In the first half of 2016, a number of Wall Street analysts were negative on the fortunes of Apple, as the stock price for the company has fallen over the last 12 months from highs above $130 per share to more recent levels in the mid-90s.
The company has reported somewhat disappointing numbers for sales of its iPhones in China and has repurchased roughly $40 billion of its shares in the past year in an attempt to reverse the stock’s slide. It’s begun to offer a larger dividend in hopes of luring investors and boosting the stock price back over $100.
But these latter two maneuvers haven’t had much of an effect on the issue’s price, and some industry observers are saying that Apple should tap into its massive cash hoard of roughly $250 billion (approximately half of its market capitalization) to make an acquisition that could spark a rally for its flagging stock.
Recently, ex-Apple CEO John Scully appeared on Jim Cramer’s “The Street” program to discuss Apple’s prospects and offer his opinion on whether a ripe target for an Apple acquisition might be Elon Musk’s popular Tesla Motors.
Scully was of the opinion that Apple’s future iPhone 7 release will spark a price rally as owners of previous iPhone models upgrade and that the action would boost the share price of the company’s stock as the release of the iPhone 6 series did in 2014.
Regarding an acquisition of Tesla, Scully said that Apple could certainly pull it off if it wanted to, but Apple had no history of buying a company as large as Tesla, and he seemed unsure about whether the company might want to get into the business of making cars.
There’s been much discussion of an Apple self-driving car, and it appears that one is in development (prototypes have been spotted in California), but whether Apple would want to manufacture the entire car or just supply its label (or perhaps just the intelligent autopilot technology) to an automobile produced by another company is unclear.
Certainly, buying a portion or the whole of Tesla would at the very least give Apple instant access to the former’s acclaimed batteries, but such technology (and the patents supporting it) is essentially public domain, and Apple wouldn’t need to make such an investment to acquire it.
For Apple, the assembly plant for the car bodies and engines and Tesla’s extensive dealer and charging station networks may be more valuable.
Under former CEO Steve Jobs, Apple was very much a hardware company, but manufacturing automobiles and making computers are very different businesses. At the same time, Tesla CEO Elon Musk confirmed this year that he’s met with the head of Apple’s mergers and acquisitions team.
In earnings calls, Apple has hinted at a new version of its Apple Watch. The company is also pushing hard to launch its signature stores in India, where it hopes to duplicate the runaway success the brand has had in the Chinese market.
Apple CEO Tim Cook visited India recently and met with Narendra Modi, the country’s prime minister. In addition, the company announced a $1 billion investment in Didi, a Chinese competitor of ride-sharing concern Uber.
The last major acquisition Apple made was buying headphone maker Beats in 2014 for $2.6 billion. Apple has also acquired multiple mapping technology, facial recognition, virtual reality and data analytics firms in recent years.
As of July, a majority of stock analysts believe the company will outperform the market in the medium to long term. The stock price is down more than 23 percent from last year, making the issue a probable good buy as long as expectations are met regarding the release of the anticipated iPhone 7, expected to occur this Fall.
Although some Apple enthusiasts aren’t expecting a major change in the form factor or design of the iPhone until a 10th-anniversary edition materializes in 2017, Apple has a long history of pleasing its user base with successive versions of its products.
Considering the long development cycles of the iPhone series (which account for 65 percent of the company’s sales and an even greater percentage of its profits), it would be no surprise if both the 2016 and 2017 models proved to be just as innovative as the iPhone 6 did two years ago.
Some company watchers believe that Apple’s best days are behind it — in April, billionaire investor Carl Icahn soured on his stake in the firm, selling 53 million shares.
But the product and market pipeline for the business remain strong, and the company has an exceptionally durable sales infrastructure and intensely loyal customers.
Given the current price and the business’ lauded management team, this stock appears to be an excellent buy, with a strong upside and enduring value for the future.
Regards,
Ethan Warrick
Editor
Wealth Authority
