I had my seat on the great Apple (AAPL
) roller coaster that peaked in September 2012, having bought in on August 23, 2011 at $360.30. It was a purely metric based purchase as I was not a hardcore Apple devotee, although I definitely knew some and believed they existed. Even then, I thought the $360.30 was a bit pricey, and I was tempted many times in the ensuing months to back off the position as it moved ever higher. I was the classical holding bear. I felt convinced reality would set in, but I was tied to the trade (and it’s increasing gains) to get out of it. That day I had purchased both AAPL
and Berkshire Hathaway (BRK.B
) at $67.69, enough of both to make them immediately my two largest holdings at the time.
The story of 2012 for these two is like the story of the Hare and the Turtle, and one illustrative of the difference in nature between the two organizations. Warren Buffett famously derides the ideas of paying a dividend, or splitting the A-shares, both topics which came up again now that BRK.A recently reached it’s all time high. Since the AAPL peak in 2012 they have announced both a (resumed) dividend as well as the recent 7-1 split. Buffett, meanwhile, has always resisted a split because he believes it encourages short-term, speculative trading, and a dividend because he assumes (likely quite correctly) most people would prefer he identify the best things to reinvest in, providing more compounding Net Asset Growth.
It was taken by many for a long time that AAPL would never pay a dividend and never split, and indeed it may never have had Steve Jobs had his way. AAPL did pay a dividend which was cancelled during the AAPL crisis of the mid 1990’s, but this was so far back many of the current shareholders likely were not around then. It is too early to see if there has been a negative effect for AAPL as a result of the split, but I would like to highlight one thing that I think is in fact to the benefit of AAPL and most especially shareholders in the near to long term.
I believe AAPL will soon make a run as it did from the 360-700 move that it did in the 13 months from August 2011 to September 2012. What this would represent at the current price structure would be effectively the shares reaching the $200 range within 12 months. I am more confident than that even. I believe that AAPL is going to reach at least $300 and peak somewhat above that number by September of next year (13 months). The chief reasons being the product cycle is about to kick in with a bullet for AAPL. The iPhone6, among other things, are going to be encouraging the upgrade cycle for die hard AAPL enthusiasts all over again. Traction is being made in the emerging markets, including India which was a closed market for AAPL not very long ago. The success in selling the lower model iPhone4’s in India will be endlessly repeatable the world over, and AAPL‘s cash pile outside the USA will continue to amass.
Perhaps the most important reason I believe the share price is likely to triple is that, to most people, they still think of AAPL as a “$500 or $600” stock, such was the mass awareness around the mostly upward gyrations of AAPL shares just a few years ago. Tuned out of the casual observers awareness are the small qualifiers such as “pre-split”, etc. So when the very low-information public see the share price ofAAPL now, they are likely to see opportunity in thinking that the stock is very capable of reaching former heights again, despite however much rational explanation the most seasoned investor may try to damper those expectations. The truth is Joe Main Street does not spend much time watching CNBC, reading Seeking Alpha or any of the other investment sites, maybe watches Cramer, and you know–for every one of us who would try to dispel the unlikely notion that AAPL gets to $300, we are much better for getting on the train (if not already on board) and see for ourselves.
I have seen the quote recently, “A Bull Market Makes Geniuses Of Us All”, and I am sure someone can attribute to whom the phrase originated, but the ascension of both AAPL and BRK.B/BRK.A to all time highs literally three years almost to the day that I opened my positions in each says nothing about my stock picking ability but perhaps about the nature of this particular bull market. So the Hare and the Rabbit reached the most recent finish line almost in unison, although in much different fashion.
Metric-wise, AAPL is as excellent as ever. Sporting a PEG of 1.33, a dividend of 1.87% (while low, acceptable given all other factors), Cash/Share of 6.31, but most of all, my price target of a 200% increase from here, I could not stress hard enough my conviction on this call.
In fact, I ended up selling the vast majority of my AAPL holdings at around $515, long after the high close of $702.10 was a distant memory. This was necessitated by a need for cash flow, but I was more than willing to throw in the towel on the holding I never had quite the conviction in that the rest of the market did. It is easy to see that I was incorrect in my original, perennial bearishness. This time around I would rather err on the side of irrational exuberance.