Panicked selling of AAPL lets Apple buy back billions cheaply

Posted:
in iPhone edited February 2020
Media-induced panic related to the coronavirus outbreak has caused stocks to crash in value, with Apple's share price dropping to levels not seen since early December, back before it was appreciated how well Apple's iPhone 11, wearables, services, and other offerings had performed during holiday sales. That drop affords Apple a rare opportunity to snatch up billions of its shares at a discount nobody could have otherwise imagined possible.


Coronavirus fears have launched new panic, opportunity

This all happened before

Apple's quick action to buy back billions of its shares at a discount after irrational stock dips have repeatedly occurred over the past decade. In both 2013 and 2014 the company scrambled to buy double-digit billions worth of Apple stock after tech media sources repeatedly depicted its record sales as "disappointing."

That history continued into the most recent holiday quarter, when Apple's chief financial officer Luca Maestri detailed efforts to buy up tens of millions of shares at an average price of $250 before those shares began climbing north of $325 this month.

Now that Apple's share price has dived back down toward those earlier levels, Apple has the unexpected opportunity to continue buying shares near that price--after having established that in normal conditions, Apple shares are worth more than $325. And Apple has made it clear that it expects to return to normal operating conditions soon as factories return to production, and as COVID-19 infections are brought under control, two things the company has already outlined to be happening.

"Apple is trying to keep investors informed on a very fluid situation that is unprecedented," noted Daniel Ives, Managing Director of Equity Research at Wedbush Securities, in a comment to AppleInsider. Ives added that "buybacks could potentially accelerate given this massive sell-off as Apple remains a major buyer of its own stock."

The recent 20% drop of more than $60 per share represents a market cap dive of more than $262 billion. That would rationally suggest that investors suddenly fear a massive, extended earnings shortfall far in excess of what they braced for just a week ago, on "news" of little more than the uncertainty of what would be happening.

Apple initially reported the expectation that its March quarter -- historically the least busy quarter of the year--would deliver between $63 billion to $67 billion in revenues, depending on the scale of interruptions caused by the coronavirus outbreak.

On February 18, Apple revised its guidance without supplying a specific figure, noting only that in light of new findings, it did not expect to reach the $63 billion low-end of its range that it had earlier provided. That means Apple expected that its March quarter revenues would be at least $4 billion worse than the most optimistic high-end of its initial guidance provided just weeks earlier. That's significant, but not representative of a massive, long-term drop in earnings going forward.

Media sources have latched onto the coronavirus outbreak with breathless reporting of deaths, closed factories, supply chain production issues, widespread closures of universities, and other shutdowns. Apple itself hasn't sounded panic over the issues despite having a serious, fiduciary responsibility to honestly report the company's true status as a publicly-traded company.

Cook can't lie about Apple's predicament, and he doesn't need to

Apple's chief executive Tim Cook just expressed his confidence on Thursday that "China is getting the Coronavirus under control," adding, "we have reopened factories, so the factories are working through the conditions to open, they're reopening. They're also in ramp. So I sort of I think of this as the third phase in getting back to normal, and we're in phase three of the ramp mode."

Getting production back on schedule is certainly a complex and difficult task for the company, but Apple operates the world's most expertly proficient operational organization in existence, producing incredible volumes of premium mobile devices at profits that tower far above its rivals. Apple's ability to deal with supply chain crisis events has been tested many times before, and the company is always optimizing its production runs and balancing its supply chain needs across a tangled web of suppliers with incredible competency.

Apple is so good at its global operations that it has been exercising the luxury of going out of its way to, for example, develop new forms of recycled aluminum just to shutter the virgin aluminum smelting plants that were contributing to its global carbon footprint. The company has also spent years focusing on the rights of the workers its suppliers hire, giving it deep insight into the human element of its business that most of its rivals simply delegate away to contract manufacturers.

None of these things are commercially necessary work to build the products Apple makes. The company's rivals aren't even trying to match its efforts. Yet Apple is uniquely profitable in a sea of supposed competitors that are barely turning a profit on their sales of phones, PCs, tablets, and wearables. Apple's ability to attract and retain long-term buyers who then buy other new products and subscribe to the company's services is exactly what drove the price of the company up over the last several months.

Apple's stock price has not been driven upward by euphoria about short term revenue peaks. In fact, over the last decade, Apple frequently reported massive spikes in revenues only to see its share price remain unchanged or even fall on fears that its current success couldn't possibly be expected to continue.

Apple's revenues under temporary threat from coronavirus interruptions similarly shouldn't drive Apple's share price. What has changed is the clearer understanding that Apple's revenues and profitability are not a short-term aberration, but rather the result of building a well-oiled cash machine that has no equal-- and effectively no real competition.

The Media is free to lie

Media sources and analysts have no legal responsibility to tell the truth, and many have frequently flat-out lied about Apple's situation over the past several years. The Wall Street Journal, Bloomberg, Reuters, and Japan's Nikkei have all stridently screamed that generation after generation of new flagship iPhones were imperiled by "disappointing" demand, claimed that "channel checks" had given them clear insight into Apple's troubled production that certainly meant that sales were about to slip away to Android and never return, and rigorously promoted the false idea that buyers simply weren't going to pay $1,000 or more for a phone. They were consistently, unrepentantly wrong in their reporting.


The media is so bad at reporting on Apple that it is a story itself


Media research groups have similarly long insisted that Apple Watch and HomePod were incredible failures, despite both growing into multi-billion dollar businesses selling profitable and sticky products that promote continued sales of other hardware and services, including Apple Music. None of them had to answer for their giddy promotion of Alexa, "voice first," smart bands, or any other rival product that ultimately failed to deliver upon the promise of creating an important, financially significant app development platform or related sales of products, online orders, or other services.

Until just recently, investors had been fed the idea -- for years -- that Apple was experiencing slack demand for its products, particularly in China, and was watching helplessly as it continued to bleed away unit sales volumes while companies such as Huawei kept posting new unit sales increases. But that was not accurate.

Once the market came to realize that Apple's continued success was clearly untethered to the unit sales of Huawei, and that demand for its products could be addressed simply with more aggressive promotions by Apple itself, investors responded by revaluing the company at a significantly higher multiple, driving its share price into record territory.

Apple wasn't driven up into a bubble valuation. Even at its peak, its price to earnings ratio was far smaller than Google, Microsoft, Amazon, or other peers in technology. So the massive drop in Apple hasn't been the result of a rational reevaluation of Apple's value. It's just yet another media-induced panic that allows Apple the opportunity to further concentrate the value of its share via stock buybacks.
Bart Y
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Comments

  • Reply 1 of 97
    This all makes sense if this were an Apple issue and not a global economy issue.  Personally, I expect the market to keep dropping until some good news about Covid-19 starts appearing.  It doesn't matter if Apple can make iPhones if there are economy-wide layoffs crushing the demand for iStuff.
    hammeroftruthtmaytechnoemoellerlolliver
  • Reply 2 of 97
    Good time to buy...
    pscooter63macseekercgWerkswatto_cobra
  • Reply 3 of 97
    This all makes sense if this were an Apple issue and not a global economy issue.  Personally, I expect the market to keep dropping until some good news about Covid-19 starts appearing.  It doesn't matter if Apple can make iPhones if there are economy-wide layoffs crushing the demand for iStuff.
    This market was long over due for a correction, I don't think a threat from Covid-19 has much to do with it. Personally I think we had too many bubbles this cycle, Tesla, Beyond Meat, Virgin Galactic.

    I think Apple's buy backs are pre-planned and can't take advantage of dips like this and any good timing or bad timing is just averaged out.
    tmaybsimpsenbaconstangboxcatchercornchip
  • Reply 4 of 97
    Would have been good to sell a week ago and buy now. The bad part of this is Apple will now see no reason to increase dividends by more tha 5%. Oh well. I'm vacationing in Europe for the next three months. Ignore everything and eat out in Lisbon with €8 1/2 bottles of wine for a snack in the afternoon. :smiley: 
    Wgkrueger
  • Reply 5 of 97
    I don’t think that’s how stock buybacks work. If they could buy more AAPL any time the stock took a hit they’d be incentivized to pile on with negative news to drive down the stock, just like short sellers. It’s my understanding these stock repurchases are pre-timed and have nothing to do with market fluctuations.
    bsimpsenramanpfaffhammeroftruth
  • Reply 6 of 97
    This all makes sense if this were an Apple issue and not a global economy issue.  Personally, I expect the market to keep dropping until some good news about Covid-19 starts appearing.  It doesn't matter if Apple can make iPhones if there are economy-wide layoffs crushing the demand for iStuff.
    This market was long over due for a correction, I don't think a threat from Covid-19 has much to do with it. Personally I think we had too many bubbles this cycle, Tesla, Beyond Meat, Virgin Galactic.

