Apple Buybacks: Still a Bad Idea 16 comments
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Back in December, I wasn't a fan of Apple (AAPL) buying back its stock. I'm still not a fan, despite the fact that Apple stock has dropped 40% since then and the fact that Arik Hesseldahl says that a buyback is a very good idea: "word of a buyback would probably give the stock price the kind of upward lift it needs," he says.
Um, needs? Why does Apple need a higher stock price? So that it can use its valuable stock as an acquisition currency? No, it can't be that, since a large part of Hesseldahl's argument is that Apple doesn't really have any major acquisitions on the horizon. Is it for the sake of Apple's most loyal shareholders? No: they're generally happy with Apple's long-term price appreciation. The main beneficiaries of a buyback would be the momentum traders who are exactly the kind of shareholders no company wants.
And I'm particularly unimpressed by this part of Hesseldahl's piece:
I found 295 companies on the S&P 500-stock index that have announced stock buybacks since the start of 2003, and they averaged a gain of more than 66% over five years. Gainers outnumbered losers by nearly 5 to 1, with the gainers improving their stock prices by an average of more than 150%.
Wow, the 295 companies averaged a gain of 66% over five years? That's exactly the gain that the S&P as a whole has had over the past five years! You'd almost think that buybacks made no difference at all!
As for the 150% figure, it seems extremely weird to me. Let's say that you started with six companies, all of which were trading at $100. Five of them increased by 150% to $250 apiece, and the sixth went bankrupt with all stockholders wiped out. You started with $600, and you ended with $1,250 - for a minimum gain of 108% over five years. Now square that with the 66% figure.
Now, all that said, I don't necessarily think that Apple should simply continue to accumulate cash for no particular reason except for the fact that it has historically paid no dividend. A modest dividend, tied to profits, makes perfect sense. A buyback, on the other hand, doesn't.
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Also, there is some severe selection bias in his statistics about companies announcing buybacks. You would assume that companies that can afford buybacks would be those doing better overall. If those companies had instead grew the business, paid down debt, or paid a dividend they may have done much better. You can't tell from the statistic he quoted what any given company should do.
As long as Stevie Gods has been at the helm of Apple, Apple hasn't paid a stinking penny of Stock Dividends, while being one of the Cash Richest companies in Tech.
No, instead Apple fixes illegal Stock Options for Stevie and the Exec Crew .... and of course buys Stevie Gods a $80 Mil Private Jet. I suggest that this tells alot about a company, and Apple in particular.
Let's also put into perspective the history of Apple. Ten years ago their stock was $12. Apple was losing billions. Bleeding cash with horrible products. Says a lot about Steve? Yeah. He literally saved the company. Their stock is worth twelve times the amount it was then. Great products. One the most innovative companies in the world. Made a lot of money for many millions of investors had they bought it even a year ago. No debt. And you wonder why they are sitting on a cash horde? Maybe because they are also one of the most conservative, financially, companies in the world. And let me know when Steve goes to jail for stock option misdoing. He was completely exonerated by the Feds.
You can argue they don't pay stock dividends. But in regards to the last year, I don't know what else you want. 100% return on your money not good enough?
Any CFO and BOD would buy back stock if they were certain the stock would rise substantially and they were not going to use the cash for acquistions.
I don't like to think it, but Apple's BOD and senior management may think a larger economic downturn is brewing that will continue to suppress both business and stock prices. That's one very likely explanation for Apple management's decision to be sitting on all that cash at this time.
Remember, it's a VERY good strategy to be sitting on a huge pile of cash when there IS a broad economic downturn. It gives a company financial strength no matter how bad business gets and provides the capability to make acquisitions at firesale stock prices. It also provides a "floor" to the stock price of the company with the cash. These guys at Apple know that they are doing.
I recall some whiners didn't think it was "fair" to backdate, right?
Well, as a special gift, tomorrow, 3/3/08, you will wake up and have the OPTION to buy Apple stock BACKDATED over 6 months, to August 20th levels.
Are you gonna buy, or cry?
As to dividends I think Apple would do well to consider them. As the investing public ages we look for investments that provide income without selling our assets. Unfortunately the taxes add up. But as the boomers retire we want some type of income.
And why should Steve Jobs listen to you? Because he's not doing what you wish he would? Perhaps you have some experience turning a huge, failing, innovative company around? If that's the case, just buy a controlling interest in Apple common stock, push for a board seat, and force the "idiot" to do your will?
As for me, I'd like all sorts of great things, like world peace, but when it comes to stocks, I'm an AAPL owner for the same reason I own other stocks... long term capital appreciation. That goal is served best by sound business strategies and execution, areas where I would say Jobs has demonstrated some skill.
If we're coming up on economic nastiness, I'd sure like to know my investment in Apple isn't going to turn into something akin to Qualcomm, Global Crossing, JDSU.
Given time, the cash will get applied to a good use, I hope. If it's a buyback, great. If it's a non-recurring dividend, great. If it's a promising acquisition, even better. So far, Mr. Jobs seems to be doing a credible job, and if you think that the question of 'What are we going to do with all this cash' hasn't come up in conversations in Cupertino... well, you are just silly.
Rock on, Apple. I, at least, am patient.
I'd rather prefer a small one time dividend , however i think the best place the extra cash should go is R&D, acquisitions and of course the biggest chunk used for backup for darker times ....
which will come eventually seen how wall street reacts to the smallest negative rumor.
Wall street love to hate Apple even when it shines .
I can only imagine when Steve Jobs retires from Apple or there is a real slow down in one of their products etc... the stock will tumble 60-70% or more
if you pair that with a weak economy or any other non Apple related issues
it could be devastating .. with a nice pile of cash Apple will ride it through like they always did, even before SJ
Point of FACT and examples - EVERY Mac notebook up to 1999 was designed and manufactured by Sony/IBM in Japan and just "wrapped" for Apple. The Apple Airport "graphite" was DESIGNED and manufactured by a Lucent contractor in Ohio and then "wrapped" in an Apple flying saucer for branding! The iMac was Hyundai in Korea, iBooks at first were Quanta, then any LOW BIDDER in Taiwan but built in China (hence the years of iBook failures).
Apple's idea of R&D is traveling between Chinese and pacific rim sweatshops and picking products.
Oh but YOU still pay the Apple phony "designed in California" Premium.