Apple stock will split 4-for-1 on August 24. Should you buy now?
In the most general terms, a reason is a consideration which justifies or explains an action, a belief, an attitude, or a fact.Reasons are what people appeal to when making arguments about what people should do or believe. (Those are reasons in the normative sense.) For example, that a doctor’s patient is grimacing is a reason to believe the patient is in pain. That the patient is in pain is a reason for the doctor to do things to alleviate the pain.
In another sense of the term, reasons are explanations of why things happened. (These are reasons in the explanatory sense.) For example, the reason the patient is in pain is that her nerves are sending signals from her tissues to her brain.
A reason, in many cases, is brought up by the question “why?”, and answered following the word because. Additionally, words and phrases such as since, due to, as, considering (that), a result (of), and in order to, for example, all serve as explanatory locutions that precede the reason to which they refer.
3 Reasons Apple Stock Split Is A Buying Opportunity
Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct exchange of goods and services for other goods and services. Barter involves trading things without the use of money. When either bartering party started to involve precious metals, these gained symbolic as well as practical importance. Modern traders generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later of credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade involving more than two traders is called multilateral trade.
In one modern view, trade exists due to specialization and the division of labor, a predominant form of economic activity in which individuals and groups concentrate on a small aspect of production, but use their output in trades for other products and needs. Trade exists between regions because different regions may have a comparative advantage (perceived or real) in the production of some trade-able commodity—including production of natural resources scarce or limited elsewhere. For example: different regions’ sizes may encourage mass production. In such circumstances, trade at market prices between locations can benefit both locations.
Retail trade consists of the sale of goods or merchandise from a very fixed location (such as a department store, boutique or kiosk), online or by mail, in small or individual lots for direct consumption or use by the purchaser. Wholesale trade is defined as traffic in goods that are sold as merchandise to retailers, or to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services.
Historically, openness to free trade substantially increased in some areas from 1815 to the outbreak of World War I in 1914. Trade openness increased again during the 1920s, but collapsed (in particular in Europe and North America) during the Great Depression of the 1930s. Trade openness increased substantially again from the 1950s onwards (albeit with a slowdown during the oil crisis of the 1970s). Economists and economic historians contend that current levels of trade openness are the highest they have ever been.
I see three compelling reasons to do so:
- Apple’s top line has come back to life,
- Apple is growing in China, and
- A much lower stock price will attract more retail investors.
(I have no financial interest in the securities mentioned in this post).
3 Reasons Apple Stock Split Is A Buying Opportunity
What Apple’s 4-for-1 Stock Split Means
If you own a share of Apple, on August 24 the stock split will get you three more, according to the Wall Street Journal. On August 31, trading will begin on a split-adjusted basis — meaning that the price of each share — which was up 31% in 2020 as of July 30 — will be much lower that day (for example, if the shares trade at $400 on August 30, the per-share price will drop to $100 on August 31).
If Apple maintains its 21 cent a share dividend, that payment will be split evenly among the new shares.
If you invest in the Dow Jones Industrial Index, however, the Apple stock split could be bad news. How so? The DJIA is price-weighted so the big drop in Apple’s stock price will mean that Apple will shift from the most influential of DJIA’s 29 stocks to somewhere around 15th place.
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Apple’s Top Line Comes Back To Life
Public company stocks tend to go up after an earnings report if revenues and earnings growth are higher than what investors expect and it raises its forecast for the current quarter’s results. Apple beat expectations for its June-ending quarter and declined to provide a forecast for the second quarter in a row.
Apple’s results were surprisingly strong, according to CNBC. Here’s how much:
- Revenue up 11% to $59.7 billion — 14% higher than the Refinitiv estimate.
- Earnings per share of $2.58 — 27% more than expected.
- iPhone revenue up 1.66% to $26.4 billion — 18% higher than anticipated. Apple enjoyed what CEO Tim Cook noted was a “very nice uptick” in users switching to iPhone from Android, with help from its less expensive $399 iPhone SE released earlier this year.
In services Apple fell short — posting a 14.9% increase in services revenue to $13.16 billion — $20 million below expectations.
Apple generally benefited from pandemic related quarantining. Although 25% of Apple stores around the world are closed, strong online sales and the work-from-home trend — which Cook said contributed to Mac and iPad sales — helped strengthen Apple’s overall revenue.
A negative: Apple CFO Luca Maestri told analysts that the pandemic has delayed its new iPhone release — which usually occurs in late September — “for a few weeks,” according to CNBC.
Apple’s Rebound In China — Its Third Largest Market
The company reported stronger results in greater China — Apple’s third largest market. In the latest quarter, Apple’s Greater China revenue inched up 1.9% to $9.33 billion with record services and iPad revenue there, according to CNBC.
Apple’s Greater China iPhone sales soared after China reopened its economy. Between the March- and June-ending quarters, Apple iPhone unit sales soared 225% from four million to 13 million — which was a 62% increase from the year before’s June-ending quarter.
Apple benefited from the popularity there of the iPhone 11 — aided by discounts — and the less expensive second generation iPhone SE which was among the top 3 best-selling iPhones in China in the second quarter, noted CNBC.
The Lower Stock Price Will Attract More Retail Investors
While the split will not change anything for Apple’s business, it will most likely make investors think that the stock is less expensive — possibly driving institutional investors to buy the stock in anticipation of this rise.
Apple expects the split to make its stock “more accessible to a broader base of investors,” according to Reuters.
But not all of them. Many brokerage firms allow investors to own fractional shares — buying, say, $40 worth of Apple stock (about 10% of a share).
I would not be surprised to see the stock split draw in more retail investors who do not avail themselves of fractional shares.