In this article we guide you through the pros and cons of investing in Apple, explain how to buy Apple shares, assess what affects the value of AAPL, and find out who owns Apple shares.
If you were to invest in Apple you would effectively become a joint-owner of the company and, along with all the other shareholders, you would have a say in the decisions the company makes.
As a reward, your investment could grow as the company enjoys successes. You will also benefit from a share in the profits of the company in the form of dividend payments every quarter.
However the value of your investment can also decline. Tying your money to the success of any company is risky business. Should you take the risk and invest in Apple?
[Details of Apple’s 1st quarter 2021 financial results]
Apple’s Stock Split
Before we explain the ins and outs of trading Apple Stock a quick word on the Apple’s 4-for-1 stock split at the end of August 2020.
With Apple shares flying high since the company announced its plan to split its stock you may be wondering if now is a good time to buy. Apple’s key motive for the stock split was to make the shares more affordable, and therefore more attractive to people looking to invest. So the now lower price point of entry may well appeal. However, there are reasons to be cautious as we will discuss below.
Similarily, if owned Apple stock before the split then every one Apple stock you owned will have become four. When the markets closed on 28 August one Apple share was worth $499.23, and when they opened on Monday 31 August, following the 4-for1 split, they were worth $127.58, closing the day at $129.04. Each person who owned one share now has four shares.
All eyes are on Apple right now following the stock split, and this heightened interest in AAPL may well be driving up the company’s share price. The question you need to keep in mind before you buy Apple stock is whether the value of the stock is related to Apple’s success and expectations about future success, or just interest in the stock split (which isn’t necessarily related to the health of a company).
To find out is how much Apple shares are worth at the moment click here.
Should you buy Apple shares?
This is a big question that only you can answer. First things first: Apple’s share price is incredibly volatile. Don’t invest if you want to make a quick buck. And definitely don’t invest if you can’t afford to lose your money.
There are a few things to consider:
Is it a short term or long term investment?
Over the long term it should be possible for investors to make money out of Apple stock.
If you are hoping to make a fast buck with a short term investment then we wouldn’t usually recommend Apple.
Can you afford to invest in AAPL?
Apple shares aren’t cheap, but they are a lot more affordable than they were before the 7:1 split in 2014. Back in September 2013 you’d have had to pay $700 a share. The shares rose steadily to spike at almost $500 before Apple split the stock again, meaning you can can buy a share of Apple for a lot less. (As of 2 September Apple shares cost around $128).
Even if that price sounds ok to you, you will need to factor in other costs of owning shares (especially if you are based in the UK):
- You will need to pay fees to your broker.
- You may have to pay Stamp Duty when you buy.
- When you sell the shares you may have to pay Capital Gains Tax.
- If you are buying shares that are based on an exchange in another country you will have to pay tax there too.
The other big question to consider is: Can you afford to lose your money?
You should only invest in Apple if you don’t mind the fact that you could lose some of your money. As with any stock market investment, you can lose as well as gain money.
How is the pound doing against the dollar
This is another consideration if you are buying Apple Shares from the UK. Today (2 September) the pound is climbing against the dollar, but back in March sterling slumped, and Brexit may well lead to further declines. You need to keep in mind that should the pound strengthen against the dollar some of your gains might be eroded. Should that be the case it might not be the best time to sell.
Is there a better way to make money?
Low interest rates mean the rates of interest offered by many straightforward investments right now are very low. For example, the best ISAs only offer around 1.65% interest. If you have money to invest you may think that the promise of a much a bigger percentage increase on Apple shares is much more attractive. Then again, you could also see a loss in the value of your investment.
There are plenty of other less volatile stocks to consider if trading was something you wanted to get into. However, in the current climate any exchange is likely to be effected by Coronovirus and recession fears so, as we said above, any investment you make should be considered long term as we don’t know how long this economic decline will last.
Are you an Apple fan?
Key to your decision of whether to invest may be that you are an Apple fan with good knowledge in the company, and an interest in Apple that means that you follow the highs and lows of the company with interest. Nobody can predict the future, but at least you have good knowledge of what happened in the past.
Is now a good time to buy Apple shares?
