Make no mistake, the smartphone market is massive. In doing research for this post about RES.IN MOT.DBA BLACKBERRY (FRA:RI1), I found that IDC research expects 918 million smartphones to be sold worldwide in 2013. As of that research, Apple had the 2nd highest global market share at about 14.9%. If IDC is correct, and Apple Inc. (NASDAQ:AAPL) only maintained its current market share, the company would sell 136 million iPhones this year, or about 34 million a quarter. The fact that the company just sold 37 million shows they may do better than this average.
The second reason investors should consider Apple’s stock is the company’s dividend increase may attract some yield hunters. Many investors screen for companies with a 3% yield or greater. Prior to this increase, Apple wouldn’t have made the cut, today they would. It sounds arbitrary, but with the long-term rate of inflation around 3%, a 3% yield would protect investors from this economic challenge. Investors who wished Apple would pay a better dividend so they could invest are getting exactly what they want.
The third positive is, the significance of Apple’s share repurchase plan. The company expects to repurchase as much as $60 billion in stock over the next two years. At current prices, and assuming the company splits this into $30 billion per year, the company would retire about 8% of their diluted shares each year. If you think about it, this means even if Apple showed just a 10% increase in net income, their EPS would rise by 18%.
Fourth, until the company uses a truckload of their cash, the stock actually has a higher percentage of net cash to market cap. than most of their competition. In fact, with $144.69 billion in net cash and investments and a roughly $383 billion market cap., 37.70% of Apple’s value is cash on the balance sheet. The only other peer to have a higher percentage is RES.IN MOT.DBA BLACKBERRY (FRA:RI1), with 40% of their market cap. represented by cash. Considering that BlackBerry carried just 4.3% global smartphone market share last year compared to 14.9% at Apple, this seems to make very little sense.
By comparison, Google’s cash to market cap percentage is 17.99% and even Microsoft Corporation (NASDAQ:MSFT) comes in lower at 27.88%. Since all of these companies are generating positive free cash flow, each could represent an opportunity. However, Apple’s current percentage is so high that the company is being lumped together with a company that has 71.14% less smartphone market share. Sorry RES.IN MOT.DBA BLACKBERRY (FRA:RI1) fans, but if your stock is an opportunity, Apple is a screaming buy based on this metric.
The bottom line is, even if Apple’s growth was cut in half, between the higher dividend, and significant share repurchases, shareholders should be well rewarded. Once the company takes the wraps off, “some amazing new hardware, software, and services” that CEO Tim Cook referred to, today’s price will seem like a steal.
The article Do Investors Realize What’s Going On? originally appeared on Fool.com is written by Chad Henage.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
