This--> <i>The company currently holds $244 billion in cash reserves overseas
and $155 billion in total debt (the lowest debt it has reported across
the last four quarters). </i>
confused me. Does this mean that Apple has not brought any of that offshore cash back into the USA despite Trump's virtual tax holiday? If this is true then why hasn't it?
I am not sure about the claim that it's still overseas. A few months ago, Apple said that it was bringing a vast majority of its cash back to the US, and was pre-paying the US Treasury $38B, which would presumably be at the special one-time cash transfer rate of 15.5% under the Trump tax plan (lower than the new statutory corporate tax rate of 21% under the tax plan): https://www.nytimes.com/2018/01/17/technology/apple-tax-bill-repatriate-cash.html
(38B)/(0.155) = $245B, so it would seem that Apple has either brought back or will soon bring back virtually all of its cash to the US.
Apple doesn't have a Scrooge McDuck warehouse of gold coins somewhere. The money it holds is in banks and invested securities, most of which are in the U.S. It's just that those funds were "on paper" committed to use in overseas investment so they didn't require any upfront payment of U.S. repatriation taxes. To spend that money in the U.S. (including on stock buybacks or dividends, or building facilities, etc), Apple would have to pay the tax before spending it in the USA. That's why the existing law was so backward and dumb; it just existed as a disincentive to spend in the U.S.
Once the law changed, Apple paid the lowest available tax on it, allowing it to do anything with its cash/short term holdings. Money didn't get literally shipped into the United States. And in reality, the value of those funds were already here, invested in Tbills and corporate securities. It was just shifted from the "overseas / don't have to pay taxes" column to the "paid taxes, no restrictions on use" column in a digital spreadsheet.
“That fact that Apple is still buying back shares--at a pace even faster than before--indicates that it still thinks it is dramatically undervalued by investors”
Nonsense, Apple burns the shares so it has no way to appreciate the value in the future.
Well obviously the shares Apple buys and retires don't appreciate, but the shares outstanding do. The point is that Apple is paying today's market rates to retire its stock. If the stock weren't going to appreciate, that would be a dumb use of cash. Microsoft bought back shares for years and the stock remained flat. It could have acquired other companies that were appreciating.
You can argue that Apple might be wrong and its stock will never grow beyond $190, but you can't argue that Apple is buying its stock because it thinks it will appreciate, because that's what it's doing.
What amazes me is that the “analysts” see Apple buying stock and don’t take that as an indicator of future performance.
Apple knows about future product plans and what’s coming up in the pipeline. They seem pretty confident the share prices will climb, and that requires Apple to continue to dominate current markets (smartphones and wearables) but also to add new markets of as-yet unreleased products.
Yet they still go on with their doom & gloom forecasts. Surely they aren’t really that stupid, so all that’s left is manipulation.
For the life of me I cannot understand why analysts are surprised by the iPhone X's success. Their thinking is "will consumers pay that much?" The fact is, many of Apple's customers are "top tier" consumers. $1,000 is nothing for most of them. $1,500 is probably not even considered a lot of money. Apple is able to push prices higher, because many of their customers simply can afford it. I'm not saying Apple is an elitist company, but they're are smart enough to know that they have those consumers as part of their user base and would be insane to not cater to them in some fashion. Apple has played the consumer market brilliantly in going after and pushing the high end even higher and at the same time, remaining where they've always been to keep those customers happy as well.
Analysts and Arm-Chair Analysts each either try to defend or condemn Apple's BuyBacks. And everybody tries to understand them and their reasons and ramifications.
As an ex-accountant & internal financial analyst, I can say that none of them know what they're talking about. Yes, they get all the financial statements with all the numbers. But the real knowledge is what is behind those financial statements as explained to executives in internal meetings and then expanded out into internal long-term strategy meetings -- all stuff that neither we nor the external analysts will ever know about.
But, Apple is not the only company doing it. And what one analyst said is relavent: One of the major reasons the stock market has been so high (over the past several years) is simply due to its huge amount of stock buybacks. So, the question then is: What would Apple's stock be valued at -- as well as the overall stock market -- if those enormous buybacks had never happened? Or, what will happen when they stop? And that may happen sooner rather than later as interest rates rise making debt more expensive.