The next factor to consider is whether now is a good time to buy AAPL. We’ll discuss whether it’s a good time to buy Apple in more detail below.
Please keep in mind that we are not financial experts and also that the situation will be changing all the time. From one day to the next there could be various reasons why Apple would be, or wouldn’t be, a good buy. We recommend that you do a considerable amount of research before buying AAPL shares – but we aim to give you some guidance below as to what you should try to find out.
Here are a few things to consider before buying AAPL shares:
Price to earnings ratio
The PE ratio is the valuation ratio of a company’s current share price compared to its per-share earnings (over the past 12 months).
You can check Apple’s P/E Ratio here.
Historically the average P/E Ratio on the S&P 500 has been between 13 and 15. If the P/E Ratio is higher than that it indicates that investors expect good earnings.
Note that tech companies like Apple tend to have higher P/E ratios due to growth expectations in the future.
With a P/E Ratio of over 38 right now (as of 2 September) that might be good reason to be wary about buying Apple as it doesn’t provide a large margin of safety. Margin of safety being a principle of investing that recommends securities are only purchased when their market price is lower than their intrinsic value.
Most analysts in the spring of 2020 were giving Apple a Strong Buy rating, but in turbulent times this recommendation could change so our recommendation is that you find out what analysts are saying at the time you are considering buying.
You can see the consensus recommendation for AAPL here. That link will also give you guidance on which analysts are or aren’t recommending AAPL and their average price target for the company (and the low estimate).
As per its fiscal second-quarter earnings report (for the quarter ending in March 2020), Apple had more than $192.8 billion in the bank. That’s down from the $207.06 billion in reserves it had in the fiscal Q1 2020. It might not be as big as hoard as it was but it is still a good buffer in a tough economic climate.
Apple’s late CEO and Co-Founder Steve Jobs once said that during the downturn of 2008 Apple increased spend on research and development so that Apple would be ahead of the competition once the downturn was over. We can assume that Apple will be doing the same during the current (2020) economic downturn.
It’s not a bad thing that that Apple has been spending some of its enormous cash reserves though. Apple has made investments in acquisitions or companies and technologies and investors have benefitted from Stock Buybacks (more on that below).
Apple’s plans for the future
There have been concerns that Apple is too dependent on the iPhone.
In recent years Apple has been mitigating some of its reliance on the iPhone by expanding its services offerings including the App Stores, Apple Music, Apple TV+ and more.
The next thing on the horizon is 5G, and that could help boost iPhone sales later in the year when the company is expected to launch a 5G iPhone.
The company is also thought to have a number of top secret projects underway that relate to cars and augmented reality. While Apple may never again make the kind of impact it made with the launch of the iPhone, you can be sure that it is making investments in the next big thing.
If you feel confident that Apple will keep innovating into the future then it could be a good investment for you.
It’s not only the iPhone that Apple’s been criticised for being too reliant on. Apple is also thought to be too dependent on China for manufacturing the iPhone and its other hardware. Business in China also represents something like 20% of Apple’s revenue.
Even before Coronavirus closed Apple’s Chinese factories in February 2020 China had already impacted Apple’s share price.
As you will see from this chart tracking AAPL over the past ten years, Apple has climbed but there have been dips. There was a dip that began at the end of October 2018 (partly due to concerns about iPhone sales and Apple’s decision to stop reporting numbers, but also relating to US/China trade tensions and falling iPhone sales there).
Then the price started to recover in Jan 2019 before another dip in April 2019 (this time due to Trump’s decision to increase Chinese tariffs). And then the dip in February 2020 (which was due to Coronavirus and the manufacturing delays in China.)
Apple might be an American company but it’s success is linked to China and what is happening there, so keep an eye on China-related news before buying AAPL stock.
Don’t believe everything you read
If you are serious about your investment you must take any reports claiming to have an insight into what Apple has up its sleeve, or claims that Apple’s share price will hit $1,000 with a pinch of salt.
