Morgan Stanley recommends Apple use cash for share buybacks, dividends

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  • Reply 81 of 126
    jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by bwik View Post


    This is idiotic. AAPL already embeds the cash value. Paying a dividend results in huge tax liabilities to shareholders including institutions. Up to half the money is instantly vaporized.. this idiotic move could cost investors tens of billions.



    The only reason AAPL should buy back shares at $375 is if we all believe AAPL is a guaranteed great investment at $375. I would have serious reservations about that. It's certainly no slam dunk. What is a slam dunk is liquid cash in today's environment. In retrospect, Apple could not have been more prudent or more optimal in its cash management. Apple very likely could lecture others on financial mgmt. They need no lecture.



    Edit: Actually, AAPL should have brought more AAPL in the past. We all should have. Care to do it now?



    Mostly correct. However, buying back shares at $375 doesn't require that it be a guaranteed great investment. All investments involve risk - whether acquiring a company or buying shares in a company. There's also a risk (mostly opportunity cost) to leaving their money in cash.



    Buying back shares at $375 would be a good deal if the expectation value of that purchase is greater than the expectation value of whatever else they would consider doing with the money. It doesn't have to be a sure thing for it to make sense.
  • Reply 82 of 126
    Quote:
    Originally Posted by herbapou View Post


    I don?t agree, most growth stocks don?t pay dividends because they also don?t make a lot of profit. People need to go back to fundamentals... ultimately, why do we own a stock that doesn?t returns anything? Apple stock price sits on the ?future? possibility of it returning some dividends or else it?s not worth anything at all.



    At some point, Apple needs to start paying shareholders. It doesn?t have to be when the company stops growing.



    If you really want/need cash from owning AAPL, you can write options.
  • Reply 83 of 126
    Quote:
    Originally Posted by TNSF View Post


    There are many very healthy companies that engage in long-term share buyback programs as a way of returning value to shareholders. Its not always a parlor trick.



    Exactly.



    If John B. learnt differently in his MBA finance course, I am begnning to rethink his.....
  • Reply 84 of 126
    Quote:
    Originally Posted by jragosta View Post


    Buying back shares at $375 would be a good deal if the expectation value of that purchase is greater than the expectation value of whatever else they would consider doing with the money. It doesn't have to be a sure thing for it to make sense.



    Correct. And, if the market believes management, the signaling effect on the stock price is likely to be reliably positive ("They are credible folks, and they seem to be not only saying they are more optimistic about the company's future cash flows than the market gives them credit for, but they are putting their money where their mouth is").



    A secondary benefit - assuming the expectation pans out, and the repurchased shares are kept as treasury stock - is that employee option exercises will result in less shareholder dilution.
  • Reply 85 of 126
    I am sick and tired of analysts telling Apple what to do with it's money. Apple has no incentive to issue a dividend. If you want a dividend then buy stock in one of the companies that do. Apple imo is a company to invest in for growth. Apple is a company with no debt whatsoever. Apple's made its money selling products.



    Morgan Stanley is a company of idiots who had to be bought out. Why should anyone listen to a bunch of idiots who caused their own company to go belly up?! BOA might have bought them but now BOA is laying off 30,000 people. So lets see whose better Apple or Morgan Stanley? Apple of course. Let use not forgot that Apple's stock price is nothing more than what people think it would cost to buy it.
  • Reply 86 of 126
    Quote:
    Originally Posted by anantksundaram View Post


    Who/what is 'SHA'?



    This sounds like more grand internet finance wisdom being touted by anonymous geniuses....



    It is any kind of finance wisdom. It is common knowledge. I for one choose not to mock something if I don't understand what it means. But you're welcome to make a fool of yourself.
  • Reply 87 of 126
    Quote:
    Originally Posted by alexisd View Post


    I am sick and tired of analysts telling Apple what to do with it's money. Apple has no incentive to issue a dividend. If you want a dividend then buy stock in one of the companies that do. Apple imo is a company to invest in for growth. Apple is a company with no debt whatsoever. Apple's made its money selling products.




    Precisely. Those who don't like the stock without dividends, don't buy it.



    Stock buyback is unquestionably a gimmick. It reduces the number of shares and thereby artificially increases the profit per share, leading to a higher share price. Why would a company do this if it is performing well?
  • Reply 88 of 126
    MacProMacPro Posts: 19,471member
    Teeny weeny fragment of a great post ...

    Quote:
    Originally Posted by jragosta View Post


    That is nonsense.....



