Apple Surges Amidst Split Rumors; Better Than iPrefs, Says Oracle Investment

Shares of Apple (AAPL) made a substantial recovery this afternoon, rising from a low of $437.66, near their 52-week low of $435, to rise $7, or 1.6%, to close at $449.80.

Seabreeze Partners's Doug Kass notes in a missive this afternoon that his sources are muttering something about a stock-split being unveiled tomorrow at the company's annual shareholder meeting at its headquarters in Cupertino. However, Kass observes that Apple would have to get shareholder approval for anything beyond a two-for-one stock split.

There are, however, those that are urging a split as a better option than the “iPrefs” preferred shares that hedgie David Einhorn has been promoting of late. Oracle Investment Research's Laurence Isaac Balter, after reviewing retail versus institutional block trading, opines that creating what amounts to a retirement vehicle with preferred shares is a waste of time.

Instead, he suggests a 10-for-1 split as giving the shares a psychological lift among retail investors:

With all due respect to Mr. Einhorn, I do not see how bleeding Apple�s cash flow to support anyone but those domiciled in the Cayman Islands with a tax-free dividend into perpetuity (and a 10% tax equivalent yield). Income investors and retirees in the US don�t look to the technology sector for a secure retirement. You see, the real problem with Apple shares is that we in the business know the stock is super cheap based on any valuation metrics you like.But retail doesn�t understand [...] Reviewing our Money Flow charts, we see a fascinating phenomenon. Retail non-block money flow is accelerating at a rapid rate, yet institutional block purchases have increased or stayed steady. The problem is that the average American retail investor doesn�t buy P/E ratios. They buy (or sell) share price action. And in the past 6 months, non-block money flow selling has accelerated. That�s right; your neighbor gets scared when share prices fall (but you knew that already.)So I offer a solution that doesn�t cost a dime (well almost). A 10:1 stock split. Mathematically it does nothing except make for a low price. Valuation-wise it�s neutral. Financially, it saves the company from having to dole out billions it needs to fend off its competition from ever getting a stranglehold. More importantly however, psychologically it�s everything. The average retail shareholder will be attracted to a reachable and cheaper share price, as retail is not an insignificant owner [...] By enacting a perpetual preferred share, you hurt Apple in the bad years (which inevitably will happen). And then what do you have left? A hedge fund in the Cayman Islands collecting a 10% tax equivalent dividend forever, and US shareholders end up paying dearly for the privilege.