It is hard to argue against the thought that Apple Inc. (NASDAQ: AAPL) is one of the hottest growth stocks with great share performance and great brand loyalty.  Its shares closed out 2009 at $210.73, so we have seen nearly 50% gains so far in 2010 alone.  We often parse through annual reports (those boring 10-K filings) for bits of data, and there was a startling realization.  Apple is grossly under-owned by the investment community.  You may have heard this same expectation before in media reports, but we have quantified data showing that Apple has far fewer investors than you could imagine.  We even compared this the numbers of investors who own Microsoft Corporation, Exxon Mobil Corp. (NYSE: XOM), and General Electric Co. (NYSE: GE).  There is a similar realization for Google Inc. (NASDAQ: GOOG) in here.

There are obviously millions of investors who own Apple shares indirectly because of their holdings of mutual funds in retirement accounts and because of exchange traded funds holding Apple.  Apple has a high weighting in the Internet Architecture HOLDRs (NYSE: IAH), PowerShares QQQ (NASDAQ: QQQQ), Technology Select Sector SPDR (NYSE: XLK), ProShares Ultra QQQ (NYSE: QLD), and in the iShares Dow Jones US Technology (NYSE: IYW).

Outside of those Apple-dominated ETFs, we have also noted earlier this week about how Apple investors are often speculating in the options contracts rather than in the stock.  They can buy the right to own shares for a few dollars per share in equivalent that way rather than paying $300+ per share.

As of September 25, 2010, Apple had approximately 46,600 full-time equivalent employees and an additional 2,800 full-time equivalent temporary employees and contractors.  That is huge growth considering the unemployment rate and the economy.  As of September 26, 2009, Apple had approximately 34,300 full-time equivalent employees and an additional 2,500 full-time equivalent temporary employees and contractors.

Here was the shocking figure from the Annual Report, and the whole thesis for how under-owned Apple shares are by the public… As of October 15, 2010, there were 29,405 shareholders of record. After asking a portfolio manager of a foundation just how many holders of Apple there were as a guess, he said “Maybe 5 million.”  Does this mean that only 29,405 individuals and institutions own Apple?  Of course not, but it is a shockingly low number of shareholders compared to other giant companies.  We have not heard back from Apple with any comments or formal answers but a call into media relations and shareholder services has been made.

Fidelity and each of the ten top holders likely count only as one holder each despite the notion that the top 10 holders were close to 25% of the entire share ownership and despite each of those having potentially thousands of clients.  Again, the issue at stake is direct ownership counting individuals or institutions which made a decision to buy the individual stock on the stock market.  Out of those thousands of employees there have to be many options from that old 2003 stock option plan, and there would have to be many direct Apple stock owners of that pool.  Also worth note is that it is highly possible that many shares held “in street name” at each brokerage firm are just counted as one holder.  Without a comment from Apple, the data is harder to know but other companies list much more detail on the number of holders.

We went back through time to see if Apple had other years where there was a higher or lower number of “holders of record.”  Shockingly, the number remains almost static through time.  The data is as follows:

• As of October 16, 2009, there were 30,573 shareholders of record.
• As of October 24, 2008, there were 30,445 shareholders of record.
• As of November 2, 2007, there were 30,336 shareholders of record.
• As of December 13, 2006, there were 29,317 shareholders of record.
• As of November 18, 2005, there were 28,333 shareholders of record.
• As of November 19, 2004, there were 28,518 shareholders of record.
• As of December 5, 2003, there were 29,015 shareholders of record.

This does not even hold a candle up to some other giant mega-cap stocks.  We took a look at Microsoft Corporation (NASDAQ: MSFT), Exxon Mobil Corp. (NYSE: XOM), and General Electric Co. (NYSE: GE).  Those are far wider owned as you will see.  The interesting thing is that Google Inc. (NASDAQ: GOOG) trades at nearly double the share price of Apple, and its holders of record is also shockingly low.

Microsoft Corporation (NASDAQ: MSFT) noted in its 2010 annual report that on July 20, 2010 there were 138,568 registered holders of record of Microsoft common stock.  The 2009 annual report showed that on July 27, 2009 there were 142,468 registered holders of record of Microsoft common stock.  That figure also seems low, but many of the hidden holders above could be part of the reason behind that.