Apple remains undervalued, in part, because of a lack of appreciation that it’s stock buybacks are NOT a gimmick. I can’t speak for any other company. The reality is that the buybacks are strictly based on cash purchases. Yes, debt was acquired during the years Apple’s foreign cash remained in limbo. But that debt was always covered by cash. Indeed, the move to “cash neutral” means that there will still be cash available equal to the debt even after that point is reached somewhere between 3 and 5 years from now.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
I think the reports about "killing the X" were true, but people didn't understand what that really meant. When a new iPhone is released, the previous year's model is sold at a $100 discount. But the X was not an ordinary iPhone - Apple billed it as "next year's iPhone now" at a higher price. Now that it actually is next year, the niche that the X previously occupied is gone. I wager that there's just going to be the "X2", X2 LCD, 8, and 7.
Even with all of the shares that Apple has repurchased over the last 2 quarters at higher prices (about 250 million shares at an average of about $174 per share), the average price that Apple has paid to repurchase shares over the last 5 plus years is only $110.80. That's 1,981,738,000 shares repurchased at a cost of $219,586,000,000.
This--> <i>The company currently holds $244 billion in cash reserves overseas
and $155 billion in total debt (the lowest debt it has reported across
the last four quarters). </i>
confused me. Does this mean that Apple has not brought any of that offshore cash back into the USA despite Trump's virtual tax holiday? If this is true then why hasn't it?
I am not sure about the claim that it's still overseas. A few months ago, Apple said that it was bringing a vast majority of its cash back to the US, and was pre-paying the US Treasury $38B, which would presumably be at the special one-time cash transfer rate of 15.5% under the Trump tax plan (lower than the new statutory corporate tax rate of 21% under the tax plan): https://www.nytimes.com/2018/01/17/technology/apple-tax-bill-repatriate-cash.html
(38B)/(0.155) = $245B, so it would seem that Apple has either brought back or will soon bring back virtually all of its cash to the US.
How much (U.S. federal) income tax Apple will owe (or owes) on those previously not-repatriated earnings won't (or doesn't) depend on whether Apple repatriates those earnings. Those earnings are, under the recent tax law changes, deemed repatriated and taxes have to be paid on them whether they are actually repatriated or not. So we can't look at what Apple says it is going to have to pay in taxes (on those earnings) and conclude that it is going to repatriate them.
That said, Apple surely will repatriate the great majority of those earnings as there isn't much reason not to. Repatriating need not affect how those earnings are held (while they are still held), it's only an issue of which corporation technically holds those earnings. As it was, much of the foreign earnings that hadn't been repatriated was held in U.S.-based instruments. Those earnings are in corporate bonds, and U.S. Treasuries, and MBSs, and several other kinds of investment / savings instruments. Such funds being held "overseas" doesn't mean that they weren't, e.g., in U.S. banks. It just means that the foreign subsidiary hadn't actually remitted the earnings to the domestic parent corporation. Remitting those earnings to the parent corporation opens up more options for what can be done with them, so absent a strong reason not to remit them (e.g., having to pay substantially more in taxes if you do), in most cases it would make sense to remit (at lost a lot of) them.
Analysts and Arm-Chair Analysts each either try to defend or condemn Apple's BuyBacks. And everybody tries to understand them and their reasons and ramifications.
As an ex-accountant & internal financial analyst, I can say that none of them know what they're talking about. Yes, they get all the financial statements with all the numbers. But the real knowledge is what is behind those financial statements as explained to executives in internal meetings and then expanded out into internal long-term strategy meetings -- all stuff that neither we nor the external analysts will ever know about.
But, Apple is not the only company doing it. And what one analyst said is relavent: One of the major reasons the stock market has been so high (over the past several years) is simply due to its huge amount of stock buybacks. So, the question then is: What would Apple's stock be valued at -- as well as the overall stock market -- if those enormous buybacks had never happened? Or, what will happen when they stop? And that may happen sooner rather than later as interest rates rise making debt more expensive.
Apple remains undervalued, in part, because of a lack of appreciation that it’s stock buybacks are NOT a gimmick. I can’t speak for any other company. The reality is that the buybacks are strictly based on cash purchases. Yes, debt was acquired during the years Apple’s foreign cash remained in limbo. But that debt was always covered by cash. Indeed, the move to “cash neutral” means that there will still be cash available equal to the debt even after that point is reached somewhere between 3 and 5 years from now.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
"Expertise"? I never claimed that.
What I did claim was experience preparing and presenting financial statements -- and the stuff that caused them to be what they were TO MANAGEMENT. Yes, everybody sees the financial statements. But only management knows what caused them to be what they were and only management is privy to the strategies and reasoning going forward.
So do I know why Apple is doing this? No.
Do the analysts know? No.