Nobody has a crystal ball so don’t believe reports that claim to be able to predict what will happen over time. It’s nice that people have faith in the stock (some of the time) but they may well have ulterior motives in getting you to invest your money. As Asymco’s Horace Dediu said back in 2013: “The opinion of those who are highly paid should be treated with suspicion.” Be wary of analysts who work for financial services, noted Dediu, their paychecks “are not tied to accuracy of foresight”.
Unfortunately, reports based on the words of these analysts and other so called experts, along with supposed “leaks” from the Far East, may cause changes to the value of the stock. Apple’s stock has been known to soar or plummet on completely unfounded rumours and speculation.
Other benefits to buying Apple Shares
Aside from the promise of being able to make some money based on your investment there are a few other benefits of owning Apple Shares.
Stock BuyBacks and Dividends
Apple pays a quarterly dividend to its investors. The decision to pay out a dividend was a response to investors calling for Apple to distribute some of its stash of money, but it’s questionable that it’s a real bonus to investors.
Before you get too excited, the dividend doesn’t add up to much if you only own a few Apple shares, but it can add up if you have a few shares.
The other problem with dividends is you will get taxed on the money.
How do I buy Apple shares?
If having considered all of the above you want to buy Apple Shares here’s what you need to know.
Shares can be bought and sold by post, telephone or online. It’s incredibly easy to buy and sell shares via the internet, plus it’s often the cheapest option.
Note that internet share dealing is execution only. This means that the broker carries out your instructions on what to buy and sell without giving you any advice.
It is also likely your shares will be held in a nominee account – basically the stockbroker holds them on your behalf. This means your name may not appear on the company’s register – and as a result you may not receive the company’s financial report and you probably won’t be able to vote. Dividends will still be paid into your account however.
Your internet share dealing services might buy and sell shares in real time so you know exactly the price you are paying for your chosen shares, but it is also possible that shares are purchased at certain times of the day, so you may not be buying at the price you thought you were.
Another thing to note is that if you don’t hold the share certificates, you will have to sell the shares through the broker you bought them from. You will likely be charged a fee if you swap to another firm.
You can also invest through a stockbroker. You may have to pay them commission, but it is still possible to opt for an instant access execution-only stockbroker, who won’t give you advice and simply process your requested transactions.
You can also make your share transactions through an investment ISA (in the UK). That way you can save up to a certain amount every year, tax free.
Buying AAPL shares in the UK
If you are based in the UK there are some extra steps necessary before you can buy Apple stock. If you have never traded in US shares before, you will need to fill in the W-8BEN form and you will need to resubmit it every few years. This confirms your foreign status for tax purposes.
If you are thinking of buying Apple shares get this form filled in now so that you can buy shares on the day you choose, not days later because you weren’t prepared.
What does it cost to buy shares?
In the UK when you buy shares, you pay 0.5% stamp duty on top of the cost of dealing.
Any dividend income is also subject to tax. As of 2019/2020 the dividend ordinary rate of 20% applies for basic rate taxpayers who earn up to £37,500 , a rate of 40% if you earn up to £150,000 and 45% if you earn more than that.
When you receive dividend payments a percentage of tax has already been paid, and it will appear on your dividend voucher as a tax credit and may mean that as a basic rate taxpayer you have no further tax to pay. If on the other hand you are a higher rate taxpayer you will have an outstanding tax liability to pay when you make your tax return.
There’s also capital gains tax to consider. If you sell your Apple share for more money than you bought it for, you will have made a capital gain and it will be liable to tax at a rate of 10%, or 20% for higher rate tax payers. Before any tax is payable though, you have an annual tax-free allowance for Capital Gains Tax, which is £12,000 for the 2019/20 tax year. Read more here.
An exception to these tax rules is dividends from ISAs, which are tax-free.
For bigger investors there’s also a mandatory £1 to the takeover panel (PTM) for all trades worth more than £10,000.
Another way to save money is to deal with electronic share certificates. They are a lot less costly than dealing in paper share certificates.
We’re not investment advisors so we don’t recommend any particular brokers. There is this article about investing on the MoneySavingExpert site that might be useful. Or look here at this comparison of UK share dealing accounts.
Next, you will find some more information, but note we haven’t updated it since we wrote it in 2014. We are leaving it as a case study indicating the kinds of things that can go on behind the scenes with Apple’s shares.
