Investing the Apple Way: A Long Term Strategy For Perfection

You have to love Apple (AAPL); just look at the latest 10-Q.

APPLE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in millions, except share and per share amounts)

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Apple seems to be executing a well planned long term strategy to perfection. If that is the case, then why not look at their investment strategy as well. We can't guarantee the long term results, but Apple has been spot on until now and seems to get it right over a three year period.

A quick look at Apple's investment strategy reveals that AAPL has increased their short term investments by $3.6B. Long term foreign securities have been slightly reduced whereas foreign short term securities have been substantially increased by 91%. Likewise; though U.S. long term securities increased $860M (20%), short term U.S. securities increased $2.49B (92.2%). Short term Treasuries are down $79M (17.6%) and overall short term investments are about equal with long term investments.

Apple does take the effort to point out that when breaking down the short term figures, the one to five year portion increased from $921M to $2.1B (128%). The conclusion is that Apple doesn't see the current global expansion extending much more than five years, but the party definitely isn't over during the next twelve months. The current downturn is a "temporary impairment". In APPL terms this means that the downturn should last less than twelve months. If you wish to bet against short term U.S. corporate securities then you are betting against APPL.

You have to have some very large Macintoshes to do that!

Cash, Cash Equivalents and Short-Term Investments

The following table summarizes the fair value of the Company’s cash and available-for-sale securities held in its short-term investment portfolio, recorded as cash and cash equivalents or short-term investments as of June 30, 2007, and September 30, 2006 (in millions):

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The Company’s U.S. Corporate securities consist primarily of commercial paper, certificates of deposit, time deposits, and corporate debt securities. Foreign securities consist primarily of foreign commercial paper issued by foreign companies, and certificates of deposit and time deposits with foreign institutions, most of which are denominated in U.S. dollars. As of June 30, 2007 and September 30, 2006, approximately $2.1 billion and $921 million, respectively, of the Company’s short-term investments had underlying maturities ranging from one to five years. The remaining short-term investments had maturities less than 12 months.

The gross and net unrealized losses on the Company’s investment portfolio were not significant as of June 30, 2007 and September 30, 2006. The unrealized losses on the Company’s investments in U.S. Treasury and Agency securities, U.S. corporate securities, and foreign securities were caused primarily by changes in interest rates. The Company typically invests in highly rated securities with low probabilities of default. The Company’s investment policy requires investments to be rated single A or better. Therefore, the Company considers the declines to be temporary in nature. As of June 30, 2007, the Company does not consider the investments to be other-than-temporarily impaired.

Market values were determined for each individual security in the investment portfolio. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery in market value.

Disclosure: none

Comments

[cabrach:]

what about any impact on Apple through any holding of paper related to high risk mortgages?

2007 Aug 29 08:51 AM

[cabrach:]

what could be the impact on Apple through holdings in junk paper related to high risk mortgages?

2007 Aug 29 08:53 AM

[CrossProfit:]

We couldn't get the info from AAPL. AAPL doesn't disclose this type of detailed info.
Sorry, we tried.

2007 Oct 10 06:09 AM

[roble0416@a...:]

IT APPEARS TO ME THAT APPLES CASH POSITION IS BEING AFFECTED BY THE MORTGAGE LOAN PROBLEMS MORE THAT I REALIZED. STOCKS LIKE RIMM, GOOGLES AND AMZN HAVE BEEN STEADLY GOING UP. IT APPEARS TO ME APPLE SHOULD BE IN THE $175.00 TO $250.00 BASED ON THE PRODUCTS AND SALES GOING THROUGH THE ROOF ESPECIALLY IN ALL THE APPLE STORES IN THE USA, AND EUROPE WILL BRING IN LOTS OF CASH. I BELIEVE THE STOCK MARKET HAS EFFECTED THE NATURAL PROGRESSION OF THE PRICE GOING TO $250 LIKE RIMM DID RECENTLY AND I'M A BIT SURPRISED THAT APPLE DOESN'T HAVE THE CASH THAT RIMM OR GOOGLES FOR THAT MATTER. BUT, UNDERSTAND THE I-PHONE IS THE 8TH WONDER OF THE WORLD, AND APPLE WILL BE GOING STRONG OVER THE NEXT 10 YEARS, AND THE I-PHONE WILL DO FOR THE WIRELESS WHAT WINDOWS DID FOR MSFT.
RESPECTFULLY NORMAN ROBLES [e-mail]

2007 Sep 01 10:53 PM