Do you? Not unless you're part of Apple management
And that has nothing to do with Apple per se. It's equally true of every company.
And too, I am neither saying that what Apple is doing is good or bad. We just have to trust them. Or not. That's a personal choice or, more correctly, a personal gamble.
What amazes me is that the “analysts” see Apple buying stock and don’t take that as an indicator of future performance.
Apple knows about future product plans and what’s coming up in the pipeline. They seem pretty confident the share prices will climb, and that requires Apple to continue to dominate current markets (smartphones and wearables) but also to add new markets of as-yet unreleased products.
Yet they still go on with their doom & gloom forecasts. Surely they aren’t really that stupid, so all that’s left is manipulation.
For the life of me I cannot understand why analysts are surprised by the iPhone X's success. Their thinking is "will consumers pay that much?" The fact is, many of Apple's customers are "top tier" consumers. $1,000 is nothing for most of them. $1,500 is probably not even considered a lot of money. Apple is able to push prices higher, because many of their customers simply can afford it. I'm not saying Apple is an elitist company, but they're are smart enough to know that they have those consumers as part of their user base and would be insane to not cater to them in some fashion. Apple has played the consumer market brilliantly in going after and pushing the high end even higher and at the same time, remaining where they've always been to keep those customers happy as well.
Many others on AI have suggested manipulation. As ericthehalfbee says, they ALL can't be that stupid. Apple's continued success can't be catching ALL the analysts off-guard ALL the time. It's gotta be manipulation. A lot of insiders are getting rich.
“That fact that Apple is still buying back shares--at a pace even faster than before--indicates that it still thinks it is dramatically undervalued by investors”
Nonsense, Apple burns the shares so it has no way to appreciate the value in the future.
I think you misinterpreted what he said. Not sure if I can explain it better than the words you quoted. Maybe give it another read.
Analysts and Arm-Chair Analysts each either try to defend or condemn Apple's BuyBacks. And everybody tries to understand them and their reasons and ramifications.
As an ex-accountant & internal financial analyst, I can say that none of them know what they're talking about. Yes, they get all the financial statements with all the numbers. But the real knowledge is what is behind those financial statements as explained to executives in internal meetings and then expanded out into internal long-term strategy meetings -- all stuff that neither we nor the external analysts will ever know about.
But, Apple is not the only company doing it. And what one analyst said is relavent: One of the major reasons the stock market has been so high (over the past several years) is simply due to its huge amount of stock buybacks. So, the question then is: What would Apple's stock be valued at -- as well as the overall stock market -- if those enormous buybacks had never happened? Or, what will happen when they stop? And that may happen sooner rather than later as interest rates rise making debt more expensive.
Apple remains undervalued, in part, because of a lack of appreciation that it’s stock buybacks are NOT a gimmick. I can’t speak for any other company. The reality is that the buybacks are strictly based on cash purchases. Yes, debt was acquired during the years Apple’s foreign cash remained in limbo. But that debt was always covered by cash. Indeed, the move to “cash neutral” means that there will still be cash available equal to the debt even after that point is reached somewhere between 3 and 5 years from now.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
You’re in company with me also, and I’ve done my own deep dive on Apple and AAPL over these last seven years since I bought my first shares and taught myself options trading.
I’ll add that one more benefit of share buybacks is to get the cash off the balance sheet, meaning that each dollar invested in the company represents a higher percentage of that dollar invested in ongoing and productive operations (what the P/E and other valuation metrics apply to) with a smaller percentage of that invested dollar merely buying part of a relatively static cash hoard. Who wants to pay a dollar to get only 70 cents worth of a business and the other 30 cents getting you... 30 cents sitting in Tbills? So the buybacks, by clearing out excess cash, make the company (and its shares) more attractive to new investors too.
Analysts and Arm-Chair Analysts each either try to defend or condemn Apple's BuyBacks. And everybody tries to understand them and their reasons and ramifications.
As an ex-accountant & internal financial analyst, I can say that none of them know what they're talking about. Yes, they get all the financial statements with all the numbers. But the real knowledge is what is behind those financial statements as explained to executives in internal meetings and then expanded out into internal long-term strategy meetings -- all stuff that neither we nor the external analysts will ever know about.
But, Apple is not the only company doing it. And what one analyst said is relavent: One of the major reasons the stock market has been so high (over the past several years) is simply due to its huge amount of stock buybacks. So, the question then is: What would Apple's stock be valued at -- as well as the overall stock market -- if those enormous buybacks had never happened? Or, what will happen when they stop? And that may happen sooner rather than later as interest rates rise making debt more expensive.
