Apple Inc. Is Beginning to Test the Patience of Its Investors

For the past few months, Apple Inc. (NASDAQ:AAPL) stock has been bouncing around between $140 and $160 a share. And for the foreseeable future, I maintain a buy-and-hold mentality.

AAPL Is Beginning to Test the Patience of Its Investors
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For a company of AAPL’s size, hitting a trillion in market cap is going to take more than just an upgrade to the iPhone with enhanced features. Earlier in the year, repatriation tax reform seemed to hold lots of potential for AAPL to unleash that offshore cash and redeploy on either investments or by returning some of that capital to shareholders. A special dividend was not out of the question. But alas, that hasn’t come to pass. Frankly, I’m not holding my breath either.

As I take stock of where we stand, there’s a lot of just sitting and waiting. Management seems to be mulling over many options, and in the meantime, investors are getting 1.6% in AAPL dividend yield for their patience.

 

To be sure, the year-to-date performance has been more than satisfactory with shares up 38%, but the question is always going to be about the future of AAPL earnings. What’s next for the brainchild of Steve Jobs?

AAPL’s Steps Forward

I’ve voiced my support for Apple’s acquisition of Netflix, Inc. (NASDAQ:NFLX) before. It’s going to take a dramatic and daring move by AAPL to get its stock to break out of its range-bound pattern. We know liquidity is not an issue with its oft-cited fortress balance sheet. As of the middle of the year, the company’s cash balance including short-term investments was up to $77 billion.

There’s no question of the cash-generating ability of the existing company, but for a multiple expansion, markets are going to need more. Markets are going to need some visibility into how and where Apple stock intends to use that cash. Just watching it steadily increase its cash balance may be good for news headlines, but it doesn’t tell investors much more than a number.

AAPL Invests in TV

It’s not new news that Apple stock is putting a billion dollars toward developing original content for TV and film. This is perhaps its attempt to make a go at the model that has made NFLX so successful. Build a library with proprietary IP and market it directly to your existing engaged user base, across hardware and software.

But what is $1 billion compared to the $6 billion that NFLX will spend this year and $4.5 billion that Amazon.com, Inc. (NASDAQ:AMZN) is estimated to spend?

AAPL stock has been aggressively poaching talent from media companies, but until its shows start to generate ad revenue or sponsorships, or just something that meaningfully contributes to the overall revenues, it’s hard to see this becoming a game changer for them. An award or two this upcoming season wouldn’t hurt, but from a business standpoint, it also wouldn’t mean that AAPL is on track to displace existing competitors.

AAPL Watch

Where there does seem to be hope is in wearables. We’re still light on AAPL watch numbers, but my sense is that they continue to do better and better with each iteration. With the Apple Watch Series 3 cellular capability, users can make calls and receive texts even if their phone isn’t nearby.

The intelligent coaching and barometric altimeter features are a further step toward achieving the goal of becoming a necessary accessory for health and wellness. This is, of course, where the potential lies for widespread and rapid adoption.

Ultimately, I can see wearables posting bigger and bigger numbers on AAPL’s P&L.

In lieu of any major changes, I’m content to wait and see what Apple comes up with next.


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