-party companies go where the money is. Sometimes less is more, after all.
That seems unlikely to change. Apple is a company that has always focused on quality products sold for higher prices, rather than marketshare, so it seems misguided to expect anything else from it. Not every Apple investor thinks that Apple should grow marketshare at the expense of profit.
Those who have concluded that there is no room for increased smartphone market share have looked to rumours that Apple will make a television or a smartwatch with hope that these new product categories could push up Apple's share price. It's impossible to make predictions about the success or failure of products that Apple hasn't even launched yet. Those markets are certainly ripe for innovation, but that doesn't mean that Apple will see the same success as it did when it launched the iPod, iPhone or the iPad.
Recently (on 20 February 2014) Barclays analyst Ben Reitzes downgraded Apple suggesting that the stock won't see any huge leaps and bounds any time soon. Reitzes wrote in a note to clients: "Frankly, we just couldn’t quite bring ourselves to use smart watches or TVs as reasons to raise numbers – nor were we fully convinced that these products could move the needle like new categories did in the old days. As a result, we believe it is time to step aside, given a maturing smart phone market."
Similarly coverage of the decline in the value of AAPL shares will have given investors cause for concern. The ups and downs of Apple's share price over the past year will have given investors cause for concern and as a result many will have cut their losses and withdrawn their investments.
At the same time, a selection of high profile investors have make waves, buying billions of dollars of Apple stock and making demands of Tim Cook for bigger returns on their investments. At the heart of these demands is the fact that Apple is sitting on a massive cash hoard of around $150 billion (much of which is offshore so the company can't actually spend it without paying a fortune to repatriate it – more on this below).
Apple has been making some moves to appease investors, for example, every quarter it issues a dividend to investors (for example, on 13 February 2014 it paid investors $3.05 per share). This is part of a scheme to repurchase Apple stock, and the recent stock buyback saw Apple repurchase $14 billion of its stock (in comparison, in the December and September quarters combined, Apple repurchased 'just' $10 billion of its stock). Apple's dividend history is outlined here.
One of these high profile investors is Carl Icahn, who has about $4 billion invested in Apple. Described as an "activist investor," Icahn has had a number of meetings with Apple CEO Tim Cook in recent months, and has made various demands, including that Apple boosts its stock repurchases to $50 billion. These meetings have been behind closed doors and Icahn has revealed nothing, but he has now withdrawn this demands. Some think that Cook has been able to reassure Icahn, others that Icahn is manipulating Apple and positioning himself as an ally.
Either way, Apple's stock buybacks dividend payments have gone some way to appease investors while they await the launch of Apple's next big thing.
The best advice is to invest for the medium to long term – five to ten years – and expect the value of the shares to fluctuate. If you invest over a longer period you’re in a much better position to ride out any fluctuations in the market.
In the short term investment in Apple is a sophisticated game, with many people (many of them fund managers) with huge resources putting their money in. Just remember, you're up against the big boys and girls.
Make sure you stay informed, create a short cut to Yahoo Finance.
How do I buy Apple shares?
Shares can be bought and sold by post, telephone or online. It's incredibly easy to buy and sell shares via the internet, plus it's often the cheapest option.
Note that internet share dealing is execution only. This means that the broker carries out your instructions on what to buy and sell without giving you any advice.
It is also likely your shares will be held in a nominee account - basically the stockbroker holds them on your behalf. This means your name may not appear on the company's register – and as a result you may not receive the company's financial report and you probably won't be able to vote. Dividends will still be paid into your account however.
Your internet share dealing services might buy and sell shares in real time so you know exactly the price you are paying for your chosen shares, but it is also possible that shares are purchased at certain times of the day, so you may not be buying at the price you thought you were.
Another thing to note is that if you don't hold the share certificates, you will have to sell the shares through the broker you bought them from. You will likely be charged a fee if you swap to another firm.
You can also invest through a stockbroker. You may have to pay them commission, but it is still possible to opt for an instant access execution-only stockbroker, who won't give you advice and simply process your requested transactions.
You can also make your share transactions through a investment ISA. That way you can save £11,520 a year, tax free.
