My opinion... Morgan Stanley is sitting on a ton of 'cheap' AAPL stock in its own coffers and/or slightly undervalued Call options, and wants to sell them. Katy 'heard' what she wanted to here, and then it's a 'BUY BUY BUY message' except on the MS trading floor which is quietly in 'SELL SELL SELL' to their 'clients'.
Its a Pump and Dump, only using a widely traded company by a 'respected' trading firm. Nothing New Here, Move Along.
"Making great products remains Apple's core strategy"
Hmmm ... I wonder if any company has ever stated: "Our core strategy is to stop making great products."
It only becomes a 'great product' first, after Apple announces it and second, we have that video of Jony Ives, Craig Federighi and Bob Mansfield telling about the product and what they did that made it great.
I'm slowly becoming a firm believer in the theory that being a public company and having shares and shareholders has no benefits beyond the initial raising of capital when a firm first starts out.
I've been believing that for years. Going public ultimately removes focus from making a great product and shifts it to making money. The only thing that can prevent this shift is having a visionary founder who still runs the company. If that founder is out of the picture, then all bets are off. Look at HP - once the dynamic duo were no longer involved it jumped off the rails. Look at Apple after they forced Steve out. Cook et al will be able to hold the line for some time, but when they are gone the real degradation of Apple's products will begin in earnest.
Assuming they don't have to pay any kind of taxes on the loans. Such taxes could destroy any benefits of such a scheme
Huh? Interest expense is a cost of doing business, and helps to reduce NOI. Taking a loan out would actually have the opposite impact: they would pay less taxes.
Assuming they don't have to pay any kind of taxes on the loans. Such taxes could destroy any benefits of such a scheme
There are no 'taxes' to be paid on loans. If anything, interest payments on loans being tax-deductible means that there is a 'tax shield benefit from debt' for equity holders. (This is, for example, an important source of gains to shareholders from an LBO).
Yeap and then next year if the Congress decided to close this loophole and the company would've paid both interest and tax for nothing.
the interest...maybe... but you're not taxed on something you didn't do.
This is the key thread... Apple's a US company, but a lot of it's liquid assets (and profit growth) is overseas. Congress may close this loophole, but until then, how do these captured profits work for Apple? Best way is to borrow against them, not necessarily for paying dividends, but for long term US CapEx (factories). The interest is deductible, and you establish more local expense (us payroll, depreciation of buildings/machinery) to, lower your US 'profits', as you increase your US revenues.
I still think Apple should just become/buy a Bank instead of acting as it's own investment house (it's Nevada hedge fund is underperforming the market). Issue an Apple Credit Card that is linked to your ITMS account, establish banks in all countries you have a ITMS/App Store, and bypass the merchant fees it's currently paying to Visa/Mastercard, which are likely in the 2-3% range as well, and start collecting 7-20% in interest on the payments (the full payment, not the 30% it makes). In the end, it likely returns better than it's LT investments. If Citi and BoA can make money doing credit cards, just think of Apple closing that loop. And you can see a pretty simple marketing on this... discounts on those lock in services ('pay with your AppleCard, and you get 10% off your purchase of an iPhone').
I like those suggestions way better than Einhorn's magical permanent leech securities.
Assuming they don't have to pay any kind of taxes on the loans. Such taxes could destroy any benefits of such a scheme
There are no 'taxes' to be paid on loans. If anything, interest payments on loans being tax-deductible means that there is a 'tax shield benefit from debt' for equity holders. (This is, for example, an important source of gains to shareholders from an LBO).
Are you warming up to the idea of borrowing to do a share repurchase?
I like the idea of an Apple bank card. I think that only shareholders should get one though. It would definitely be the coolest card in my wallet, and it would fit in perfectly with my previous idea of shareholders getting a discount on Apple products. Screw students and government employees, I would like a discount when I go to pick something up at the Apple store, just out of principle, even if the discount rate is not huge. There are not many shareholders around and it would have no impact on Apple at all.
And also, bring on the higher dividend! And bring on a cheap iPhone, if it's going to make the stock rise. I don't even care if it's plastic.
I wouldn't be surprised if AAPL is making new all time highs in 2013 sometime, we'll see. Things can change pretty quickly, and the year has barely started.
Apple should also surprise us with some new product soon, IMO, a product that nobody here is expecting or knows about.