Apple remains undervalued, in part, because of a lack of appreciation that it’s stock buybacks are NOT a gimmick. I can’t speak for any other company. The reality is that the buybacks are strictly based on cash purchases. Yes, debt was acquired during the years Apple’s foreign cash remained in limbo. But that debt was always covered by cash. Indeed, the move to “cash neutral” means that there will still be cash available equal to the debt even after that point is reached somewhere between 3 and 5 years from now.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
"Expertise"? I never claimed that.
What I did claim was experience preparing and presenting financial statements -- and the stuff that caused them to be what they were TO MANAGEMENT. Yes, everybody sees the financial statements. But only management knows what caused them to be what they were and only management is privy to the strategies and reasoning going forward.
So do I know why Apple is doing this? No.
Do the analysts know? No.
Do you? Not unless you're part of Apple management
And that has nothing to do with Apple per se. It's equally true of every company.
And too, I am neither saying that what Apple is doing is good or bad. We just have to trust them. Or not. That's a personal choice or, more correctly, a personal gamble.
When there exist clear benefits to performing some action, as Sacto Joe and I have both detailed in previous messages, and those benefits are generic to any context, in this case generic to any business buying back shares while they are undervalued, you need not know or guess about other, potentially hidden or non obvious motivations. Occam’s razor.
Analysts and Arm-Chair Analysts each either try to defend or condemn Apple's BuyBacks. And everybody tries to understand them and their reasons and ramifications.
As an ex-accountant & internal financial analyst, I can say that none of them know what they're talking about. Yes, they get all the financial statements with all the numbers. But the real knowledge is what is behind those financial statements as explained to executives in internal meetings and then expanded out into internal long-term strategy meetings -- all stuff that neither we nor the external analysts will ever know about.
But, Apple is not the only company doing it. And what one analyst said is relavent: One of the major reasons the stock market has been so high (over the past several years) is simply due to its huge amount of stock buybacks. So, the question then is: What would Apple's stock be valued at -- as well as the overall stock market -- if those enormous buybacks had never happened? Or, what will happen when they stop? And that may happen sooner rather than later as interest rates rise making debt more expensive.
Apple remains undervalued, in part, because of a lack of appreciation that it’s stock buybacks are NOT a gimmick. I can’t speak for any other company. The reality is that the buybacks are strictly based on cash purchases. Yes, debt was acquired during the years Apple’s foreign cash remained in limbo. But that debt was always covered by cash. Indeed, the move to “cash neutral” means that there will still be cash available equal to the debt even after that point is reached somewhere between 3 and 5 years from now.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
"Expertise"? I never claimed that.
What I did claim was experience preparing and presenting financial statements -- and the stuff that caused them to be what they were TO MANAGEMENT. Yes, everybody sees the financial statements. But only management knows what caused them to be what they were and only management is privy to the strategies and reasoning going forward.
So do I know why Apple is doing this? No.
Do the analysts know? No.
Do you? Not unless you're part of Apple management
And that has nothing to do with Apple per se. It's equally true of every company.
And too, I am neither saying that what Apple is doing is good or bad. We just have to trust them. Or not. That's a personal choice or, more correctly, a personal gamble.
When there exist clear benefits to performing some action, as Sacto Joe and I have both detailed in previous messages, and those benefits are generic to any context, in this case generic to any business buying back shares while they are undervalued, you need not know or guess about other, potentially hidden or non obvious motivations. Occam’s razor.
A very honest questions to you since you have taught yourself far more than I know about it: How does Apple's appreciating stock price help Apple themselves?
I don't see any monetary benefit to the company themselves. They aren't issuing any new stock to fund business expansion or development, and the share of repurchased stock has no monetary value going forward since it's retired. The only potential value I see is for an investor (and has that even been shown effective in this case yet?) and not Apple the corporation, but it's certainly possible there's parts of it I don't understand.
Analysts and Arm-Chair Analysts each either try to defend or condemn Apple's BuyBacks. And everybody tries to understand them and their reasons and ramifications.
As an ex-accountant & internal financial analyst, I can say that none of them know what they're talking about. Yes, they get all the financial statements with all the numbers. But the real knowledge is what is behind those financial statements as explained to executives in internal meetings and then expanded out into internal long-term strategy meetings -- all stuff that neither we nor the external analysts will ever know about.
