Yesterday, the share price of Steve Jobs’ creation touched a new all time high of $134.50, giving it an eye-popping market capitalization of over $704 billion.
It is coming off a prolonged correction that took the shares down a heart stopping 31.53% until March, 2016. Since then, the shares have rocketed by an eye popping 52.84%, making it one of the best performing stocks in the entire market.
Are happy days here again? Has a new dotcom type bubble ensued?
That is highly unlikely. The reasons for the ballistic move are far more complex.
Think of Apple stock as a call option on peace with China. When post election fears that the company’s highly globalized business model was doomed, the shares tanked. Since then, a curious thing has happened.
While the 2016 presidential campaign saw China attacked on a daily basis, there has been barely a peep since November 8th. In fact, the new president claimed to have a very friendly telephone call with Chinese president Xi Jinping only last week.
So does globalization live? Was its promised unwind yet another broken campaign promise?
The stock market certainly thinks so. This possibility was enough to punch Apple stock to an all time high several days in a row.
Instead, the target has been Mexico, with which the US is threatening total economic collapse.
Apple’s business model is at risk on many fronts. While Apple’s iPhones are designed in the US by foreigners, like Johnny Ives, they are made in China.
So any restriction on trade of any sort between the two nations would have dire consequences for Apple’s bottom line. Punitive US import duties would reduce sales. Strife of any kind would make Apple facilities in China a big fat target for retaliation.
A rising share prices says NONE of this is going to happen.
This is only the latest campaign promise that has thankfully been broken. China will be labeled a currency manipulator on day one . . . NOT. Japan will be called out as an unfair trader . . . NOT.
The administration is slowly figuring out that the agricultural states will, far and away, be the biggest losers in any future trade conflict, every one of which voted for the president. So the whole trade war thing may just quietly go away.
The market LOVES that idea.
And there ARE announced administration policies that would be hugely beneficial for Apple and will almost certainly be implemented. Who better to profit from a corporate tax cut than the world’s most profitable company?
Who benefits the most from the repatriation of foreign profits than the planet’s biggest owner of such a wad, some $250 billion worth. These funds will almost certainly be used to increase Apple share buy backs and increase dividends.
Kaching!! Longer term, I love Apple.
I believe it could hit $1 trillion in market capitalization sometime in 2018, or 2019 at the latest. That will probably occur in the run up to a new biannual generation iPhone launch.
The only disappointment will be that Alphabet (GOOG) will probably get there first.
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