The iPhone costs are premised on its primary US market, where the carriers pay Apple about $450 per unit out of their own pockets and obviously profits. Carriers are tired of this subsidized model and are slowly replacing it. Wonder why? Once the user must pay full price in the US, it's much more likely Apple will put out a lower cost phone, concentric with the iPhone and iOS ecosystem, but with reduced feature and materials spex. We certainly owe the carriers a thanks for underwriting the development of the first superb smart phone; remember what cell phones used to be? But why not soak the carriers as long as possible? Hate your carrier? Buy an iPhone.
3. The total Pref dividend would be $10 Bil a year
4. Stop the dividend on the Common which is $10 Bil a year.
5. EPS will stay the same (EPS will decrease with Einhorn's plan)
6. Common shares will go down based on the loss of the 2% dividend
7. No change to cash flow, Apple will still have $140 Bil and no debt
Calculation
Common Stock: $450
Common Stock after adjustment w/out dividend (-10%): $405
Value of Preferred Stock: $250
Total Value: $655
That's what I call unlocking value. Basically all you are doing is dividing the Common Stock into two marketable securities. A growth stock (Common) and a dividend/income stock (Preferred). Apple is a tweener in its current state. Its a growth stock but not a hyper growth stock. It pays a dividend but not a big enough dividend to be a true Value/Income stock. By dividing the stock you can serve BOTH markets.
Growth investors will no longer need to pay a premium for dividends and will receive a quick cash infusion (if they choose to sell the Pref shares). Value/Income investors can get an excellent rate of 4% without the risk of the Pref stock being crushed in the open market. The 4% Pref stock will easily sell over face value because of Apple's ridiculously great balance sheet.
So the real question is this: Will stopping the dividend on the common shares drop the price more than $250? I say no way.
6.1 Common shares will tank when they are massively dumped by value investors and institutions.
7.1 Apple will have a perpetual $10 Billion per year leech attached to its neck.
8 When interest rates inevitably rise from their current historical lows, the preferred shares (not being convertible or pegged to anything) will decrease in market value
8.1 Some Wall Street dipshit, holding millions of shares of preferred, will sue Apple try to force them to repurchase the preferred at face value.
6.1 Common shares will tank when they are massively dumped by value investors and institutions.
7.1 Apple will have a perpetual $10 Billion per year leech attached to its neck.
8 When interest rates inevitably rise from their current historical lows, the preferred shares (not being convertible or pegged to anything) will decrease in market value
8.1 Some Wall Street dipshit, holding millions of shares of preferred, will sue Apple try to force them to repurchase the preferred at face value.
6.1 the poster told you exactly how much they would tank, and the price of the preferred would far outweigh this.
7.1 Given the inflation rate, in ten years this will be around $7bn, while (God willing) Apple profits will keep going up in real terms, so this will be about how much Apple loses by not investing its current cash.
8. Yes, and eventually the Sun will go nova, so we are all doomed! Doomed!
8.1 No, preferred shares are bonds, and if they are not callable, they are not callable.
I think your response to the original post is "I don't understand it, so it must be bad".
3. The total Pref dividend would be $10 Bil a year
4. Stop the dividend on the Common which is $10 Bil a year.
5. EPS will stay the same (EPS will decrease with Einhorn's plan)
6. Common shares will go down based on the loss of the 2% dividend
7. No change to cash flow, Apple will still have $140 Bil and no debt
Calculation
Common Stock: $450
Common Stock after adjustment w/out dividend (-10%): $405
Value of Preferred Stock: $250
Total Value: $655
That's what I call unlocking value. Basically all you are doing is dividing the Common Stock into two marketable securities. A growth stock (Common) and a dividend/income stock (Preferred). Apple is a tweener in its current state. Its a growth stock but not a hyper growth stock. It pays a dividend but not a big enough dividend to be a true Value/Income stock. By dividing the stock you can serve BOTH markets.
Growth investors will no longer need to pay a premium for dividends and will receive a quick cash infusion (if they choose to sell the Pref shares). Value/Income investors can get an excellent rate of 4% without the risk of the Pref stock being crushed in the open market. The 4% Pref stock will easily sell over face value because of Apple's ridiculously great balance sheet.
So the real question is this: Will stopping the dividend on the common shares drop the price more than $250? I say no way.
Since introducing the dividend visibly did not bring on a $250 increase in share price, I don't see how removing it would make the shares drop that much.