Guessing how many holders there are now of Exxon Mobil Corp. (NYSE: XOM) is not necessary and is likely larger now when you consider that many XTO holders are likely now Exxon Mobil holders.  To show what we mean about Exxon being much more broadly owned, the 2009 annual report filed early this year showed that Exxon had 525,529 registered shareholders of ExxonMobil common stock on December 31, 2009 and that figure was 523,748 on January 31, 2010.

General Electric Co. (NYSE: GE) has far more shareholders.  While the exact number of holders was never really found, we called the transfer agent and got another figure from one of GE’s spokespeople.  The Bank of New York Mellon is GE’s transfer agent and administers all matters related to stock that is directly registered with GE.  According to data from our call into GE shareholder services at BNY-Mellon yielded that BNY-Mellon had a record of approximately 583,000 holders there.  The BNY-Mellon figure does not include shares held elsewhere.  At year-end 2009, GE and consolidated affiliates employed about 304,000 people, of whom approximately 134,000 were employed in the United States and about 170,000 outside the United States.  The total figure of GE holders is elusive, but one of our GE media contacts gave a figure that roughly 4 million annual reports get printed.

Google Inc. (NASDAQ: GOOG) is roughly twice the price of Apple, and here is what it says about the number of holders… “As of January 29, 2010, there were approximately 2,721 stockholders of record of our Class A common stock… Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.”  What Google means here is that many of those shares are also held in “street name” at many brokerage firms.  Google is now worth more than Wal-Mart and Berkshire Hathaway.

It is possible that many investors are hiding out in exchange traded funds as a stealthy way of owning Apple or having exposure to it.  Here are the large weightings Apple has of several ETFs:

• over 22.7% of the Internet Architecture HOLDRs (NYSE: IAH);
• nearly 20% of the highly traded PowerShares QQQ (NASDAQ: QQQQ) weighting;
• over 11.7% of the Technology Select Sector SPDR (NYSE: XLK);
• more than 16% in the ProShares Ultra QQQ (NYSE: QLD),
• and more than 12% of the weighting of the iShares Dow Jones US Technology (NYSE: IYW).

The Investment Company Institute tallied up that there were 4,556 stock mutual funds in its August poll, with total mutual funds being over 7,500.  While some funds are specialty and index funds that have nothing to do with Apple, you can imagine that many of those equity funds count in that low Apple holder figure.  Yahoo! Finance showed that there are some 64 ETFs that have Apple as a weighting, and those each also count as only 1 holder.  While not exact, a review of the top 10 institutions holding Apple shows that roughly 25% of the stock is owned by only 10 institutions. HedgeFund.net noted in its September 2010 analysis that some 3,074 hedge funds reported performance, although there are many more hedge funds than that in the U.S.  Information from the Hedge Fund Association website calls hedge funds a $2 trillion industry with approximately 10,000 active hedge funds.

A problem in this stock keeps coming up, and perhaps this is a giant prohibiting factor keeping Joe Public from owning Apple stock.  To buy a round lot of 100 shares has become out of reach for most of America as the cost is more than $30,000 per 100 shares.  Maybe Apple’s strategy is to keep its clients away from being direct investors.  If the stock were to ever head south again, maybe the fear in the executive suites in Mountain View, CA is that potential investment losses might turn away future product sales.  That seems a stretch, but still logical.

Apple has resisted paying dividends and that may have some effect on limiting new holders. Based on the data we reviewed yesterday, Apple is not likely to have a dividend any time soon. Apple has resisted splits. Apple has seen a share price split only 3-times in its history and shares were far lower at the time:

• June 15, 1987
• June 21, 2000
• February 28, 2005

With shares above $300 and with this stock being grossly under-owned by investors, what is the obvious call here?  It is time for a split, assuming that draws in more investors and assuming Apple even cares.  The anti-split case shows that if you go back in time as shown above the 2005 share split did not greatly change the number of Apple’s shareholders of record.  Apple’s most recent short interest was listed as about 11.61 million shares and that is certainly not counted in the ‘holders of record.’  Ditto for the holders of all those out of the money stock options.

Analysts have an average price target north of $360.00, indicating about 20% upside, and some analysts see the stock going much higher than that.  That average price target seems to only ratchet up and up each quarter.  To date each pullback has been an opportunity for more investors to get in the stock.  What the real total number of shareholders of Apple stock comes to is likely an unknown. These calculations are made in the annual report of each company and are supposed to be uniform.  We have heard media pundits say that Apple was under-owned by funds and that institutions want to buy Apple stock on pullbacks.  By the looks of it, that appears to be the case for retail investors as well.

JON C. OGG

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