Are Default-Wary Investors Fleeing to Apple for Safety?
It looks like Apple (AAPL) stock is one of the places skittish investors are moving money ahead of a potential U.S. debt default -- at least based on its share price. And that share price is based on fundamentals that should shield Apple from the impact of a default.
Apple's shares have risen 2% in the last week as the S&P has lost nearly 3% of its value. The spread between the stock and the index has been as wide as 5% over the last five days.
In some ways, Apple stock is an unlikely candidate to be a port in this economic storm. It offers no dividend -- but that's actually a fact that cuts both ways. Worried investors won't get a yield, but they also won't have to worry that firm is pouring out what might be precious cash for a dividend. Another reason an Apple investment may be a risk is that its stock is up 50% in the last year and trades at a rich 3.6 times sales. It wouldn't take much to knock down the value of the shares if Apple makes an even modest misstep, even if it can be blamed on the economy.
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The pluses for Apple as a safe haven offset the negatives. The company has $76 billion in cash -- an unprecedented amount that makes Apple's balance sheet as strong as any in the world. Based on its net income, that cash on hand number could balloon to $100 billion by year's end.
Perhaps the best reason for investors to move into Apple's shares is that the company has proven that it's nearly recession-proof. Come economic downturn or federal default, Apple's magnetism to consumers is unlikely to be dented, as sales of its iPad 2 surge and everyone expects a strong reception for its new iPhone 5. When the stock market cratered to its cycle lows in the spring of 2009, Apple's shares fell only modestly, recovered completely by July, and kept on rising. By contrast, the stock market as a whole has never recovered to its 2007 peaks.
Apple has other, more modest advantages. Its $363 billion market cap and daily trading volume of over 15 million shares make it a highly liquid investment. The stock has traded twice that volume in the last quarter without much effect -- other than that it rose.
If there's no settlement in Congress to increase the federal borrowing cap in the next three trading days, there will almost certainly be a large movement of capital to places that investors believe will weather what could be a catastrophe. And Apple's shares will remain high on that list.
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