On what would have been a seventh day of a winning streak, the equity markets decided to take a Sabbath Day and rested. Despite a slew of positive pre-market earnings beats, the equity markets reacted negatively to new home sales data. For the most part though, the markets paused while waiting for Apple (AAPL) and Facebook (FB) to report results after the market closed. Then those two the two technology companies reported stronger than expected results and the fun began.
Apple Boosts Dividend and Splits Stock
It was Apple that really stole the show. The company earned $11.62, 14% better than consensus estimates of $10.17. Contributing to those strong results were iPhone sales which increased to 43.7 million units versus expectations of 37.7 million units, thanks to sales in China though a recent deal struck with the country’s largest carrier, China Mobile (CHL). But that was not all. Apple also announced that the company would: increase its share buyback program to $90 billion from $60 billion; increase its quarterly dividend by 8% to $3.29; and, split the company’s stock 7 for 1. Furthermore, the company hinted that new products and product upgrades would roll out later this year, including a larger screen iPhone, an enhanced Apple TV box, and a watch. Shareholders were rewarded with an 8% jump in the price after hours.
The significance of a stock split is normally psychological and cosmetic. However, in Apple’s case it has greater significance. First, with the stock at $566, it is still a pricey stock, from an absolute perspective, for most individual investors to own. Splitting that stock to about $80 will allow more individuals to purchase the shares and expand holdings across a greater base of shareholders. On a relative basis, the stock is still cheap selling at less than the market multiple. Furthermore, a split of Apple as announced would for certain, guaranty that the company would, in the future, be included in the Dow Jones Industrial Average Index (INDU). Given the way in which the Dow Jones Industrial Average is constituted, every stock is represented on a price weighted basis, i.e. every company contributes one share of stock to the index. By my calculations; currently, Apple would be the largest weighted stock in the index at close to 20%, compared to the now highest weighted stock, Visa (V) at just over 8%. Post spilt, once Apple is part of the index, it would be in the middle of the pack with about a 3% weighting as is for Proctor & Gamble (PG).
So, for today, we can expect that Apple and Facebook will lead the market higher, especially the downtrodden tech laden NASDAQ (NDX) Index. Also today weekly unemployment claims and March’s durable goods orders will be released. More earnings are on the calendar but they pale in comparison for excitement to those on Wednesday. The most interesting reports will come from Caterpillar (CAT) and United Parcel Service (UPS).
Scott Rothbort to Appear on Bloomberg Radio
Tomorrow I am crossing the Hudson to experience the New York International Auto Show. Then in the afternoon I am headed to the East Side to Bloomberg Studios where I will be a guest on Pimm Fox’ Taking Stock Show on Bloomberg Radio. While I don’t have an exact time for my appearance, the show airs from 3 to 5PM. You can tune in on AM 1130 in the NYC area, on a Bloomberg Terminal page BBR, on Sirius XM satellite Radio or on the internet at http://www.bloomberg.com/radio/
Have a great weekend; I will be back on Monday.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL and FB — although positions can change at any time.
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Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. A subscription is included with a paid Platinum Membership to Wall Street All-Stars or an individual subscription to the newsletter which can be ordered at www.restaurantstox.com
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