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Is Apple stock a bargain after its 7-to-1 split?

By Will Kenton for Kapitall.

The news of Apple’s (AAPL) seven-to-one stock split churned up interest in the stock on Monday. Shares were up 1.04% for the day, and they are up 2.63% for the week. So far today they have jumped another point.

What does this mean for the individual investor? As Steven Russolillo pointed out at The Wall Street Journal’s Moneybeat blog, a stock split doesn’t change the size of a company’s stock float or any other valuation metric; it’s merely an accounting move to reduce the price of shares. If anything, a stock split reduces a company’s dividend yield per share because the same payments are now spread among more shares.

Shareholders before the split now have seven times as many shares, but each share is worth one seventh of what it was last week. So what’s the benefit? Tim Cook’s rationale for the split is to make the stock affordable to the average investor. He reasons that many people don’t want to spend $700 on one share of stock, but that they are willing to spend $700 on seven shares of stock.

Jonathan Ferro at Bloomberg opines Cook is angling to get Apple listed on the Dow Jones Industrial Average (DJIA). As Cook points out, the DJIA isn’t an index created by a strict set of quantitative metrics; it is a list of stocks created almost one hundred years ago by a news organization, and inclusion on the list is as much about a company’s reputation as a value play as it is about its market capitalization, cash in the bank, or number of employees.

Other DJIA tech heavies like Intel Corp (INTC), Microsoft (MSFT), Cisco Systems (CSCO) and IBM (IBM) trade at levels below Apple and Google (GOOGL). The former seem to be DJIA components because they are stodgy and reliable, while the latter are known for their mushrooming growth and stratospheric stock prices. Google's recent stock manipulation (releasing a new set of restricted shares) is evidence that these former Cinderella stories are maturing into ugly older sister stories.

Apple may also be cutting the retail price of its stock because it has several blockbuster products ready to launch in the second half of 2014. If Apple management thinks $100 stock price looks like a bargain, investors will bid the stock up again with the release of a TV (not to be confused with Apple TV), iWatch, music streaming business, digital payments wallet, iPhone 6, or any other number of iUnicorns that are rumored to range the magical forests of Cupertino.

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