I find it hilarious how much attention Apple can draw from Wall Street. It’s the new Research in Motion, the stock that defines the tech sector and growth stocks as a whole. Apple leads the market, the market doesn’t lead Apple. It’s the tail that wags the dog, or something like that.
Anyway, now that Apple is back under $500, it’s all over the news. Is Apple toast? Will it ever see $700 again?
Honestly, I have no idea. I really don’t. Apple is, to me, a little like a bet on Garmin in 2006. It seemed like a sure bet, until GPS went from a dedicated device to the cell phone. I hate trying to guess what’s going to happen in technology.
What Annoys Me about Apple
Excluding the fact that Apple is a tech company and I don’t invest in tech companies (unless they’re tech companies selling for less than NCAV), the annoying thing about Apple is its capital allocation.
There’s this company out there known as International Business Machines. It’s a pretty big deal.
For years, this company hasn’t grown the top line much at all. There is little to no top line growth at IBM, but earnings per share have gone up year after year after year. Why? IBM has changed its focus to high margin products and reallocated capital to share repurchases.
IBM plows almost all its cash into shareholder cannibalism. It’s slowly taking itself private. From 2009-2012, shares outstanding fell from 1.339 billion shares to 1.16 billion shares. IBM continues to pay a modest dividend and buy itself out with continued share repurchases. Shareholders own more of the company each year than they owned in the past year. The stock, by the way, is up more than 100% in the past five years. IBM made good use of its extra cash.
So what’s up at Apple?
Not a whole lot. Apple’s share count in the same time went up. Shareholders owned less of the company in 2012 than they owned in 2009. While the company had extreme top line growth, it did nothing with the cash. Apple’s cash totals more than $100 billion, and the company only recently outlined plans to spend a fraction of its cash on dividends and repurchases.
While IBM was buying its rapidly appreciating stock, Apple was using its U.S. based hedge fund to buy anything but itself. So what did it buy? A bunch of investments that haven’t logged nearly the same performance as its own equity:
Apple’s biggest problem is that it might as well be a Japanese stock.