Apple's shares erase gains after valuation exceeds US$800bn for the first time

Apple plc (NASDAQ:AAPL) have shares dipped today, snapping a two-day rally after its market capitalisation surpassed US$800bn for the first time on Monday.

Shares fell 0.87% to US$152.63 in early US trading after closing 2.72% higher to US$153.01 on Monday when the iPhone maker cemented its position as the world’s most valuable publicly traded company.

Apple became the first company to see its market capitalisation pass US$800bn after Drexel Hamilton raised its target price to US$202 a share from US$185, giving the company an estimated US$1trn valuation.

Its share price was also lifted by news that Warren Buffet’s Berkshire Hathaway Inc disclosed in its quarterly filing with the Securities and Exchange Commission on Monday that it raised its stake to US$19.2bn at 31 March from US$7.1bn at 31 December.

Apple‘s market capitalisation exceeds that of its biggest competitors, including Google’s parent company, Alphabet, which comes in second place with a valuation of US$653bn as of Monday.

Microsoft has a market capitalisation of US$532bn while Amazon.com is valued at US$451bn.

Yet, Drexel Hamilton analyst, Brian White, thinks Apple is the most “underappreciated stocks in the world” with a “very, very depressed valuation” at 11 times excluding cash.

However, he expects that to change as investors begin to recognise the company’s growth potential.

In an interview with Bloomberg about the target price hike, White said there were four things to look forward to at Apple – the release of the iPhone8 in September, valuation growth, new innovations and an increase in capital returns.

Apple could hike dividend or explore acquisition…

White also believes Apple could hike its dividend or explore possible acquisitions once the US tech giant repatriates its profits held offshore.

The company holds more than US$200bn offshore and plans to bring home much of the pile this year. The decision comes after US President Donald Trump vowed to offer US firms a one-off tax holiday if they return offshore cash to American soil.

“I think if there is repatriation and 93% of their cash is overseas, which is almost US$240bn, I think you could see something else happen -  it could be a higher dividend, it could be a one-time dividend,” White said.

“The dividend yield is 1.7%. Look at the mega tech companies they are well over 3%, I’d like to see that on Apple.”

Sizeable debt but strong cash flows…

Apple has in recent years turned to debt markets to reward shareholders. Last week the company announced it was increasing the size of its capital return programme to US$300bn by the end of March 2019 instead of the previously announced US$250bn, including US$210bn worth of share buybacks and a dividend of US$13.2bn annually.

White noted that Apple had about US$84bn in long-term debt at its last earnings report, but said the company generates about £60bn-£70bn in free cash flow a year.

The analyst added that the repatriation would boost cash in the US to allow for merger and acquisition opportunities. He believes an acquisition would be in the US where “a lot of the innovation is coming from, (particularly) these next generation areas”.

Apple vs Amazon, Google…

Apple investor Warren Buffet admitted to shareholders over the weekend that he made a mistake on missing out on investing in Google and Amazon years ago when their stock price was a fraction of what it is today.

Buffet, whose Berkshire Hathaway holds the second-biggest equity holding in Apple, said he realised early on the Google was turning significant profits from advertising but didn’t think it could sustain long-term success.

On Amazon, he said he was “too dumb to realise” its growth potential as he underestimated  its potential dominance and the ability of  chief executive Jeff Bezos.

Separately, analyst Rob Sanderson at MKM Partners has raised his stock price target on Amazon to US$1,095 from US$995 and reiterated a ‘buy’ rating, saying he considers it “the best long-term growth opportunity available to investors today”.

He said the growth potential comes from Amazon’s strategy of heavy investment in its Prime video, devices and technology, fulfillment capacity and cloud services businesses.

Apple also seems to have recognised the threat Amazon poses, hinting recently about developing a competitor to smart home hub Amazon Echo.

In an interview with technology news site Gadgets 360 at the weekend, Apple’s senior vice president of worldwide marketing, Phil Schiller, was asked what he thinks of Amazon Echo and Google Home.

He said, “my mother used to have a saying that if you don’t have something nice to say, say nothing at all”, adding that customers might benefit from having a screen in addition to voice assistance with their smart home hubs.

“There is an over 50% chance that Apple will announce its first home AI product at WWDC in June,” KGI Securities analyst Ming-Chi Kuo said in a note. WWDC is Apple’s annual developers’ conference.

Apple could lose top position to Saudi Aramco…

Saudi Aramco could take over as the world’s most valuable publicly traded company when Saudi Arabia floats 5% of the energy giant in an initial public offering to take place next year.

The stock market debut could value the company at US$2trn based on sizeable oil reserves and is expected to be the biggest IPO to date, raising tens of billions of dollars.

Aramco has reportedly hired investment bank Moelis to work on its stock market flotation, which is seen as an important step in transforming Saudia Arabia’s economy to reduce its dependence on oil revenues in coming years. 

Story by ProactiveInvestors