Trade Alert: Trimming a big winner and Try to Imagine a Very Different Apple

First off, I’m going to take about 1/5 of my AMBA off the table here. The stock has been on a huge run and it’s far from cheap right now and if the earnings and guidance in its quarterly report tonight aren’t absolutely terrific, it could get walloped. Longer-term, I obviously still very much believe we have much more growth, earnings and higher stock prices ahead, but this is one of my largest positions after this huge run and it’s prudent to take advantage of the all-time highs here today and trim a little bit.

Apple is the first company ever to be worth $700 billion. I’ve owned Apple since March 2003 from a split-adjusted $1 per share and having bet my reputation on being a long-time Apple bull in the public eye, I’d be foolish not to recognize what Apple has done for my career. But let’s imagine just how many transformative companies Apple could easily acquire.

In a fascinating article last week, Eric Jackson argued that Apple’s Tim Cook had made a mistake by not using the $100 billion in cash that’s he’s used for stock buybacks and dividends over the last couple years would have been better used acquiring Tesla, Twitter and Pinterest, and ramping up spending R&D by another $20 billion. But that’s rearview mirror, and the fact is that Apple’s got $155 billion in cash on the books right now and it will generate nearly $70 billion in free cash flow this year. But that’s not the full story because Apple could also take advantage of its stock’s all-time highs here and use that gargantuan market cap to do most of its M&A work for it.

When Facebook has done its huge acquisitions of WhatsApp and Oculus Rift and Instagram, it’s used stock for about 75% of the deal and 25% cash. Apple used $2.6 billion in cash and another $400 million in stock to buy Beats. Why not structure these deals in a similar fashion, with Apple using 50-60% stock and 40-50% cash structures to get them done.

Here are the top 5 companies Apple should acquire immediately using its stock and maybe a few dozen of its billions in cash and why.

5. Sandisk – Apple would secure the top-tier flash memory supplier and patent-holder in the world, and could immediately separate its mobile devices and PCs by providing double or triple the memory available on competing devices and computers. Cost: $30 billion including a premium to today’s Sandisk valuation of $22 billion.

4. Hulu – This privately-held TV shows and movies streamer that competes directly with Netflix has been struggling and Apple could probably snatch this sucker up on the cheap and drastically improve its own AppleTV offerings while removing a threat. Cost: $2-3 billion.

3. Netflix – Anti-trust concerns might keep this one from happening, but getting Netflix under the Apple umbrella would transform both companies and create a juggernaut for the Internet video future that I’ve long promised (LINK). Cost: $30 billion.

2. Garmin – I still dread my Apple maps and always try to use Google Maps app instead. Enough with second-best in-house development efforts, Apple needs to just buy Garmin and their GPS systems and get it fully integrated and be done with it already. Cost:

1. Arm Holdings – Apple designs its own chips but they’re based on the Arm Holdings patents as are most of the major mobile phone chips used these days. Anti-trust issues might keep this deal from ever becoming a reality too, but imagine how far ahead of the competition Apple would be if they owned Arm Holding outright.

Finally, I just don’t see the upside of Apple buying either the oft-cited Tesla TSLA or Twitter TWTR, as Apple would rather supply the car industry and has never been a social networking company. That said, I do think Twitter’s a potential M&A target at its current valuation. If WhatsApp is worth $19BB to Facebook FB and SnapChat is currently worth $15BB or so in the private market, then it does seem that Twitter would be in a lot of big tech co’s crosshairs. I don’t think Apple would ever buy Twitter, but Facebook or Microsoft or even Disney or Comcast types could. Yahoo too perhaps, but it’d have to be a 50/50 merger there by the time the deal would get done and I don’t think Yahoo’s board would be willing to do that.