6.1 Common shares will tank when they are massively dumped by value investors and institutions.
7.1 Apple will have a perpetual $10 Billion per year leech attached to its neck.
8 When interest rates inevitably rise from their current historical lows, the preferred shares (not being convertible or pegged to anything) will decrease in market value
8.1 Some Wall Street dipshit, holding millions of shares of preferred, will sue Apple try to force them to repurchase the preferred at face value.
6.1 the poster told you exactly how much they would tank, and the price of the preferred would far outweigh this.
7.1 Given the inflation rate, in ten years this will be around $7bn, while (God willing) Apple profits will keep going up in real terms, so this will be about how much Apple loses by not investing its current cash.
8. Yes, and eventually the Sun will go nova, so we are all doomed! Doomed!
8.1 No, preferred shares are bonds, and if they are not callable, they are not callable.
I think your response to the original post is "I don't understand it, so it must be bad".
6.1 The poster is guessing, just like Einhorn
7.1 I would not make investment decisions based upon imaginary supernatural entities and I would not remove financial flexibility by making an open-ended commitment for a company in a consumer discretionary industry which is often influenced by volatile fashions.
8. Interest rates will rise significantly before the Sun goes nova. Fixed income securities will decrease in price when that happens.
8.1 Preferred shares are not bonds. Bonds have a maturity date and get paid off. These preferred shares are described as perpetual. In the pecking order of corporate obligations bonds get paid first, preferred dividends after, and common dividends after that. A shareholder
can try to force a company to repurchase preferred shares, just as they can (and are) trying to force a company to repurchase common
shares. It would be a tender offer to repurchase, not a "call", since preferred shares are equity, not debt.
Apple will NEVER borrow to pay money to shareholders (quite frankly it doesn't give a rats ass about shareholders). Apple is there as a playground for Apple execs and board. They can milk the stock and cash any way they want. Stock goes down? Double the grants. Increase bonuses. Increase salaries. Bottom line is those holding the stock certificates don't matter to them.
They won't be paying 6% without borrowing either. That would burn through their cash in 2 years. They want that rainy day fund to be huge to keep the playground going. Make no mistake. 3% is most likely. 13/share tops. Buyback increase? Maybe another 2 billion. They have to keep the cash.
They will NEVER bring that money back and pay taxes on it. Doesn't matter what shareholders say or want. No hedge fund guy is going to force them to do this either.
Apple is uninvestable. The company is great but it is no different from having a share in the best pizza place in your town but the company is not an LLC and therefore the money never flows to your ownership stake. The owners take it all out for themselves. You are stuck holding shares and hope somebody will buy them for more someday. Well you can see how that works out.
For disclosure I am actually long about 140 shares still. Sold the bulk of my position and closed out the bulk of my short PUT options (which were bullish - i.e short puts). I own 6 ipads and 4 iphones and macs too. Why so negative on the stock? Because that is reality. When I say apple does not care about shareholders I mean it. You can either wake up to it or put on blinders to it. Why do I still hold any of the stock? For me it is a bond now. Better than interest in the bank but never going to beat the S&P index. It is basically a bond for me, period. If that is what you want than apple is good for at least 5 years as a bond holding.
The company itself is fine. the cash protects them well. they will sell product and make money. They won't be growing the bottom line much if at all in this year and the coming years so I see them range bound from 400 to 500.
They won't do Einhorns insane iPref deal either. That is just financial gymnastics. Adds no value. Ten dimes is still a buck, period.
For disclosure I am actually long about 140 shares still. Sold the bulk of my position and closed out the bulk of my short PUT options (which were bullish - i.e short puts). I own 6 ipads and 4 iphones and macs too. Why so negative on the stock? Because that is reality. When I say apple does not care about shareholders I mean it. You can either wake up to it or put on blinders to it. Why do I still hold any of the stock? For me it is a bond now. Better than interest in the bank but never going to beat the S&P index. It is basically a bond for me, period. If that is what you want than apple is good for at least 5 years as a bond holding.
...
People around here don't seem to know what a bond is.
Comments
My opinion... Morgan Stanley is sitting on a ton of 'cheap' AAPL stock in its own coffers and/or slightly undervalued Call options, and wants to sell them. Katy 'heard' what she wanted to here, and then it's a 'BUY BUY BUY message' except on the MS trading floor which is quietly in 'SELL SELL SELL' to their 'clients'.
Its a Pump and Dump, only using a widely traded company by a 'respected' trading firm. Nothing New Here, Move Along.
Why does AppleInsider devote so much ink to the Jim Cramers of the world?
Quote:
Originally Posted by stelligent
"Making great products remains Apple's core strategy"
Hmmm ... I wonder if any company has ever stated: "Our core strategy is to stop making great products."
It only becomes a 'great product' first, after Apple announces it and second, we have that video of Jony Ives, Craig Federighi and Bob Mansfield telling about the product and what they did that made it great.
I'm just pleased this person's outlook still has Apple topping out in the $900+ per share range. No other stupidity spewed matters.
Quote:
Originally Posted by Gazoobee
I'm slowly becoming a firm believer in the theory that being a public company and having shares and shareholders has no benefits beyond the initial raising of capital when a firm first starts out.
I've been believing that for years. Going public ultimately removes focus from making a great product and shifts it to making money. The only thing that can prevent this shift is having a visionary founder who still runs the company. If that founder is out of the picture, then all bets are off. Look at HP - once the dynamic duo were no longer involved it jumped off the rails. Look at Apple after they forced Steve out. Cook et al will be able to hold the line for some time, but when they are gone the real degradation of Apple's products will begin in earnest.
Quote:
Originally Posted by charlituna
Assuming they don't have to pay any kind of taxes on the loans. Such taxes could destroy any benefits of such a scheme
Huh? Interest expense is a cost of doing business, and helps to reduce NOI. Taking a loan out would actually have the opposite impact: they would pay less taxes.
Quote:
Originally Posted by charlituna
Assuming they don't have to pay any kind of taxes on the loans. Such taxes could destroy any benefits of such a scheme
There are no 'taxes' to be paid on loans. If anything, interest payments on loans being tax-deductible means that there is a 'tax shield benefit from debt' for equity holders. (This is, for example, an important source of gains to shareholders from an LBO).
I like those suggestions way better than Einhorn's magical permanent leech securities.
Are you warming up to the idea of borrowing to do a share repurchase?
I like the idea of an Apple bank card. I think that only shareholders should get one though. It would definitely be the coolest card in my wallet, and it would fit in perfectly with my previous idea of shareholders getting a discount on Apple products. Screw students and government employees, I would like a discount when I go to pick something up at the Apple store, just out of principle, even if the discount rate is not huge. There are not many shareholders around and it would have no impact on Apple at all.
And also, bring on the higher dividend! And bring on a cheap iPhone, if it's going to make the stock rise. I don't even care if it's plastic.
I wouldn't be surprised if AAPL is making new all time highs in 2013 sometime, we'll see. Things can change pretty quickly, and the year has barely started.
Apple should also surprise us with some new product soon, IMO, a product that nobody here is expecting or knows about.
The iPhone costs are premised on its primary US market, where the carriers pay Apple about $450 per unit out of their own pockets and obviously profits. Carriers are tired of this subsidized model and are slowly replacing it. Wonder why? Once the user must pay full price in the US, it's much more likely Apple will put out a lower cost phone, concentric with the iPhone and iOS ecosystem, but with reduced feature and materials spex. We certainly owe the carriers a thanks for underwriting the development of the first superb smart phone; remember what cell phones used to be? But why not soak the carriers as long as possible? Hate your carrier? Buy an iPhone.
6.1 Common shares will tank when they are massively dumped by value investors and institutions.
7.1 Apple will have a perpetual $10 Billion per year leech attached to its neck.
8 When interest rates inevitably rise from their current historical lows, the preferred shares (not being convertible or pegged to anything) will decrease in market value
8.1 Some Wall Street dipshit, holding millions of shares of preferred, will sue Apple try to force them to repurchase the preferred at face value.
Quote:
Originally Posted by quinney
6.1 Common shares will tank when they are massively dumped by value investors and institutions.
7.1 Apple will have a perpetual $10 Billion per year leech attached to its neck.
8 When interest rates inevitably rise from their current historical lows, the preferred shares (not being convertible or pegged to anything) will decrease in market value
8.1 Some Wall Street dipshit, holding millions of shares of preferred, will sue Apple try to force them to repurchase the preferred at face value.
6.1 the poster told you exactly how much they would tank, and the price of the preferred would far outweigh this.
7.1 Given the inflation rate, in ten years this will be around $7bn, while (God willing) Apple profits will keep going up in real terms, so this will be about how much Apple loses by not investing its current cash.
8. Yes, and eventually the Sun will go nova, so we are all doomed! Doomed!
8.1 No, preferred shares are bonds, and if they are not callable, they are not callable.
I think your response to the original post is "I don't understand it, so it must be bad".
Quote:
Originally Posted by sog35
I like Einhorn's plan but I'd go a step further:
1. Issue $250 preferred stock for each common.
2. Pref will pay 4% a year
3. The total Pref dividend would be $10 Bil a year
4. Stop the dividend on the Common which is $10 Bil a year.
5. EPS will stay the same (EPS will decrease with Einhorn's plan)
6. Common shares will go down based on the loss of the 2% dividend
7. No change to cash flow, Apple will still have $140 Bil and no debt
Calculation
Common Stock: $450
Common Stock after adjustment w/out dividend (-10%): $405
Value of Preferred Stock: $250
Total Value: $655
That's what I call unlocking value. Basically all you are doing is dividing the Common Stock into two marketable securities. A growth stock (Common) and a dividend/income stock (Preferred). Apple is a tweener in its current state. Its a growth stock but not a hyper growth stock. It pays a dividend but not a big enough dividend to be a true Value/Income stock. By dividing the stock you can serve BOTH markets.
Growth investors will no longer need to pay a premium for dividends and will receive a quick cash infusion (if they choose to sell the Pref shares). Value/Income investors can get an excellent rate of 4% without the risk of the Pref stock being crushed in the open market. The 4% Pref stock will easily sell over face value because of Apple's ridiculously great balance sheet.
So the real question is this: Will stopping the dividend on the common shares drop the price more than $250? I say no way.
Since introducing the dividend visibly did not bring on a $250 increase in share price, I don't see how removing it would make the shares drop that much.
7.1 I would not make investment decisions based upon imaginary supernatural entities and I would not remove financial flexibility by making an open-ended commitment for a company in a consumer discretionary industry which is often influenced by volatile fashions.
8. Interest rates will rise significantly before the Sun goes nova. Fixed income securities will decrease in price when that happens.
8.1 Preferred shares are not bonds. Bonds have a maturity date and get paid off. These preferred shares are described as perpetual. In the pecking order of corporate obligations bonds get paid first, preferred dividends after, and common dividends after that. A shareholder
can try to force a company to repurchase preferred shares, just as they can (and are) trying to force a company to repurchase common
shares. It would be a tender offer to repurchase, not a "call", since preferred shares are equity, not debt.
Clearly someone doesn't understand something.
Not a prayer for 6% dividend.
Apple will NEVER borrow to pay money to shareholders (quite frankly it doesn't give a rats ass about shareholders). Apple is there as a playground for Apple execs and board. They can milk the stock and cash any way they want. Stock goes down? Double the grants. Increase bonuses. Increase salaries. Bottom line is those holding the stock certificates don't matter to them.
They won't be paying 6% without borrowing either. That would burn through their cash in 2 years. They want that rainy day fund to be huge to keep the playground going. Make no mistake. 3% is most likely. 13/share tops. Buyback increase? Maybe another 2 billion. They have to keep the cash.
They will NEVER bring that money back and pay taxes on it. Doesn't matter what shareholders say or want. No hedge fund guy is going to force them to do this either.
Apple is uninvestable. The company is great but it is no different from having a share in the best pizza place in your town but the company is not an LLC and therefore the money never flows to your ownership stake. The owners take it all out for themselves. You are stuck holding shares and hope somebody will buy them for more someday. Well you can see how that works out.
For disclosure I am actually long about 140 shares still. Sold the bulk of my position and closed out the bulk of my short PUT options (which were bullish - i.e short puts). I own 6 ipads and 4 iphones and macs too. Why so negative on the stock? Because that is reality. When I say apple does not care about shareholders I mean it. You can either wake up to it or put on blinders to it. Why do I still hold any of the stock? For me it is a bond now. Better than interest in the bank but never going to beat the S&P index. It is basically a bond for me, period. If that is what you want than apple is good for at least 5 years as a bond holding.
The company itself is fine. the cash protects them well. they will sell product and make money. They won't be growing the bottom line much if at all in this year and the coming years so I see them range bound from 400 to 500.
They won't do Einhorns insane iPref deal either. That is just financial gymnastics. Adds no value. Ten dimes is still a buck, period.
People around here don't seem to know what a bond is.
Quote:
Originally Posted by quinney
People around here don't seem to know what a bond is.
Indeed. But would you expect many here to have majored in chemistry?