OK, so the buzz surrounding Apple, Inc. (NASDAQ:AAPL) splitting its stock is pretty old news. The discussion has gone on for a while that with Kraft Foods Inc. (NASDAQ:KFT) likely to leave the Dow Jones Industrial Average (DJIA) as one of 30 component companies, Apple would be a candidate to fill that void. But in order to be a reasonable candidate, Apple would have to split its stock to lower the price to a number that doesn't skew the index too heavily. If Apple did not split its stock, its price would make up more than one-fourth of the index.
Well, all of that was just talk, rumor and innuendo. Until Wednesday, when a top market analyst commented on CNBC about the concept of stock splits at Apple, Inc. (NASDAQ:AAPL). Then, the talk seemed take on an air of legitimacy. Tony Sacconaghi, a top analyst at Bernstein Research, said in a live interview, “Our belief is that there’s a reasonable likelihood that Apple will split the stock. We’re confident that the company is looking at that topic and that they’ve started soliciting input on that topic. That last time they solicited input from investors was on the dividend and in short order we had one."
He added that the stock split decision could be made in the next six months - by early 2013. A stock split would lower the price of the stock by a ratio equal to the split. For example, with Apple, Inc. (NASDAQ:AAPL) stock trading at $600 a share, a 2-1 split would lower the price of a single share by half, or $300. A 4-1 split would drop it to $150, and so on. How far would the split go?
There is talk floating that the split could be as much as 10-1, which drops the price to $60 a share. That not only would make Apple, Inc. (NASDAQ:AAPL) attractive to individual investors (widening the market of potential buyers), it also would make Apple a near-perfect addition to the Dow Jones index, as a 10-1 split would give Apple stock about a 2.5 percent weight on the DJIA, which is very close to the weight that Kraft Foods Inc. (NASDAQ:KFT) had- about 2.3 percent weight.
However, with that many new shares in the market, and Apple, Inc. (NASDAQ:AAPL) being such a powerful brand worldwide, and the increased number of potential investors growing by an exponential number, if Apple stock were to be $60 at some point, it would be short-lived. But at the same time, it would be good news for all investors who get in - because you already know what levels the stock can get to - and it likely won't take long to get back to its original price. Apple is the most popular stock among hedge fund. Billionaire hedge fund managers David Einhorn, Dan Loeb, David Tepper, Leon Cooperman, and Steven Cohen are among hedge fund managers with bullish positions.
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