    I think Apple's buy backs are pre-planned and can't take advantage of dips like this and any good timing or bad timing is just averaged out.
    I hope you're right.  The economy is also overdue (or at least due) for a recession.
  • Reply 7 of 97
    I seriously doubt Apple is buying back shares so soon as we haven’t seen the bottom of this market fall. 

    Apple is more focused on contingency plans for manufacturing and assisting their chain partners in recovery, along with protecting their employees. 

    They will have to roll out a gameplan to protect their retail employees from becoming infected and infecting the general public as most Apple stores see more traffic than a lot of airports.

  • Reply 8 of 97
    There’s no media induced panic. It is more like computer algorithm triggered panic selling that explains stock drops.

    Why anyone would sell due to the Coronavirus is beyond me. If you buy stocks long, why would this disease outbreak affect your stock holdings?

    if you had unrealized gain from Apple stock, why sell now; losing on the downside value of the stock today, and paying 15% capital gains tax in addition. 
    fastasleepdaven
  • Reply 9 of 97
    Apparently, DED holds a large position in AAPL. How does he know that Apple is buying shares for cheap right now? The supply chains are completely disrupted or decimated. It’s very possible that to restore the manufacturing capabilities, Apple will need to move manufacturing out of China. Foxconn can’t do it on their own. Apple will have to pay for a large portion of moving manufacturing out of China. Apple’s sales this year will be low compared to previous years due the problems with supply chains and lower demand. Additionally, it appears that the super cycle based on 5G is not going to happen in 2020 because of the Coronavirus delaying iPhone 12 but also because the deployment of 5G largely stalled all over the world. 

    In these kind of conditions, it would be completely stupid of Tim Cook to throw cash reserves at stock buy backs. The whole reason behind Steve Jobs’ building the stash of cash was to enable Apple to survive a calamity that would destroy other businesses. Coronavirus has a very good chantce of becoming this calamity. Apple will need cash to keep paying their employees and not laying them off. Apple will need cash to set up new supply chains and assembly facilities outside of China, run their data centers, pay rent on their stores worldwide, donate to the Trump campaign to prevent a socialist from winning the next Presidential election and splitting up Apple, etc. 

    Blowing cash on buybacks to keep AAPL afloat so that DED’s portfolio would look not as bad should be the least of Tim Cook’s concerns now, and  I’m 99% positive that this is not what Apple is doing during this market correction. 
    edited February 2020
  • Reply 10 of 97
    gatorguygatorguy Posts: 23,471member
    FWIW six months ago the same author wrote this:
    "But why is Apple buying back shares seemingly regardless of their price? It appears clear that Apple expects its share price to grow much higher in the future. So rather than carefully timing its repurchases to only occur when the stock price hits its lowest levels, Apple continues to buy shares back nearly as fast as it can all the time, even as the stock price jumps up and down as it continues to increment higher."

    As for jumping on this unexpectedly low stock price I would assume that at the moment Apple would be in one of their "blackout periods" where they are not permitted to buy back stock except under a predefined/prearranged schedule that ignores what the stock price is at a point in time and instead picks a date for the transaction to occur. Of course they are not obligated to complete a pre-scheduled buyback, they can choose to hold on to the cash instead, but they also can't create one at their whim during a blackout period. Have I got that right?
    tmaymuthuk_vanalingamFileMakerFeller
  • Reply 11 of 97
    technotechno Posts: 735member
    Good time to buy...
    Not yet. 
  • Reply 12 of 97
    crowleycrowley Posts: 10,453member
              
    dedgeckoFileMakerFeller
  • Reply 13 of 97
    lkrupplkrupp Posts: 10,176member
    larryjw said:
    There’s no media induced panic. It is more like computer algorithm triggered panic selling that explains stock drops.

    Why anyone would sell due to the Coronavirus is beyond me. If you buy stocks long, why would this disease outbreak affect your stock holdings?

    if you had unrealized gain from Apple stock, why sell now; losing on the downside value of the stock today, and paying 15% capital gains tax in addition. 
    It has been said that the stock market operates on only two things, fear and greed. The current panic is proof of that statement. While typing this my phone rang and it was my Stifel financial advisor on the line. He was calling all his clients to make sure they weren't panicking. So far, he said, only one of his clients has ordered him to sell everything. That person loses big when things return to normal. For investors like myself it's too late to get out and we just have to ride it out. When you panic you sell low and buy high and you lose.

