Apple and Energy

Apple

Apple Inc. just traded above $127.00 per share (a record high), lifting its market valuation to $734 Billion. The stock price has increased 23,600% since its public offering in December 1980.

Almost as equally fascinating is that Apple has completed its debut Swiss-franc bond sale, taking advantage of Switzerland’s record-low borrowing costs. The iPhone/iPad maker raised 1.25 billion Swiss francs ($1.35 billion) from the two-part bond sale on February 10.

An 875 million Swiss franc bond due to mature in November 2024 will pay investors a yield of 0.281%, while a 375 million franc 15-year bond will pay a yield of 0.74%. Those are actually attractive rates for Switzerland as their banks now charge you 1/2% on an annualized basis to hold your deposits. Apple clearly has some brilliant management to say the least.

Oil

On the energy front, the price of crude oil has plummeted by some 50% since June. Now, following Saudi Arabia’s decision not to cut production, the price trajectory likely goes lower from here before any substantial recovery, especially given the bearish sentiment in the market and the lack of reaction to bullish fundamental news. We believe the more oil falls in the near term, the more it may rise in the longer term, given that current weakness discourages future investment. In contrast, we believe that the current slide in oil prices is a self-inflicted crisis. If the Saudis choose to cut their production, we believe prices could recover to the $90-per-barrel neighborhood.

ZeroHedge writes: “Another important factor at play is that today’s low oil prices may clear the path for higher prices later. We estimate the per-barrel breakeven cost for US shale-oil production to be $68, a notch below our base-case forecast. That might not curtail projects that cost a few dollars more per barrel, but projects that cost more than $80 or more may be halted. Thus, continued low prices can discourage exploration and production, which takes future supply off the market.”

We see the following three factors combining to support oil prices in the coming months:

Falling rig counts in North America beginning to curb U.S. production (and discourage new rig operators).

OPEC suffering with prices below $60, even with the Saudis responsible for the price pressure.

Global Demand beginning to increase as lower prices and recovering economies spur demand. As the next six months unfold, more events will occur at Saudi’s periphery that are beyond Saudi political or military control. This is especially the case with old rivalries like Iran and Russia. At the rate things are going with future US production declines, it could be a long, hot summer in the oil trading pits.

This is the best reason to start looking for opportunities in the oil patch now.


Crude Oil — February 2014 to February 2015
crude-oil

Apple — February 2014 to February 2015
apple

Brock Hamilton
February 12, 2015