Stock: AAPL (Apple)
Share Price: $131
Sticker Price: $62
AAPL and TSLA stock splits are all over the news. The Question is, which stock split should we pay attention to most?
This analysis breaks down the Apple 4-1 stock split and why it’s the best investment to pay attention to this week.
As you can see, AAPL is OVERPRICED within TYKR but we have a unique situation here. Before I talk about why AAPL is a good investment, I want to talk about the FOUR different stock investment strategies and where AAPL fits it.
The four strategies are defined as follows…
1) Value Stock Investing: Value stock investing is the strategy of buying ON SALE stocks that are a significant discount off the intrinsic value. This is essentially what TYKR does for you automatically. In fact, it goes a step further by adding a point system (0 – 20) to the stock. The higher the points, the less risk. In fact, if you simply use TYKR to find ON SALE stocks, you’ll make money 90% of the time. It’s that easy. I’ve been using TYKR to generate returns ranging between 15% and 50% for five years. This year I’m up 80% because I used TYKR to buy ON SALE stocks during the massive dip in March of 2020. Overall, value investing is a very easy way to build wealth.
2) Growth Stock Investing: Growth stocks are those companies expected to grow sales and EPS (Earnings Per Share) at a faster rate than the market average. TYKR is an excellent tool used to find value stocks not growth stocks but there is a way to find wise growth stock investments on your own. Keep in mind, there are a lot LESS growth stocks in the market than value stocks but if you find the right growth stock, you can make great returns. Also keep in mind, growth stock investing is riskier than value stock investing. Some stocks may be perceived as growth stocks but they can actually be speculative stocks that are driven by emotions. We’ll touch on speculative stocks as well as how to find growth stocks in a moment.
3) Dividend Stock Investing: Dividend stock investing is the strategy of buying stocks with dividends and getting paid quarterly for simply holding those stocks, no matter if the share price goes up or down. You can build wealth through dividend investing but it can take a long time. Value stock investing and growth stock investing are much faster ways to build wealth.
4) Speculative Stock Investing: Speculative stock investing is where most inexperienced investors can lose money. Bitcoin, marijuana stocks, and penny stocks (any stock less than $5 is classified as a penny stock) are speculative investments. These stocks are driven by emotions. A lot of people can fall into a FOMO (Fear of missing out) trap of trying to get rich quick but end up losing large sums of money. A great way to determine if a stock is speculative is to look within TYKR. If a stock is growing fast but is OVERPRICED, in most cases it’s speculative but in a few cases it may be a growth stock.
Here is how you find a growth stock and in this example, we’ll apply AAPL.
On the TYKR FAQ page I mention the “4 M’s” (Margin of Safety, Meaning, Moat, and Management). The 4 M’s are a technique used to find both VALUE stocks and GROWTH stocks. This is a common technique used by Warren Buffett.
Let’s dive in…
1. MOS (Margin of Safety): Margin of Safety is the principle of buying stocks that are 50% OFF the intrinsic value. If a share price is $100 and the sticker price is $200, that would qualify as a 50% discount. TYKR has classified AAPL as OVERPRICED. The share price is $131 and the sticker price is $62. We’re going to disregard the Margin of Safety in this case and move onto the other 3 M’s to see if AAPL is a growth stock.
2. Meaning: The business is easy to understand. In this case, most people around the world know Apple. It’s a household name for phones, tablets, and computers. Keep in mind, a speculative stock will not be a household name. Most people will not be familiar with it and if they are, in most cases they won’t understand how the business makes money. The meaning checks out for AAPL so we’ll move onto the next M.
3. Moat: The business has a wide moat. In other words, it’s hard to duplicate. Many would argue that the iPhone is the best phone on the market. This article from tomsguide.com gives many reasons why iPhone is better than Android including performance, hardware and software integration, ease-of-use, and priority on new apps.
Apple also has a strong brand moat. People buy Apple products because of the name “Apple”. It’s like buying a Coke product. You don’t walk into a store looking to buy a “cola”. You look for a “Coke”. When you’re looking for a “tissue”, you look for “Kleenex”. You get the idea.
Apple also has a cash moat. They have $200B available to spend on R&D (Research and Development). That’s a great place to be! They have the ability to create highly innovative products and they have the ability to withstand economic downturns. To provide a comparison, Samsung has $88B cash on hand.
Keep in mind, a speculative stock will not have a wide moat. They will have a lot of competitors, be fairly easy to duplicate, and won’t have a lot of cash on hand.
The moat checks out for AAPL with flying colors so we’ll move onto the next M.
4. Management: The business is run by a great leader. In the case of Apple, Tim Cook has stepped in and done an excellent job running Apple since the unfortunate loss of Steve Jobs in 2011. In fact, this article from Forbes states that grooming Cook as Apple heir was one of Steve Jobs greatest accomplishments.
Keep in mind, a speculative stock won’t have a well known and highly respected CEO.
When you take a step back and look at the 4 M’s, AAPL checks the boxes on Meaning, Moat, and Management. Although AAPL is OVERPRICED, it’s indeed qualified a GROWTH STOCK.
Now let’s get to the TOP reason why you should be looking at APPL.
Apple just went through a 4-1 stock split. In other words, Apple cut it’s share price by 4. This means if you had one Apple share of $500 before the stock split, you now have four Apple shares of $125 after the stock split. In this case, a stock split does not make you 4X richer, it means you have 4X as many shares but the important thing to consider is it makes the stock more accessible! See, most people pay attention to share price and don’t spend the time or use TYKR to calculate the sticker price. So when a popular stock like AAPL has its price reduced, a lot of people will start buying it. That is happening as we speak!
Let’s take a look at the stock split history of AAPL.
In 1991 AAPL reached a share price of $79 and they did a 2-1 stock split which resulted in a new share price of $39.50. In four years the price went up to $68. That’s a total return of 72% and an annualized return of 14%. Pretty good.
In 2000 AAPL reached a share price of $135 and they did a 2-1 stock split which resulted in a new share price of $67.50. Timing on this stock split was bad due to the “dot-com bubble” so this stock actually went down to $22 and held there through 2004. That’s a total return of -67% and an annualized return of -24%. Don’t let this stock split discourage you. The “dot-com bubble” held many other tech stocks down for a few years. Now here is where things get really interesting…
In 2005 AAPL reached a share price of $76. They did a 2-1 stock split which resulted in a new share price of $38. Over the next 7 years the stock took off like a rocket! In 2012 the stock went to $667. That’s a total return of 1,655% and an annualized return of 50%. Very impressive!
In 2014 AAPL reached a share price of $633. They did a 7-1 stock split which resulted in a new share price of $90. That brings us to 2020 where we just saw the stock reach $500. That’s a total return of 452% and an annualized return of 33%. Also very impressive.
Overall, this was not the first stock split we’ve seen with AAPL and as you can tell, it won’t be the last. The stock is currently OVERPRICED which means it could go down but based on our analysis of the Meaning, Moat, and Management, this stock is bound to go up. If does go back down, relax. Hold it or buy more.
If you’re going to take advantage of a stock split opportunity, this is it.
What do you think?
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