Buying AAPL shares in the UK
If you are based in the UK there are some extra steps necessary before you can buy Apple stock. If you have never traded in US shares before, you will need to fill in the W-8BEN form. This confirms your foreign status for tax purposes.
If you are thinking of buying Apple shares get this form filled in now so that you can buy shares on the day you choose, not days later because you weren't prepared.
What does it cost to buy shares?
When you buy shares, you pay 0.5% stamp duty on top of the cost of dealing.
Any dividend income is also subject to tax. The dividend ordinary rate of 20% applies for basic rate taxpayers who earn up to £32,010, a rate of 40% if you earn up to £150,000 and 50% if you earn more than that, in the tax year 2013/14. When you receive dividend payments a percentage of tax has already been paid, and it will appear on your dividend voucher as a tax credit and may mean that as a basic rate taxpayer you have no further tax to pay. If on the other hand you are a higher rate taxpayer you will have an outstanding tax liability to pay when you make your tax return. There's lots of information about this here.
There's also capital gains tax to consider. If you sell your Apple share for more money than you bought it for, you’re will have made a capital gain and it will be liable to tax at a rate of 18%, or 28% for higher rate tax payers. Before any tax is payable though, you have an annual tax-free allowance for Capital Gains Tax, which is £10,900 for the 2013/14 tax year. Read more here.
An exception to these tax rules is dividends from ISAs, which are tax-free.
For bigger investors there's also a mandatory £1 to the takeover panel (PTM) for all trades worth more than £10,000.
Another way to save money is to dealing with electronic share certificates. They are a lot less costly than dealing in paper share certificates.
We're not investment advisors so we don't recommend any particular brokers. There is this article about investing on the MoneySavingExpert site, but note it's a bit out of date. Or look here at this comparison of UK share dealing accounts.
Why is Apple's share price so volatile?
In many instances there is absolutely no connection between the actual economic value of a business and its stock price, and in the case of Apple this is certainly true. Apple is actually criticized for having too much money in the bank. In some ways it's success has made it the target of much criticism.
Speaking of the amount of money Apple has in the bank, tempers are raging over this. In 2013 a 'rogue' fund manager, David Einhorn, caused quite a stir when he claimed that Apple was trying to stop shareholder having a say in what it did with its money. As a result the company eventually agreed to return more of its $144.7 billion cash horde to investors. Doing so is no easy process because a lot of that cash is tied up overseas and the company will have to pay corporation tax if it returns it to the US (Apple's been in quite a lot of trouble recently over its tax practices). To avoid tax on this occasion Apple offered investors the chance to lend it money so that it can pay current investors back (at least that's one way of looking at it). Suffice to say Apple is getting a better rate of interest on this debt than it would have to pay the US government in tax. The bond sale happened in April 2013.
This is the sort of news that should please investors, and following the bond sale initially the stock incresed in value, but then it fell back on the 15 May. Why would that be? The following story is a good example of why it's the big fund managers who really control Apple's stock. There have been lots of examples of aggressive trading on AAPL, but in this case it appears that short-sellers had swarmed AAPL.
This "swarming" was identified by Canadian money manager and financial columnist Mal Spooner. He first noticed that short interest in Apple had swelled from 8 million shares in April 2012 to 20 million in April 2013 and likened this burst of short selling to a "swarming," a street crime where "an unsuspecting innocent bystander is attacked by several culprits at once."
Spooner highlighted that short interest in Apple also peaked between 15 April and 30 April 2013, to a record 41.6 million shares. During that fortnight - on 19 April (two trading days before Apple's second quarter financial report) Apple's share price hit its lowest price in 16 months ($385.10). Those investors then made off with their gains because by 15 May (there's that date), Apple's short interest had fallen to 26 million shares. More here on Fortune.
Spooner explains: "The irony is that short-sellers borrow the stock from real shareholders (via third parties) in order to sell it on the market. After the selling pressure wreaks havoc on the stock price, the short-seller then buys shares at a much lower price, returns the ‘borrowed’ shares to those real shareholders and keeps the profits."