    When dividends post to my accounts they are reinvested in now extremely cheap securities. So, in effect, I'm buying right now as the market sinks.
    edited February 2020
  • Reply 14 of 97
    The whole trick is timing.  I bought a bit early Dec. 2018, but still made over 450K.  I'm thinking its still a bit early we have several more legs down, maybe.  Who really knows you just take  your best guess and go with it.  I would ask my 3 year old grandson but he's a few states over right now. I could get as good of advice from him as I any of the "Experts".

    Mike
    dedgeckoBart Y
  • Reply 15 of 97
    The Media is Free to Lie?

    No. Reporters are usually held to an ethical standard of sticking to the facts.

    Pundits, Editors (for Editorials), analysts are free to express their own opinions and are therefore free to be "wrong".

    Calling out "The Media" that way is a dog whistle to the "fake news!" screaming crowd.

    Then again, technically, you are part of "The Media" and only expressing your opinion.
    randominternetperson
  • Reply 16 of 97
    sirozha said:
    Apparently, DED holds a large position in AAPL. How does he know that Apple is buying shares for cheap right now?  (because Tim Cook said as much in 2014) The supply chains are completely disrupted or decimated. (decimated literally means reduced by 10%, so if you are right, big whoop, Apple only ever needed to gear up minor production this quarter. It's not peak demand for apple) It’s very possible that to restore the manufacturing capabilities, Apple will need to move manufacturing out of China. (False, but Apple is also operating manufacturing outside China as we reported) Foxconn can’t do it on their own. (Foxconn operates globally and is based Taiwan, not the PRC) Apple will have to pay for a large portion of moving manufacturing out of China (What?). Apple’s sales this year will be low compared to previous years due the problems with supply chains and lower demand. (This year? The Flu kills 40 times as many people as Coronavirus has, every year!) Additionally, it appears that the super cycle based on 5G is not going to happen in 2020 (the super cycle hasn't ever happened and isn't material to Apple's success. Apple's share price is based on predictions of a super cycle) because of the Coronavirus delaying iPhone 12 (there's no evidence of this happening) but also because the deployment of 5G largely stalled all over the world (not accurate but also not relevant to 2020 sales of 5G iPhones, as 5G phones are already selling in many markets). 

    In these kind of conditions, it would be completely stupid of Tim Cook to throw cash reserves at stock buy backs (not if it views its stock as undervalued). The whole reason behind Steve Jobs’ building the stash of cash (Jobs didn't purposely build a stash) was to enable Apple to survive a calamity (not really) that would destroy other businesses. Coronavirus has a very good chantce of becoming this calamity (Apple has $99 billion in liquid assets and unlimited capacity for borrowing at near 0%, regardless of $20 billion spent quarterly on buybacks). Apple will need cash to keep paying their employees and not laying them off (false). Apple will need cash to set up new supply chains (false) and assembly facilities outside of China (false), run their data centers (false), pay rent on their stores worldwide (holy cow false), donate to the Trump campaign (it doesn't) to prevent a socialist from winning (Apple doesn't care who the president is to run its business and to make money ) the next Presidential election and splitting up Apple (no threat of this), etc. 

    Blowing cash on buybacks to keep AAPL afloat so that DED’s portfolio would look not as bad should be the least of Tim Cook’s concerns now, and  I’m 99% positive that this is not what Apple is doing during this market correction (well you are 100% wrong). 

    pscooter63dedgeckofastasleepBart YFileMakerFellerjony0
  • Reply 17 of 97
    mdirvin said:
    The whole trick is timing.  I bought a bit early Dec. 2018, but still made over 450K.  I'm thinking its still a bit early we have several more legs down, maybe.  Who really knows you just take  your best guess and go with it.  I would ask my 3 year old grandson but he's a few states over right now. I could get as good of advice from him as I any of the "Experts".