But, Apple is not the only company doing it. And what one analyst said is relavent: One of the major reasons the stock market has been so high (over the past several years) is simply due to its huge amount of stock buybacks. So, the question then is: What would Apple's stock be valued at -- as well as the overall stock market -- if those enormous buybacks had never happened? Or, what will happen when they stop? And that may happen sooner rather than later as interest rates rise making debt more expensive.
Apple remains undervalued, in part, because of a lack of appreciation that it’s stock buybacks are NOT a gimmick. I can’t speak for any other company. The reality is that the buybacks are strictly based on cash purchases. Yes, debt was acquired during the years Apple’s foreign cash remained in limbo. But that debt was always covered by cash. Indeed, the move to “cash neutral” means that there will still be cash available equal to the debt even after that point is reached somewhere between 3 and 5 years from now.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
"Expertise"? I never claimed that.
What I did claim was experience preparing and presenting financial statements -- and the stuff that caused them to be what they were TO MANAGEMENT. Yes, everybody sees the financial statements. But only management knows what caused them to be what they were and only management is privy to the strategies and reasoning going forward.
So do I know why Apple is doing this? No.
Do the analysts know? No.
Do you? Not unless you're part of Apple management
And that has nothing to do with Apple per se. It's equally true of every company.
And too, I am neither saying that what Apple is doing is good or bad. We just have to trust them. Or not. That's a personal choice or, more correctly, a personal gamble.
When there exist clear benefits to performing some action, as Sacto Joe and I have both detailed in previous messages, and those benefits are generic to any context, in this case generic to any business buying back shares while they are undervalued, you need not know or guess about other, potentially hidden or non obvious motivations. Occam’s razor.
Oh! So you think you know better than the market? If you're right, you can make LOTS of money. If you're wrong you can lose even more.
No, there are lots of things that go into valuing a corporation -- and even the insiders barely know.
But, people bet on horses and stocks everyday. Best of luck!
Analysts and Arm-Chair Analysts each either try to defend or condemn Apple's BuyBacks. And everybody tries to understand them and their reasons and ramifications.
As an ex-accountant & internal financial analyst, I can say that none of them know what they're talking about. Yes, they get all the financial statements with all the numbers. But the real knowledge is what is behind those financial statements as explained to executives in internal meetings and then expanded out into internal long-term strategy meetings -- all stuff that neither we nor the external analysts will ever know about.
But, Apple is not the only company doing it. And what one analyst said is relavent: One of the major reasons the stock market has been so high (over the past several years) is simply due to its huge amount of stock buybacks. So, the question then is: What would Apple's stock be valued at -- as well as the overall stock market -- if those enormous buybacks had never happened? Or, what will happen when they stop? And that may happen sooner rather than later as interest rates rise making debt more expensive.
Apple remains undervalued, in part, because of a lack of appreciation that it’s stock buybacks are NOT a gimmick. I can’t speak for any other company. The reality is that the buybacks are strictly based on cash purchases. Yes, debt was acquired during the years Apple’s foreign cash remained in limbo. But that debt was always covered by cash. Indeed, the move to “cash neutral” means that there will still be cash available equal to the debt even after that point is reached somewhere between 3 and 5 years from now.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
"Expertise"? I never claimed that.
What I did claim was experience preparing and presenting financial statements -- and the stuff that caused them to be what they were TO MANAGEMENT. Yes, everybody sees the financial statements. But only management knows what caused them to be what they were and only management is privy to the strategies and reasoning going forward.
So do I know why Apple is doing this? No.
Do the analysts know? No.
Do you? Not unless you're part of Apple management
And that has nothing to do with Apple per se. It's equally true of every company.
And too, I am neither saying that what Apple is doing is good or bad. We just have to trust them. Or not. That's a personal choice or, more correctly, a personal gamble.
When there exist clear benefits to performing some action, as Sacto Joe and I have both detailed in previous messages, and those benefits are generic to any context, in this case generic to any business buying back shares while they are undervalued, you need not know or guess about other, potentially hidden or non obvious motivations. Occam’s razor.
A very honest questions to you since you have taught yourself far more than I know about it: How does Apple's appreciating stock price help Apple themselves?
I don't see any monetary benefit to the company themselves. They aren't issuing any new stock to fund business expansion or development, and the share of repurchased stock has no monetary value going forward since it's retired. The only potential value I see is for an investor (and has that even been shown effective in this case yet?) and not Apple the corporation, but it's certainly possible there's parts of it I don't understand.