Whether you understand all this doesn't matter as much as knowing that this is the kind of thing that goes on with Apple's stock.
Another example of how big funds can control the AAPL stock. In 2012 Apple saw massive declines when four of the biggest hedge funds dumped billions of dollars of Apple stock. The share price plummeted and no doubt a number of investors panicked.
Why did these big investors pull out? They could have us believe that they had lost confidence in Apple. Or perhaps these funds pushed billions of dollars into Apple in the Summer of 2012 and then pulled out months later when they had made sufficient short term gains.
You should always be aware that these big funds can rip money out of AAPL at any time. For example, on one Friday in January 2013 we saw what was described as a "premeditated unloading of some 800K shares (some $350 million worth) of AAPL in the last second, with the full knowledge it would shake the market."
Other suspicious AAPL activity on the NASDAQ earlier in January 2013 had coincided with the expiration of call options written the previous summer, and the Apple share price closed at exactly $500 that day. Coincidence?
How can you stay clear of being a victim of these big bullies? Mal Spooner's advice:
- Avoid owning stocks that have become darlings. When it seems nothing at all can go wrong, it will, and when it does there’s sure to be a swarming.
- If there’s evidence of a growing short interest in a company, best not own the stock.
- Instruct your financial institution that your shares are not to be available for securities lending purposes.
Apple did indeed become the stock market darling in 2012. Beware that while this may happen again, it isn't something you as an individual investor will have any control over.
So, should I buy Apple shares?
There are a few reasons why you might want to consider buying some AAPL shares.
Price to earnings ratio The PE ratio is the valuation ratio of a company's current share price compared to its per-share earnings (over the past 12 months). Apple's PE ratio was 13.17 on 20 February 2014, which meant it was relatively cheap compared to some of the S&P 500, which have an average PS ratio of 17.60 at that time. Google, who was trading at $1204.11 back in February, had a PE of 35.34 currently. Apple's PE was even lower in March 2013 though, around 9.7. You can track Apple's PE ratio here.
Analyst recommendations Most analysts in the spring of 2014 were giving Apple a Strong Buy or Buy rating, with some analysts suggesting that investors should Hold. You can see the consensus recommendation for AAPL here.
Apple's health The company has more than $137 billion in reserves – this is a good buffer in a tough economic climate.
Apple's focus There are concerns that Apple is too dependent on the iPhone. While smartphone ownership in the West is said to be reaching saturation, the emerging markets of China and India are said to be ripe. Now that Apple has a deal in place with China Mobile - the world's largest network, it may be able to make headway in China. Similarly Apple has been seling the cheaper iPhone 4 in the Indian market in order to put the iPhone in the hands of those who can't afford a more expensive model. However, because smartphone ownership is reaching its peek many hope Apple will move into a new area - such as wearable technology - which could potentially boost its shareprice.
Who owns shares in Apple?
According to a Fortune report, the most popular investment of billionaire investors is Apple. Fortune's chart show the top ten holdings of 21 billionaire investors, including Warren Buffett, George Soros and Carl Icahn. Top of the list is Apple, followed by Wells Fargo, AIG, Yahoo and Coca Cola. The only other IT company to figure is IBM in tenth place.
Some might suggest that if these expert investors own Apple shares there must be something in it.
Should I steer clear of AAPL?
Many consider that Apple's golden days as the leader in the smartphone and tablet market is over.
Apple's profit margins are now lower than they used to be, sparking fears that the company's earnings will start to shrink.
Apple's had a few run ins with the 'law' over the past couple of years. The company has been questioned over its tax practices and the Department of Justice is accused it of price fixing its eBooks. Either of these issues could bite Apple. And then there's the raging battle with Samsung which played out in courts around the world over the past few year and will continue.
However, there are hopes that Apple is set to ignite two new markets over the next few years with the launch of a smartwatch, dubbed the iWatch, and in what Steve Jobs in his autobiography would be the reinvention of the television set. Read all the rumours about the iWatch and the iTV Apple Television rumours here.
As we said earlier, we're not investment experts but if you wish to invest in Apple, good luck!