    Mike
    Mike, there's this new invention called "telephone". It's very cool. You can talk to people miles away; sometimes even in another city. Soon, you will be able to speak to your grandson who is 3 states away. Actually, Apple makes a few of these new amazing devices; they call it iPhone. 
    edited February 2020 randominternetpersonFileMakerFeller
  • Reply 18 of 97

    gatorguy said:
    FWIW six months ago the same author wrote this:
    "But why is Apple buying back shares seemingly regardless of their price? It appears clear that Apple expects its share price to grow much higher in the future. So rather than carefully timing its repurchases to only occur when the stock price hits its lowest levels, Apple continues to buy shares back nearly as fast as it can all the time, even as the stock price jumps up and down as it continues to increment higher."

    As for jumping on this unexpectedly low stock price I would assume that at the moment Apple would be in one of their "blackout periods" where they are not permitted to buy back stock except under a predefined/prearranged schedule that ignores what the stock price is at a point in time and instead picks a date for the transaction to occur. Of course they are not obligated to complete a pre-scheduled buyback, they can choose to hold on to the cash instead, but they also can't create one at their whim during a blackout period. Have I got that right?
    That previous quote is correct. It's also compatible with this article. 

    This article isn't saying that Apple is suddenly now "carefully timing its repurchases to only occur when the stock price hits its lowest levels." It pretty clearly said the current "drop affords Apple a rare opportunity to snatch up billions of its shares at a discount nobody could have otherwise imagined possible."

    You and others taking issue with what I wrote are forgetting that in being ready to buy back shares at all times, Apple automatically takes advantage of dips as they occur. Over time, Apple's share price continues to go up. This is a dip along the way, as is already evident today. Apple is not still at $260 where it bottomed this morning. It's already up 5%. Apple has ~$18 billion to spend of its last buy back allocation.   

    Why are you assuming that Apple is in a blackout period? Establish that first. 
    pscooter63dedgeckololliverBart Yjony0watto_cobra
  • Reply 19 of 97

    This all makes sense if this were an Apple issue and not a global economy issue.  Personally, I expect the market to keep dropping until some good news about Covid-19 starts appearing.  It doesn't matter if Apple can make iPhones if there are economy-wide layoffs crushing the demand for iStuff.
    There will no doubt be a major financial impact to shutdowns that have occurred so far in Feb. Yet as I already detailed, Apple is positioned better than most. Rather than making commodity PCs, Apple is selling one of the best enterprise mobile devices suited to remote workers. It's already been reported that iPads sales are surging as people move to remote work/edu. 

    Impact outside of China -- 15% of Apple's sales, currently -- is not yet clear, but there is much more wrist flapping panic than real data showing that nobody in the USA has any money left to buy gear they need.  
    lolliverBart Yjony0watto_cobra
  • Reply 20 of 97
    sirozha said:
    Apparently, DED holds a large position in AAPL. How does he know that Apple is buying shares for cheap right now? The supply chains are completely disrupted or decimated. It’s very possible that to restore the manufacturing capabilities, Apple will need to move manufacturing out of China. Foxconn can’t do it on their own. Apple will have to pay for a large portion of moving manufacturing out of China. Apple’s sales this year will be low compared to previous years due the problems with supply chains and lower demand. Additionally, it appears that the super cycle based on 5G is not going to happen in 2020 because of the Coronavirus delaying iPhone 12 but also because the deployment of 5G largely stalled all over the world. 

    In these kind of conditions, it would be completely stupid of Tim Cook to throw cash reserves at stock buy backs. The whole reason behind Steve Jobs’ building the stash of cash was to enable Apple to survive a calamity that would destroy other businesses. Coronavirus has a very good chantce of becoming this calamity. Apple will need cash to keep paying their employees and not laying them off. Apple will need cash to set up new supply chains and assembly facilities outside of China, run their data centers, pay rent on their stores worldwide, donate to the Trump campaign to prevent a socialist from winning the next Presidential election and splitting up Apple, etc. 

    Blowing cash on buybacks to keep AAPL afloat so that DED’s portfolio would look not as bad should be the least of Tim Cook’s concerns now, and  I’m 99% positive that this is not what Apple is doing during this market correction. 
    It’s DED doing damage control. Putting a positive spin on a terrible situation. Although I doubt all of this panic is due to Apple and not other factors going on and Apple just happened to sustain collateral damage from everything else. They were one of the first companies to warn us about the effects of quarantine and how it will affect the supply chain for current and future products that are ready to be announced. 
    tmayrandominternetpersonmuthuk_vanalingamlolliver
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