An appreciating stock, as DED mentioned, can be an incentive used in the onboarding and retention of valuable potential and existing employees through issuance of stock options with future vesting dates.
Analysts and Arm-Chair Analysts each either try to defend or condemn Apple's BuyBacks. And everybody tries to understand them and their reasons and ramifications.
As an ex-accountant & internal financial analyst, I can say that none of them know what they're talking about. Yes, they get all the financial statements with all the numbers. But the real knowledge is what is behind those financial statements as explained to executives in internal meetings and then expanded out into internal long-term strategy meetings -- all stuff that neither we nor the external analysts will ever know about.
But, Apple is not the only company doing it. And what one analyst said is relavent: One of the major reasons the stock market has been so high (over the past several years) is simply due to its huge amount of stock buybacks. So, the question then is: What would Apple's stock be valued at -- as well as the overall stock market -- if those enormous buybacks had never happened? Or, what will happen when they stop? And that may happen sooner rather than later as interest rates rise making debt more expensive.
Apple remains undervalued, in part, because of a lack of appreciation that it’s stock buybacks are NOT a gimmick. I can’t speak for any other company. The reality is that the buybacks are strictly based on cash purchases. Yes, debt was acquired during the years Apple’s foreign cash remained in limbo. But that debt was always covered by cash. Indeed, the move to “cash neutral” means that there will still be cash available equal to the debt even after that point is reached somewhere between 3 and 5 years from now.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
"Expertise"? I never claimed that.
What I did claim was experience preparing and presenting financial statements -- and the stuff that caused them to be what they were TO MANAGEMENT. Yes, everybody sees the financial statements. But only management knows what caused them to be what they were and only management is privy to the strategies and reasoning going forward.
So do I know why Apple is doing this? No.
Do the analysts know? No.
Do you? Not unless you're part of Apple management
And that has nothing to do with Apple per se. It's equally true of every company.
And too, I am neither saying that what Apple is doing is good or bad. We just have to trust them. Or not. That's a personal choice or, more correctly, a personal gamble.
When there exist clear benefits to performing some action, as Sacto Joe and I have both detailed in previous messages, and those benefits are generic to any context, in this case generic to any business buying back shares while they are undervalued, you need not know or guess about other, potentially hidden or non obvious motivations. Occam’s razor.
Oh! So you think you know better than the market? If you're right, you can make LOTS of money. If you're wrong you can lose even more.
No, there are lots of things that go into valuing a corporation -- and even the insiders barely know.
But, people bet on horses and stocks everyday. Best of luck!
Thanks. I’ve made about $1.3 million on Apple and Apple options in seven years. Starting with $370k of invested capital. And for the record, there’s a difference between betting (speculation) and investing.
Something I wrote a few years back...
INVESTING VERSUS SPECULATION or What I learned from Warren Buffett and 25 years in the market. But mostly from Warren Buffett.
The first level of wisdom a prospective investor hears and integrates is the old saw about diversification. And that's about as far as it goes for many. The problem with diversification is that, even if you are diversified, you'll still likely have in your portfolio several holdings that don't fit the definition of a good investment.
Those who go a bit farther in their studies begin to have a more nuanced comprehension and come to realize that not all businesses and opportunities represent investments. So what do these other businesses and opportunities represent if not investments? The answer is that anything that isn't an investment is speculation. To be successful with individual stocks/businesses, you should carry in your mind a definition of these two concepts. Here are my working definitions of the two terms:
"An investment is a commitment to holding a security as long as the underlying fundamentals and business prospects remain intact."
Take Apple, for example. Apple shares are an investment as long as Apple continues to perform as well as it is currently performing. As long as it continues to generate the revenues and earnings it is currently generating. Even if neither rise.
"Speculation is a bet on some future outcome, either positive or negative, that would materially change the fortunes of a business."
Note that the main difference here is that an investment relies upon the continuation of the status quo while speculation is a bet against the status quo.
GT Advanced Technologies (GTAT), a maker of solar manufacturing equipment, is an example of a speculative bet, and one that went terribly wrong for those who made that bet. In 2012 and 2013, GTAT saw its solar business collapse under the weight of competition from Chinese manufacturers. Late in 2013, GTAT partnered with Apple to manufacture sapphire display glass, presumably for use on the iPhone 6. GTAT needed that partnership to go well; it represented GTAT’s lifeline to a corporate reboot, a chance to reinvent itself in a new line of business in which it had little experience. That reinvention, if successful, would materially enhance the value of the company. If a failure, it would mark the collapse of GTAT as a viable business. GTAT did fail, and filed for bankruptcy protection. In the process, the share price went from a high of about $20 to about 40 cents. Many of those holding the shares indignantly complained in online forums that their investment was wiped out by unscrupulous actions of GTAT's CEO and management team. They weren’t wrong about the actions of GTAT’s management, but they were wrong in characterizing their GTAT holdings as an investment. These people were speculating and paid a high price.
