Apple, Inc. Stock Passes All-Time Highs -- 3 Lessons for Investors

Despite the pessimistic headlines about Apple stock that circulated madly in 2013, Apple stock has fiercely rebounded. The fall and return of Apple stock highlights three lessons for investors.

Aug 21, 2014 at 10:00AM

It took a while, but Apple (NASDAQ:AAPL) stock is finally back.

AAPL Chart

AAPL data by YCharts

Less than two years ago, Apple stock set an all-time high at just a few dollars above $700, which, after the 7-to-1 stock split, translates to about $100. More specifically, Apple's post-split intraday split-adjusted all-time high was $100.72. On Tuesday, however, Apple's intraday high was just cents away from this all-time high and the stock reached new heights on Wednesday. Once you factor in the dividends Apple has paid out since the company crossed a post-split $100 the first time, it's certainly fair to say that Apple investors who have held during this period have recouped their losses fully.

Looking back at this rollercoaster ride, there are several excellent lessons for investors.

1. Shares can grow faster than market capitalization.
In other words, investors can be rewarded even when the total value of the underlying business doesn't grow. How is this possible? Share repurchases.

Case in point: When Apple hit post-split levels just over $100 the first time, its market capitalization was about $658 billion. This time, however, Apple's market capitalization is just $602 billion -- more than $50 billion lower. How'd this happen? Apple has been aggressively spending on share purchases.

AAPL Shares Outstanding Chart

AAPL Shares Outstanding data by YCharts

When shares can be repurchased at reasonable levels (or better yet, bargain levels), aggressive share repurchase programs like Apple's can create significant shareholder value.

2. Volatility is an investor's best friend.
When Apple stock plummeted to levels around a post-split $60 in 2013, it was clear that Apple stock was cheap. Sure, Apple's gross profit margins were suffering and revenue growth rates were slowing. But the market overreacted far too pessimistically, sending the stock to levels where Apple was trading at a price-to-earnings ratio around 10 for several months in 2013 -- even after Apple doubled its share repurchase program to $100 billion.

AAPL PE Ratio (TTM) Chart

AAPL P/E Ratio (TTM) data by YCharts

Of course, it's not always easy to pull the trigger on a stock when the market is screaming, "sell!" But for those who stirred up the courage to buy shares around a post-split $60, the reward has certainly been sweet.

Long-term investors should keep an eye out of opportunities like this. Benjamin Graham, known as the mentor to Warren Buffett and the "father" of value investing, best explained how to use volatility as a tool in his classic book, The Intelligent Investor

Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

3. Buying-and-holding Apple has worked out exceptionally well.
Despite all the doom and gloom headlines for Apple stock in recent years and the unfortunate loss of Steve Jobs in October 2011, Apple has turned out to be an incredible investment for the buy-and-hold investor.

AAPL Chart

AAPL data by YCharts

For long-term investors with a handful of excellent enduring companies in there portfolio, sometimes it is best to simply sit back, relax, and ignore all the volatility in the near-term.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers