While Apple shares have rebounded somewhat from last month's earnings disappointment, shareholders are still looking for catalysts to move the stock back toward its all-time high around $700. Hedge-fund superstar David Einhorn has urged Apple to issue $50 billion of preferred stock (yielding 4%) to current shareholders. Einhorn has even taken to the airwaves and the courts in support of his proposal. This move could drive Apple's stock higher, but there are other catalysts that could be just as potent.
Time for a China expansion?
China is already Apple's second-largest market. However, Apple does not sell the iPhone through China Mobile , which is by far China's largest wireless carrier. For the past year or two, there have been periodic rumors that Apple would add China Mobile as a carrier partner. However, issues such as the size of potential subsidies and the incompatibility of China Mobile's 3G network with global 3G standards have prevented the two companies from working together.
Last month, Apple CEO Tim Cook met with China Mobile Chairman Xi Guohua to discuss "matters of cooperation." Discussions could fall apart yet again, but both companies would profit from an agreement. China Mobile has roughly 700 million subscribers. Obviously, many Chinese consumers cannot afford an iPhone, but grabbing just 10%-15% of China Mobile subscribers and upgrading users every three years could add as much as $8 to Apple's annual EPS. The most likely time for a China Mobile iPhone launch would be this fall.
Another rumor that has been flying around the Appleverse for a couple of years is that the company's next new product line will be a smart TV. Given that Steve Jobs told biographer Walter Isaacson that he had finally "cracked" the TV concept, the speculation makes sense. There is a good chance we will see such a product this summer or fall, as it has been three years since Apple introduced its last product line (the iPad). If Apple can release a compelling TV product, that should give revenue and EPS a nice boost later this year since Apple has millions of fans who will buy just about anything the company makes. Moreover, it could silence some of the critics who have said Apple is no longer an innovative company.
Returning cash the easy way
The last potential 2013 catalyst is a decision by Apple to return more cash to shareholders. Einhorn's preferred stock plan seems convoluted and will probably drive up transaction costs for individual investors. Sometimes, simple is the best strategy. Apple could (and should) raise its quarterly dividend from $2.65 to $3.50-$4.00. This would bring the yield above 3%, which would attract more income and value investors. Apple will pay its third quarterly dividend this week, so a dividend increase is most likely after the May payout.
While I would also like to see a larger share repurchase to soak up some of the $137 billion on Apple's balance sheet, that will probably have to wait until the U.S. lowers repatriation taxes. Even without an expanded buyback, there are still at least three potential catalysts that could drive Apple higher this year. David Einhorn's financial engineering should not be necessary to unlock shareholder value.
There's a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.
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