It's those who don't understand the difference between an investment and a speculative bet who always end up convinced the market is rigged. These folks likely put money into one or more companies with business models that represented a speculative bet on some unlikely outcome, lost their money and associated that experience with the entire experience of participating in the market. How many times have you heard someone say the stock market is like a casino? Well, I liken the stock market, at the hands of a participant who has done his/her research and applied appropriate metrics, to a casino where you get to see your blackjack hand and the dealer’s up card before you place your bet and where you have the option of betting big, betting small, or not betting at all on each hand. The odds are strongly in your favor, but you can still do something foolish. If you get your head on straight, stick to companies that represent a valid investment according to the above definition, and avoid speculation, at least until you have learned the hedging and other strategies associated with successful speculation, you’ll increase both your chances of a successful investment career and your returns throughout that career.
Comments
Once the law changed, Apple paid the lowest available tax on it, allowing it to do anything with its cash/short term holdings. Money didn't get literally shipped into the United States. And in reality, the value of those funds were already here, invested in Tbills and corporate securities. It was just shifted from the "overseas / don't have to pay taxes" column to the "paid taxes, no restrictions on use" column in a digital spreadsheet.
Well obviously the shares Apple buys and retires don't appreciate, but the shares outstanding do. The point is that Apple is paying today's market rates to retire its stock. If the stock weren't going to appreciate, that would be a dumb use of cash. Microsoft bought back shares for years and the stock remained flat. It could have acquired other companies that were appreciating.
You can argue that Apple might be wrong and its stock will never grow beyond $190, but you can't argue that Apple is buying its stock because it thinks it will appreciate, because that's what it's doing.
Apple knows about future product plans and what’s coming up in the pipeline. They seem pretty confident the share prices will climb, and that requires Apple to continue to dominate current markets (smartphones and wearables) but also to add new markets of as-yet unreleased products.
Yet they still go on with their doom & gloom forecasts. Surely they aren’t really that stupid, so all that’s left is manipulation.
The cash Apple spends on buybacks has the effect of increasing each remaining share’s percentage ownership of Apple the company. Thus, if you had bought a share just before the buybacks commenced, your share would represent ownership of well over 35% more Apple. When (not if) Apple reduces the share count to half of what it was before buybacks commenced, each share will equal exactly twice the ownership it did before. Thus Apple’s buybacks are NOT a gimmick, but a legitimate way of returning value to the investor, with the added benefit of deferring taxes until the share is actually sold (unlike dividends outside of an IRA).
The value of AAPL absent these buybacks, IMHO, would be substantially reduced. The fiction would continue that Apple is NOT, as Jim Cramer recently put it, an incredibly successful, rich, and international razor-and-razorblade company, but only a “manufacturer” with ultra-high margins that were bound to be commoditized, and that it’s huge cash surplus was worth nothing vis-a-vis it’s future value and should not be considered when weighing it’s P/E against other companies.
The Awakening is finally happening, in part because Apple now has access to it’s cash worldwide, in part because it has clearly returned incredible value to it’s investors via the buybacks it has already made, and in part because people like Warren Buffett are finally “getting” Apple and realizing what an amazing value it is in terms of future valuation.
You can call me an “arm chair analyst”, but I’ve put my money where my mouth is, that is, by investing heavily in Apple for the long haul. I’ve paid my dues over the decades I’ve owned and watched Apple and AAPL. And I’m in very good company, with the likes of Horace Deidu of Asymco very much in my camp.
So I’ll stack my personal analysis up against your so-called “expertise” any day of the week.
That said, Apple surely will repatriate the great majority of those earnings as there isn't much reason not to. Repatriating need not affect how those earnings are held (while they are still held), it's only an issue of which corporation technically holds those earnings. As it was, much of the foreign earnings that hadn't been repatriated was held in U.S.-based instruments. Those earnings are in corporate bonds, and U.S. Treasuries, and MBSs, and several other kinds of investment / savings instruments. Such funds being held "overseas" doesn't mean that they weren't, e.g., in U.S. banks. It just means that the foreign subsidiary hadn't actually remitted the earnings to the domestic parent corporation. Remitting those earnings to the parent corporation opens up more options for what can be done with them, so absent a strong reason not to remit them (e.g., having to pay substantially more in taxes if you do), in most cases it would make sense to remit (at lost a lot of) them.
