Investing

Apple's Stock Split May Have Just Marked a Major Top for Active Traders

Jon C. Ogg

Published: August 31, 2020 4:09 pm

Announcing stock splits used to be quite common during the bull markets and bubbles of the past. over the past decade, not so much. In fact, many companies do not even care that their stock gets over $1,000 or $2,000 or $3,000 these days. Apple Inc. (NASDAQ: AAPL) was the first of the market darlings with high priced stocks to buck the trend. Apple’s 4-for-1 stock has now taken effect, and there is reason to believe that Apple’ stock is now closer to a peak.

Before you go out thinking Apple’s stock is going to sell off massively, Apple did not get to a $2.2 trillion market value without squashing a few million doubters along the way. How many analysts and investors said that Apple could never rise further after it hit $1 trillion in market cap? Did that prevent Apple from rallying further and further?

There is a reason that some investors are going to now try to say that Apple has peaked, at least for the time being. That is what has happened around Apple’s prior stock splits. To be very frank here, no one truly knows where this stock is heading and calling tops and bottoms is not easy for even the smartest investors in the world.

Investors need to heed one word of caution here. In no way shape or form should long-term investors give a single care to this report. Investors need to look at at the past and see how Apple has performed after its stock splits of yesteryear.

Stock splits are supposed to give a better shot for new investors to get in. They are also supposed to increase the liquidity and can narrow the spread between the ask (the price you pay) versus the bid (what you can sell at right then). What a stock split does not do is change the underlying fundamentals of a company at all. If you double the shares and cut the stock price in half, the company’s net income and the revenue dollars of the company have not changed by even 1-cent.

Tim Cook has reportedly said he wanted for more people to be able to own Apple’s stock. And the reality is that a share price of $130 today is more affordable for new investors than when it had a $500 stock price last week. That said, many of the brokerage firms have moved to adopt “slices” that now allow investors to purchase fractional shares in an effort to avoid the high share price dilemma.

It’s very important to understand what has happened in the past after Apple has split its stock. The issue is not that Apple’s stock peaked for good. Again, what does a $2.2 trillion market cap sound like for those who have tried to call a peak just because of the dollar figures?

First and foremost, Apple’s stock price on an adjusted basis went from $96.19 to $106.26 on a split-adjusted basis without taking its $0.204 per share dividend payment into consideration. Its adjusted price as of Friday was $124.81 and it traded as high as $131.00 on Monday. While the iPhone 12 launch is not a secret to anyone now, the only thing that has changed since the earnings and split announcement is that analysts have piled on with higher and higher price targets. Well, there is also the notion that this was the strongest August stock performance since the 1980s, and the Dow Jones Industrial Average has seen its make-up and weightings changed handily around this split.

As for past stock split dates, here is what happened in the 10 trading ahead of the splits, followed by the next 10 days and then 1 calendar month later, and adjusted for split prices but not adjusted for dividend payments since that date.

June 9, 2014 was a 7-for-1 split which helped to usher Apple into the Dow. Its stock closed at $23.42 on the date of the split, up 6.8% from the $21.93 share price at that time. Apple’s stock was trading at $22.71 just 10 trading days later (down 3%) and its price a month later was $21.56 (down 7.9%).

February 28, 2005 saw a 2-for-1 split, about two years before introducing the first iPhone. The adjusted price of $1.60 at the time was up 10.3% from the 10 days ahead of that split. The stock was back down at $1.44 in just 10 trading days an it was still down 5% from its split as of March 28.

June 21, 2000 saw a 2-for-1 split in the wake of the dot-com bubble popping, and months ahead of Steve Jobs introducing the first iPod. Apple’s dividend adjusted share price of $0.99 was up 10% from the prior day and was up a total of 15% from 10 days before the split. The next 10 trading days showed a 6% drop and the same day the following month Apple’s stock was still down about 3%.

June 16, 1987 was a 2-for-1 split back under the time that would have market Forest Gump’s fruit company (and before the crash of 1987!). While some serious errors would have to be accounted for using today’s stock prices with each penny counting so much, the reality is that Apple’s stock was down 10 days later but was up trading higher by the same calendar day the following month.

A lot of investors are going to say that this time is different and that Apple’s history has been set to trounce all of its skeptics. There is probably not a single journalist who hasn’t written about how Apple cannot continue going higher, and there is probably not a single analyst on Wall Street that can claim that they have never downgraded Apple or lowered a price target that would look silly going back and looking at in a vacuum.

The one thing that is obvious and is guaranteed to be true as of August 31, 2020 is that everyone in the world should have bought Apple stock 10 days ago. Even if this was the strongest S&P 500 monthly performance for an August since 1986, Apple’s stock price was last seen up over 13% in just the last ten trading days ahead of the split. That is close to $250 billion in market capitalization — which would be enough value to be within the top 20 of the S&P 500’s largest companies by market cap.

24/7 Wall St. has highlighted 13 more companies which should also consider splitting their stocks immediately.

Again, making any noise or news around the long-term value creation or destruction about the long-term is futile. This is just what has happened in the past.