Worried that the freefall in Apple's stock price isn't finished yet? Investors now have the opportunity to invest in the debt of the technology bellwether, not just its equity.
Apple's $17 billion offering of bonds of various terms today was a huge hit with investors. Prices on the investment-grade credit surged in morning trading on all maturities offered by the company, driving already low yields down further.
“This morning, it was the only thing trading,” said Jody Lurie, a corporate credit analyst with Janney Montgomery Scott LLC. “The fast-money hedge funds were in and out of the market trying to capture spread movements, while investors who got closed out of the allocations last night were trying to get in this morning.”
Apple's offering — the single largest corporate-bond issue ever, according to Ms. Lurie — included 3-, 5-, 10-, and 30-year maturities with a fixed-rate coupon, and 3- and 5-year floating-rate bonds. The 30-year fixed-rate bonds carried a coupon of 100 basis points over the 30-year Treasury, and the 3-year bonds issued at 20 basis points over comparable Treasuries. Spreads on all of the issues were tighter in afternoon trading.
So is the stock or bond the better investment?
“I would buy the iPad,” said Ric Edelman, chief executive of Edelman Financial Group Inc. “If you're investing in a specific stock, you're speculating, and why would you want to put yourself in the position of having to be right about what happens to Apple?”
Mr. Edelman isn't any more favorably inclined toward the bonds. While he could see investing in a basket of bonds that might include Apple debt, with the 10-year issue yielding roughly 2.4%, it's paying less than the current 2.78%
dividend yield on Apple shares. The shares, which have dropped from over $700 last September to around $430, may still be a risky bet, but so are long-term bonds that pay abysmally low yields. With rates at historic lows, it's unlikely that prices on investment-grade debt have much upside left from here.
“If rates rise, it will help the stock and hurt the bonds,” said Mr. Edelman. “If I had to buy one or the other, I'd buy the stock. It has far higher potential and carries a similar amount of risk.”
Mr. Edelman called Apple's bond offering a “fabulous
financial planning lesson.”
“It's their way of saying interest rates are at historic lows and we're going to take advantage of it,” he said. “They can invest the money in stock buybacks, and products and marketing, and earn a lot more than the 2.4% they pay in interest. Consumers should be doing the same thing.”
