In today’s information based economy it is impossible to read and assess all developments. Furthermore, it is hard to sort through the rumors, speculation, and catalysts to know what’s real, what’s not, and what has long-term meaning. Therefore, I am looking at two very important potential catalysts in technology that all investors should consider as part of their research.
There’s always news with Apple. It is the most covered company in the market, with a new article being published on Yahoo! Finance about every two-three minutes. However, it’s very rare that all the speculation surrounding Apple Inc. (NASDAQ:AAPL) ever accounts to fundamental change, yet last week there was some real news that could affect the price of Apple’s stock.
Last week famed investor David Einhorn made his case for a preferred stock distribution, called iPrefs, with a face value of $50 to shareholders for each common share owned. These “iPrefs” would be publicly traded and pay a $0.50 quarterly dividend. At first, no one thought a judge would take this seriously, yet Judge Richard Sullivan has granted Einhorn’s motion for a preliminary injunction. As a result, Apple Inc. (NASDAQ:AAPL) will have to obtain shareholder approval, but more than likely, Apple will be returning more capital to shareholders.
So what does this mean? Well, analysts from Morgan Stanley and Oppenheimer are already saying that Apple is more than likely to double its dividend. This injunction is a major win for shareholders who are sick of the tech giant sitting on all its cash and not returning it in the form of yield. David Einhorn went on the record saying, “This is a significant win for all Apple Inc. (NASDAQ:AAPL) shareholders and for good corporate governance.” He is right; we might now see more companies such as Google following the lead. But for Apple, it could be a good start in attracting the many hedge funds who have sold shares in the last few months.
Executive Consistency in Crucial for Any Internet Based Company
On Friday, Facebook Inc (NASDAQ:FB) announced that its product management chief and cofounder of Mozilla Firefox Blake Ross has left the company to “try new things.” This is one of many high profile departures since the company’s decision to take itself public. Often, in technology, talented individuals will leave to pursue new ventures. However, with the volume of executive change, investors must now wonder if this could be a sign of a bigger problem at Facebook.
In the past, high profile engineers and executives were leaving other companies such as Google Inc (NASDAQ:GOOG) and Apple for Facebook. However, Blake Ross marks the fifth big departure in as many months. First, it was CTO Bret Taylor and product management head Carl Sjogreen. Then, we saw platform partnerships director Ethan Beard and mobile platform marketing chief Jonathon Matus leave the company.
Naturally, we haven’t really seen any drastic changes to growth or product/services and the stock has risen since most of these executives left the company. However, keep in mind, when Steve Jobs passed away Apple’s stock more than doubled. But now concerns regarding innovation and vision have pushed its shares lower.
This is a scenario we will have to watch with Facebook. An internet based company moreso than a hardware company must innovate daily to “stay cool.” Facebook probably has a short-term list of services and products for the market, however what will happen in the next six months or next year due to these changes. At this point we don’t know, but the fact that these talented individuals are leaving worries me enough not to pay a price/sales ratio of 13.0 to invest in Facebook.
Conclusion
In my book, Taking Charge With Value Investing (McGraw-Hill), I talk in detail about knowing how to assess news and rumors. Sometimes these rumors, which then create fear or momentum, can create value for both long and short investors. It is important to know and learn how to assess the meaning of such developments.
However, with both of the companies above, I believe the news is quite meaningful. Apple has been sitting on tens of billions in cash for years, and Facebook is still a company that is trying to create an identity. A hike in Apple’s dividend could have a great result on the performance of the stock, and a changeup in management could also have a strong reaction on Facebook (one way or the other). Therefore, it might be wise to consider these developments and appropriately price them into the valuation of both companies.
The article Two Top Stories in Tech that You Should Consider originally appeared on Fool.com and is written by Brian Nichols.
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