Why is Apple’s share price so volatile?
In many instances there is absolutely no connection between the actual economic value of a business and its stock price, and in the case of Apple this is certainly true. Apple is actually criticized for having too much money in the bank. In some ways its success has made it the target of much criticism.
Regarding the amount of money Apple has in the bank, tempers are raging over this. In 2013 a ‘rogue’ fund manager, David Einhorn, caused quite a stir when he claimed that Apple was trying to stop shareholder having a say in what it did with its money. As a result the company eventually agreed to return more of its $144.7 billion cash horde to investors. Doing so is no easy process because a lot of that cash is tied up overseas and the company will have to pay corporation tax if it returns it to the US (Apple’s been in quite a lot of trouble recently over its tax practices). To avoid tax on this occasion Apple offered investors the chance to lend it money so that it can pay current investors back (at least that’s one way of looking at it). Suffice to say Apple is getting a better rate of interest on this debt than it would have to pay the US government in tax. The bond sale happened in April 2013.
This is the sort of news that should please investors, and following the bond sale initially the stock increased in value, but then it fell back on the 15 May. Why would that be? The following story is a good example of why it’s the big fund managers who really control Apple’s stock. There have been lots of examples of aggressive trading on AAPL, but in this case it appears that short-sellers had swarmed AAPL.
This “swarming” was identified by Canadian money manager and financial columnist Mal Spooner. He first noticed that short interest in Apple had swelled from 8 million shares in April 2012 to 20 million in April 2013 and likened this burst of short selling to a “swarming,” a street crime where “an unsuspecting innocent bystander is attacked by several culprits at once.”
Spooner highlighted that short interest in Apple also peaked between 15 April and 30 April 2013, to a record 41.6 million shares. During that fortnight – on 19 April (two trading days before Apple’s second quarter financial report) Apple’s share price hit its lowest price in 16 months ($385.10). Those investors then made off with their gains because by 15 May (there’s that date), Apple’s short interest had fallen to 26 million shares. More here on Fortune.
Spooner explains: “The irony is that short-sellers borrow the stock from real shareholders (via third parties) in order to sell it on the market. After the selling pressure wreaks havoc on the stock price, the short-seller then buys shares at a much lower price, returns the ‘borrowed’ shares to those real shareholders and keeps the profits.”
Whether you understand all this doesn’t matter as much as knowing that this is the kind of thing that goes on with Apple’s stock.
Another example of how big funds can control the AAPL stock. In 2012 Apple saw massive declines when four of the biggest hedge funds dumped billions of dollars of Apple stock. The share price plummeted and no doubt a number of investors panicked.
Why did these big investors pull out? They could have us believe that they had lost confidence in Apple. Or perhaps these funds pushed billions of dollars into Apple in the Summer of 2012 and then pulled out months later when they had made sufficient short term gains.
You should always be aware that these big funds can rip money out of AAPL at any time. For example, on one Friday in January 2013 we saw what was described as a “premeditated unloading of some 800K shares (some $350 million worth) of AAPL in the last second, with the full knowledge it would shake the market.”
Other suspicious AAPL activity on the NASDAQ earlier in January 2013 had coincided with the expiration of call options written the previous summer, and the Apple share price closed at exactly $500 that day. Coincidence?
How can you stay clear of being a victim of these big bullies? Mal Spooner’s advice:
- Avoid owning stocks that have become darlings. When it seems nothing at all can go wrong, it will, and when it does there’s sure to be a swarming.
- If there’s evidence of a growing short interest in a company, best not own the stock.
- Instruct your financial institution that your shares are not to be available for securities lending purposes.
Apple did indeed become the stock market darling in 2012. Beware that while this may happen again, it isn’t something you as an individual investor will have any control over.
Who owns shares in Apple?
According to a Fortune report, the most popular investment of billionaire investors is Apple. Fortune’s chart show the top ten holdings of 21 billionaire investors, including Warren Buffett, George Soros and Carl Icahn. Top of the list is Apple, followed by Wells Fargo, AIG, Yahoo and Coca Cola. The only other IT company to figure is IBM in tenth place.