I’ll add that one more benefit of share buybacks is to get the cash off the balance sheet, meaning that each dollar invested in the company represents a higher percentage of that dollar invested in ongoing and productive operations (what the P/E and other valuation metrics apply to) with a smaller percentage of that invested dollar merely buying part of a relatively static cash hoard. Who wants to pay a dollar to get only 70 cents worth of a business and the other 30 cents getting you... 30 cents sitting in Tbills? So the buybacks, by clearing out excess cash, make the company (and its shares) more attractive to new investors too.
When there exist clear benefits to performing some action, as Sacto Joe and I have both detailed in previous messages, and those benefits are generic to any context, in this case generic to any business buying back shares while they are undervalued, you need not know or guess about other, potentially hidden or non obvious motivations. Occam’s razor.
How does Apple's appreciating stock price help Apple themselves?
I don't see any monetary benefit to the company themselves. They aren't issuing any new stock to fund business expansion or development, and the share of repurchased stock has no monetary value going forward since it's retired. The only potential value I see is for an investor (and has that even been shown effective in this case yet?) and not Apple the corporation, but it's certainly possible there's parts of it I don't understand.
If you're right, you can make LOTS of money. If you're wrong you can lose even more.
Something I wrote a few years back...
INVESTING VERSUS SPECULATION
or What I learned from Warren Buffett and 25 years in the market. But mostly from Warren Buffett.
The first level of wisdom a prospective investor hears and integrates is the old saw about diversification. And that's about as far as it goes for many. The problem with diversification is that, even if you are diversified, you'll still likely have in your portfolio several holdings that don't fit the definition of a good investment.
Those who go a bit farther in their studies begin to have a more nuanced comprehension and come to realize that not all businesses and opportunities represent investments. So what do these other businesses and opportunities represent if not investments? The answer is that anything that isn't an investment is speculation. To be successful with individual stocks/businesses, you should carry in your mind a definition of these two concepts. Here are my working definitions of the two terms:
"An investment is a commitment to holding a security as long as the underlying fundamentals and business prospects remain intact."
Take Apple, for example. Apple shares are an investment as long as Apple continues to perform as well as it is currently performing. As long as it continues to generate the revenues and earnings it is currently generating. Even if neither rise.
"Speculation is a bet on some future outcome, either positive or negative, that would materially change the fortunes of a business."
Note that the main difference here is that an investment relies upon the continuation of the status quo while speculation is a bet against the status quo.
GT Advanced Technologies (GTAT), a maker of solar manufacturing equipment, is an example of a speculative bet, and one that went terribly wrong for those who made that bet. In 2012 and 2013, GTAT saw its solar business collapse under the weight of competition from Chinese manufacturers. Late in 2013, GTAT partnered with Apple to manufacture sapphire display glass, presumably for use on the iPhone 6. GTAT needed that partnership to go well; it represented GTAT’s lifeline to a corporate reboot, a chance to reinvent itself in a new line of business in which it had little experience. That reinvention, if successful, would materially enhance the value of the company. If a failure, it would mark the collapse of GTAT as a viable business. GTAT did fail, and filed for bankruptcy protection. In the process, the share price went from a high of about $20 to about 40 cents. Many of those holding the shares indignantly complained in online forums that their investment was wiped out by unscrupulous actions of GTAT's CEO and management team. They weren’t wrong about the actions of GTAT’s management, but they were wrong in characterizing their GTAT holdings as an investment. These people were speculating and paid a high price.
It's those who don't understand the difference between an investment and a speculative bet who always end up convinced the market is rigged. These folks likely put money into one or more companies with business models that represented a speculative bet on some unlikely outcome, lost their money and associated that experience with the entire experience of participating in the market. How many times have you heard someone say the stock market is like a casino? Well, I liken the stock market, at the hands of a participant who has done his/her research and applied appropriate metrics, to a casino where you get to see your blackjack hand and the dealer’s up card before you place your bet and where you have the option of betting big, betting small, or not betting at all on each hand. The odds are strongly in your favor, but you can still do something foolish. If you get your head on straight, stick to companies that represent a valid investment according to the above definition, and avoid speculation, at least until you have learned the hedging and other strategies associated with successful speculation, you’ll increase both your chances of a successful investment career and your returns throughout that career.