Maybe Apple will never 'waste' its cash horde, but that is only because it will never invest it. It will sit on its balance sheet until they finally get around to paying it out as a dividend or share buy-back. In the mean time, it's earning a negative real return in US treasuries and the like. You can do that yourself--there's no need to get Apple to do that for you.
I really don't care as long as I'm getting 30-40% annual returns, and easy multi-baggers on my options trades with limited calculated risks. You have no idea how or if Apple will spend the cash, nor do I. All we can assume is that they will accumulate it in bundles (somehow that's a bad thing?!) until they find a way to spend it wisely because that's what history has indicated. Perhaps their "next big thing" will require huge start-up capital and they don't want to go the debt route. If they don't do anything, they'll keep piling it up, all the while paying out some dividends and doing some buybacks. What's the problem? If Apple has 300B in cash in a couple of years time, would that be a good thing or a bad thing for the stock and the company? I'd be ecstatic as a shareholder.
Benefits of having cash (which I have mentioned before):
- Puts a floor on the stock
- Stock seems to track strongly with Apple's increasing balance sheet
- Dominate component supply chains with massive orders
- Invest in manufacturers to get exclusive rights to machinery
- Facilitate regular and increasing dividends
- Easy to go on the offensive during a market crash where most competitors may be struggling just to stay afloat
Only with Apple is having cash a bad thing. I don't hear anyone complaining about MSFT or GOOG, both of which have tons of cash as well. I would rather save it for a rainy day than piss billions away on questionable acquisitions.
You relentlessly pound the fact that the technology industry is fickle and Apple can fall from grace very quickly. Doesn't it make sense that Apple is conservative about the returns they get considering the risky nature of their business?
A $300 billion cash hoard would be a serious drag on equity returns.
I don't buy the argument that they need $100 billion for strategic reasons (ie, wrt their supply chain, investing in suppliers). If that were true, it would be tied up in inventory, accounts payable, or investments, and not cash and cash equivalents.
If they suddenly enter into a business that requires $100 billion in capital, you should be very upset as a shareholder. It is doubtful that such a business would have similar return on capital to its current business. Businesses don't have to get ever bigger. Apple doesn't have to build a moon base or buy office buildings or highways or natural gas pipelines. They should focus on maintaining high returns on equity and capital. That is going to mean buying back stock.
Plenty of people have criticized GOOG and MSFT for their cash piles.
Last edited by andrewf; 2012-05-13 at 09:40 AM.
I would totally go if they didOriginally Posted by andrewf
-That's baseless, there is no way of knowing that.
-They don't have to, but it's what good companies do.
-But they easily could, and why not? In order to hedge myself, I would, if I were them.
A $110 billion hoard hasn't been dragging equity returns - $300B will just put a higher floor on the stock. I'm sure Apple's management is wise enough to recognize the point at which too much cash would drag returns and then deploy the cash in the most optimal manner. Given Apple's performance over the last decade, it's really silly to criticize management about what they do with their cash. Apple has their reasons for retaining the cash that they do, and paying out the dividend that they do. Sure they can afford a 5%+ dividend or a $75B buyback, but obviously they decided against it for good reasons. I won't question them too hard about it because:
1) Management is rewarding Apple shareholders with ridiculous gains as a result of their decisions
2) I don't know the inner workings of the company and what the cash may or may not be used for
3) Cash is king - it is never a bad thing to have a large amount of available cash
Your argument makes no sense. You would have said the same thing about Apple's venture into the mobile phone business - they should have stuck with high margin computers and iPods because they were doing very well in terms of getting high returns. After the iPhone, you would have been concerned about the iPad, because they were already getting high returns on equity. See the flaw? Apple is incredibly well run. If they decide to spend a large amount of capital for something you can bet they anticipate high returns on that expenditure. Apple does not get into capital intensive businesses if they don't provide exceptional returns or at the very least strengthen the foundation for their other business lines. That's why we have yet to see a TV from them and we won't until the margins make sense. It doesn't have to be 100B, it could really be any amount. You're playing all sides because of your bias against the company. On the one hand you say Apple is destined for low margins from commoditization, on the other you say they should be buying back their stock because they get high returns on their equity and on the other you say they should avoid big captial expenditure because they won't match up to the incredible returns Apple can get with their existing products. What??
No offense, but as I actually am a shareholder and have accurately projected the performance of the company thus far, I pay little attention to warnings from people who don't own shares directly, have been dead wrong over and over again and have clearly shown a deep lack of understanding of the company. See Katy Huberty for another example. There are so many people who just don't get it. I continue the discussion only for anybody else wanting to hear both sides of the argument.
Last edited by GOB; 2012-05-13 at 01:17 PM.
Aapl finally broke $550 today. Quite the toboggan ride the past couple of weeks! I would think that big money (and everybody else) would be loading up around these prices, rebooting the uptrend.
gob
starting to look really good for an entry.
my only concern atm is how rich the spx still is.
i am patient though.
cheers
I'm licking my chops at these prices although there are a lot of bargains out there right now. There are going to be some tough choices about where to allocate capital. Anyone not already in AAPL should seriously consider legging at these levels.
Gob
525 is pivotal.
same with 500.
at 450( pipe dream) i am in.
if it ever gets back to 300 bux again in a mkt colapse i will need a bigger pipe
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