    Thanks, I really enjoyed your post. Informative and very amusingly written.



    p.s. I got my MBA from Harvard!





    ... at the Apple Store in Cambridge.
  • Reply 89 of 126
    john.bjohn.b Posts: 2,740member
    Quote:
    Originally Posted by PhilBoogie View Post


    I presume it looks like a big X



  • Reply 90 of 126
    Quote:
    Originally Posted by zoetmb View Post




    The overall point is that Apple may not be doing a great job of managing their cash.





    Wrong. Apple is absolutely awesome at managing their cash.



    A company's Return on Invested Capital is the ultimate measure of a company's valuation. Basically, ROIC is a measure of how efficient a company is in using its capital to generate returns.



    Let's compare Apple and Google's ROIC. Apple's return on invested capital is 30.4% with 5 year average of 26.1% despite Apple having lower gross profit margins compared to Google. a 30.4% ROIC is amazingly high for a "hardware company". Google's return on invested capital is only 18.3% with 5 year aveage of 17.2%. Why?



    Different types of growth earn different degrees of return so not all growth is equally value-creating. Growth strategies based on organic new product development (ie. iPod, iPhone, iPad, iMac, etc.) frequently have the highest returns because they dont require much new capital. Apple can add new products to their existing factory lines and distribution systems, without much capital expenditure. The investments to produce new products are not all required at once. If preliminary results are not promising, future investments can be scaled back or canceled.



    Contrast this with Google's growth strategy of acquiring companies (Motorola, Youtube, Android, Doubleclick, etc.). Acquisitions require that the entire investment be made up front. The amount of up-front payment reflects the expected cash flows from the target company plus a premium to stave off other bidders. So even if Google can improve the target company enough to generate an attractive ROIC, the rate of return is typically only a small amount higher than its cost of capital. Factor in the additional traffic acquisition costs and costs of running hundreds of thousands of servers to support Google search, Youtube, Blogspot, GMail, etc. and you'll see why Google's return on invested capital is much lower compared to Apple.



    Google also has a habit of wasting money on money-losing initiatives with low ROIC (Google's $280-million solar power initiative, self driving cars, etc.) which further dilutes its average returns. Wall Street perceives the $12.5 Billion Moto acquisition as an expensive and inefficient use of capital that will further dilute the company's ROIC.The recent $500 million settlement with the DOJ is another concern.



    and that is why Apple is the most valuable company in the world. Meanwhile, Google's market cap has been stucked in the $170-$200B range for a couple of years or so.



    Here's the number one rule of conservation of value: "anything that doesn't increase cash flows doesn't create value".
  • Reply 91 of 126
    Quote:
    Originally Posted by cameronj View Post


    Jesus. I assume that you're an Apple shareholder. You realize that Apple is holding money that belongs to you, right?



    No. They don't have your money. They control the perception of the piece of paper that someone holds on your behalf in some far away place. When you wish to sell your piece of paper, you get the money from someone else in the future. This is the stock market, go look it up.



    I think you meant to say that Apple would be stupid to buy Morgan Stanley and that the action would reflect badly on the stock price, but what you said was completely inaccurate and misleading.
  • Reply 92 of 126
    Quote:
    Originally Posted by jragosta View Post


    That is nonsense. We still manufacture a very large percentage of what we consume. Not as high a percentage as in the past, but well over half.



    I can guarantee you that well over half the things in your home right now are not made in the US.

    I would love to see manufacturing come back to the states and stay but as long as there is cheaper labor out there....It's not going to happen.
  • Reply 93 of 126
    Quote:

    Wrong. Companies buy back their own stock when it's undervalued. And Apple's stock is currently undervalued because it's getting hit by the same factors (possible Greece default, etc.) that is bringing down the entire market.




    Gee, then there should be a buying frenzy across the world!!! BUY BUY BUY!!!! Yours is the dumbest logic I have heard. If apple is down, it is because the world will not have disposable cash if Greece implodes. Apple isn't immune to the world markets and is not undervalued just because of Greece. Others, probably - but not just Greece.
  • Reply 94 of 126
    john.bjohn.b Posts: 2,740member
    Quote:
    Originally Posted by mmmdoughnuts View Post


    Quote:
    Originally Posted by cameronj View Post


    Jesus. I assume that you're an Apple shareholder. You realize that Apple is holding money that belongs to you, right?



    No. They don't have your money. They control the perception of the piece of paper that someone holds on your behalf in some far away place. When you wish to sell your piece of paper, you get the money from someone else in the future. This is the stock market, go look it up.



