Apple's Move Toward iWatch Boosts Stock 2%; ADM Gains After $3 Billion Acquisition

Fresh after passing 17,000 points for the first time ever last week, the Dow Jones Industrial Average (DJINDICES: ^DJI  )  dropped 44 points Monday, just as the corporate earnings season is about to kick off.

1. Apple stock ratings up after iWatch moves
iCar, iTV, iBoat ... if there's a word that you can put a lowercase "i" in front of, analysts have been speculating whether Apple (NASDAQ: AAPL  ) will revolutionize it. Even your tech-challenged mother has been expecting that product to be an "iWatch" lately, but shares of Apple rose 2% Monday as the company actually made progress on one.

Following rumors from last week, Apple confirmed that it just hired Patrick Pruni Pruniaux, the VP of sales and retail at timekeeper Tag Heuer, owned by the publicly traded luxury-goods giant LVMH. Despite all your efforts to check LinkedIn, Pruniaux doesn't have an exact title yet in Cupertino -- but he's expected to launch Apple's "smartwatch" campaign.

The takeaway is that while you've been on the beach with Jimmy Buffett playing on repeat, Apple's been busy. The company recently hired the former Burberry CEO to run its only retail operations. And Apple shares were also boosted Monday, after research firm Pacific Crest raised its price target on the stock (expecting it to reach $100) and a popular Wall Street Journal article talked about CEO Tim Cook's strategy for Apple's growth.

2. Grain giant ADM goes after a Swiss sweetener company for $3 billion
Pour some sugar on me ... actually, make that artificial sweetener. Enormous grain distributor Archer Daniels Midland (NYSE: ADM  ) is paying $3 billion to buy a Swiss ingredient maker, Wild Flavors. That's the biggest check ADM's ever written for an acquisition, but it's a necessary move to get away from the crazy fluctuations of the commodities markets ... and the specialized sweeteners that Wild Flavors makes are way more profitable.

ADM's commodity business is about harvesting and selling grains, and the company has people hacking away at wheat straws and corn stalks from Mongolia to Madagascar. The problem with those lame, plain food commodities like corn, cocoa, and wheat is that they're boring and can't be differentiated from other providers. That means it's a low-margin business.

So it's about "ingredients," not commodities. Profits based on commodities are subject to the whims of a cocky trader at the commodity exchange in New York -- or, worse, an intern trader who has something to prove.

Starbucks cappuccinos and Clif Bars are the fancy products that this new company of ADM's creates ingredients for. It's a higher-margin business and less prone to swings in the commodities markets. Investors "dig" Monday's announcements -- the stock's up 1.6% for it, even though it will mostly be paid for in fresh, new debt.

As originally published on MarketSnacks.com

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  • Report this Comment On July 07, 2014, at 11:12 PM, EquityBull wrote:

    iPhone is so big as is iPad that the iWatch is all but guaranteed to be the next Apple TV. Maybe a couple billion in sales which for a normal company would be great. For apple it won't even move the needle. It is a rounding error.

    To get excited about a marginal product in the apple product lineup is not prudent. If investors are running up the stock in anticipation of this they are going to be disappointed.

    iPhone 6 will be a big upgrade cycle but at some point the market will quickly say "so what, what's next" and there aren't many bullets besides a big screen to get people to upgrade after that in the numbers needed to justify a 600B market cap. Also some of the upgrade cycle will be offset by the continued trend of falling ipad sales.

    Apple won't go out of business by any means but it will be hard to justify todays market cap in a year or two once the street realizes iWatch is not a revenue mover and iPhone 7 is not going to have a groundbreaking catalyst. Also we are finally seeing a change in carrier subsidies in the USA. In China Xiaomo is crushing apple. A very inexpensive Android phone at a fraction of the price of iPhone and what most say is on par with it.

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