Some might suggest that if these expert investors own Apple shares there must be something in it.
The highs and lows of AAPL stock
No doubt, many of the new AAPL investors in 2012 decided to invest money in the company after reading reports that suggested that Apple’s stock was set to climb all the way to $1,000 a share based on the success of the iPhone and iPad, while those who invested in 2013 were likely enticed by claims that Apple is working on new product categories including smart watches and television.
Over the past year or so the iPhone has continued to be popular, as has the iPad, but Apple has been criticized for failing to grow market share – particularly in the smartphone market. The issue is that in many countries smartphone ownership is at saturation point, while in emerging economies smartphone ownership is on the rise, but the iPhone is too expensive for these markets. Indeed, even in the UK there is a market of new smartphone adopters who are turning to cheaper Android devices because Apple doesn’t offer a cheaper iPhone.
There is much debate to be had over whether Apple should be chasing marketshare with low cost devices, or focusing on selling higher priced products with bigger margins to fewer people. iPhone users are said to be worth four times more than an Android user because iPhone users spend more money online and on apps than Android users. Android phones have been described as “dumbphones” because users don’t do anything financial with them. When it comes to deciding which platform to invest in third-party companies go where the money is. Sometimes less is more, after all.
That seems unlikely to change. Apple is a company that has always focused on quality products sold for higher prices, rather than marketshare, so it seems misguided to expect anything else from it. Not every Apple investor thinks that Apple should grow marketshare at the expense of profit.
Those who have concluded that there is no room for increased smartphone market share have looked to rumours that Apple will make a television or a smartwatch with hope that these new product categories could push up Apple’s share price. It’s impossible to make predictions about the success or failure of products that Apple hasn’t even launched yet. Those markets are certainly ripe for innovation, but that doesn’t mean that Apple will see the same success as it did when it launched the iPod, iPhone or the iPad.
Recently (on 20 February 2014) Barclays analyst Ben Reitzes downgraded Apple suggesting that the stock won’t see any huge leaps and bounds any time soon. Reitzes wrote in a note to clients: “Frankly, we just couldn’t quite bring ourselves to use smart watches or TVs as reasons to raise numbers – nor were we fully convinced that these products could move the needle like new categories did in the old days. As a result, we believe it is time to step aside, given a maturing smart phone market.”
Similarly coverage of the decline in the value of AAPL shares will have given investors cause for concern. The ups and downs of Apple’s share price over the past year will have given investors cause for concern and as a result many will have cut their losses and withdrawn their investments.
At the same time, a selection of high profile investors have make waves, buying billions of dollars of Apple stock and making demands of Tim Cook for bigger returns on their investments. At the heart of these demands is the fact that Apple is sitting on a massive cash hoard of around $150 billion (much of which is offshore so the company can’t actually spend it without paying a fortune to repatriate it – more on this below).
Apple has been making some moves to appease investors, for example, every quarter it issues a dividend to investors (for example, on 13 February 2014 it paid investors $3.05 per share). This is part of a scheme to repurchase Apple stock, and the recent stock buyback saw Apple repurchase $14 billion of its stock (in comparison, in the December and September quarters combined, Apple repurchased ‘just’ $10 billion of its stock).
One of these high profile investors is Carl Icahn, who has about $4 billion invested in Apple. Described as an “activist investor,” Icahn has had a number of meetings with Apple CEO Tim Cook in recent months, and has made various demands, including that Apple boosts its stock repurchases to $50 billion. These meetings have been behind closed doors and Icahn has revealed nothing, but he has now withdrawn this demands. Some think that Cook has been able to reassure Icahn, others that Icahn is manipulating Apple and positioning himself as an ally.
Either way, Apple’s stock buybacks dividend payments have gone some way to appease investors while they await the launch of Apple’s next big thing.
The best advice is to invest for the medium to long term – five to ten years – and expect the value of the shares to fluctuate. If you invest over a longer period you’re in a much better position to ride out any fluctuations in the market.
In the short term investment in Apple is a sophisticated game, with many people (many of them fund managers) with huge resources putting their money in. Just remember, you’re up against the big boys and girls.
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