    It looks like he didn't get his money's worth from that Princeton education after all.
  • Reply 95 of 126
    ltmpltmp Posts: 204member
    Quote:
    Originally Posted by cameronj View Post


    So you're saying you don't think Apple shares are worth buying at this price, and are only a good deal below $300? Why else would you discourage any entity from buying Apple shares (even if it's Apple itself)?



    I wouldn't discourage anybody other than AAPL.

    Buying back shares will only be good for shareholder value if the shares are dramatically undervalued.



    If I buy more shares, I can sell them later. If AAPL buys the shares, they retire them. They can't be resold later on at a profit.
  • Reply 96 of 126
    Quote:
    Originally Posted by cvaldes1831 View Post


    When you buy shares of a company's stock, you are basically putting your approval stamp on the company's senior management team in running the business. If you have disagreement with the way Apple is using its cash hoard, you really shouldn't be an investor.



    That's what voting rights are for. Not every shareholder is happy to just let management do as they please from the moment they bought the shares (and I believe the widespread lack of interest by shareholders in holding senior management accoutable is ultimately very damaging to the economy).



    Few investors fully agree with everything a company is doing, but a disagreement is not sufficient reason to sell shares. Would you sell if you thought a good management team could do even better?
  • Reply 97 of 126
    Quote:
    Originally Posted by tenzo View Post


    I hate to say it but....

    America is not a manufacturing country anymore and I don't think it is coming back.

    We are the innovators and engineers of products now. Not the builders.

    Just my two cents from what I'm seeing in the field.



    I guess the field is not the place to look. The good ol' USA has the second largest manufacturing economy on the PLANET. And if China weren't manipulating their currency we would be #1.



    Why is that, you ask? Because we are the best, sucker!



    Have some pride and seek the truth, OK? Don't talk down our nation and our people.



    I wonder if people like you are actually posting from somewhere in China, trying to discourage the American people. Are you an employee of Red China, perchance?



    USA, USA, USA!!!!!
  • Reply 98 of 126
    After listening to his 'Critical Path' podcast, I've become convinced that Horace Dediu is the only analyst out there that understands Apple enough to talk about them without sounding like an idiot. He seems to understand what makes Apple function in ways that other large companies can't operate, and he makes other analysts' assessment of Apple sound like they are talking about completely different companies.



    But that's just my opinion...
  • Reply 99 of 126
    As per usual, a lot of people don't seem to get the basics of capitalism. The purpose of capital is to invest it in growing the company's business. The basic assumption is that profits are most efficiently used this way, if you can also assume that the company is good at what it does. If the amount of accumulated capital exceeds the ability of the company to reinvest it in growth, then some other purpose for it should be found by a responsible board of directors. The usual method is via a dividend to the stockholders. While this often occurs when companies have hit a growth wall, in Apple's case it's happening because they are growing too rapidly to spend all the money they make. The bottom line is, Apple is not doing the stockholders any favors by sequestering so much cash. It is no crime for stockholders to want their value maximized. Cash contributes nothing to shareholder value unless it can be responsibly invested in future earnings growth or it is paid out to the shareholders. Apple has shown no signs of doing the former, so they should instead do the latter.
  • Reply 100 of 126
    Quote:
    Originally Posted by Dr Millmoss View Post


    As per usual, a lot of people don't seem to get the basics of capitalism. The purpose of capital is to invest it in growing the company's business. The basic assumption is that profits are most efficiently used this way, if you can also assume that the company is good at what it does. If the amount of accumulated capital exceeds the ability of the company to reinvest it in growth, then some other purpose for it should be found by a responsible board of directors. The usual method is via a dividend to the stockholders. While this often occurs when companies have hit a growth wall, in Apple's case it's happening because they are growing too rapidly to spend all the money they make. The bottom line is, Apple is not doing the stockholders any favors by sequestering so much cash. It is no crime for stockholders to want their value maximized. Cash contributes nothing to shareholder value unless it can be responsibly invested in future earnings growth or it is paid out to the shareholders. Apple has shown no signs of doing the former, so they should instead do the latter.





    Apple's cash hoard would be better spent on major acquisitions or major product development.



    If investors are not satisfied with AAPL despite explosive growth in stock price over the years, then they can perhaps buy GOOG (LOW ROIC) or MSFT (stagnant share price, pays dividend).



    GO AHEAD I DARE YOU SELL AAPL!
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