Stock buybacks have interestingly mean almost nothing in this horrid market - usually this has
proven to be a great defense but the selloff is so relentless stocks with buybacks are punished just the same as those without. But in this respite in the market, Apple (AAPL) is surging on reports they might finally deploy their $25 billion war chest. This company is a splendid cash cow as the chart shows. Right now about 1/3rd of its market value is cash.- Apple is sitting on a huge cash reserve — $24.5 billion as of September and growing at the rate of $8 to $10 billion a year – that’s doing almost nothing for it.
- The money is earning about $1.55% interest after taxes, according to a report issued Wednesday by Bernstein Research’s Toni Sacconaghi, at a time when the company’s stock is trading at a unusually low (for Apple) multiple of 15 times earnings.
- “Mathematically,” he wrote “share buybacks boost EPS only if a stock’s P/E multiple is lower than the reciprocal of the after-tax interest rate earned on cash.”
- Apple has been trading at 30 to 40 times earnings in recent years, which Sacconaghi believes is one reason Apple has not initiated a stock repurchase program in the past 5 years.
- But today, according to Sacconaghi’s model, Apple is trading at about 18 times his fiscal year 2009 earnings estimate (and about 13 times earnings using non-GAAP numbers).
- Ten billion dollars spent purchasing Apple share, he estimates, would boost the company’s (GAAP) EPS about 4%. A $20 billion buyback program would boost it about 9%. And if the $20 billion program were front-loaded — completed in the first fiscal quarter of 2009 — the company’s EPS could jump as much as 15% (or $0.75 a share).
- According to Sacconaghi, better than the alternatives: making a major acquisition, paying a substantial dividend or continuing to let its cash horde grow
- A big dividend — say, 5% — would consume only about half Apple’s cash flow, and a special dividend would dilute Apple’s earnings growth too much to please shareholders.
Long Apple in fund; no personal position
3 comments:
wow, I would do better at poker.
much better - what a plunge again on the dow. Why am I participating in this mess?
Why? This has nothing to do with reality, all with trading in 5 min intervals.
Crazy. Luckily i sold some longs and did not dump the short etfs when it was looking like the down was taking off. I am in way over my head. I cannot do this, I must most honestly admit.
These are my thoughts of the day, the week, the month...
I guess you noticed the previous discussion I initiated on dividends.
I think buybacks are great, but not when a company is always buying back it's stock. Why not save cash for times like these, not when the market was at all time highs. When the market is performing well, why not pay dividends??
It is simple ROI, if the stock is up recently..why buy it back?? Well actually the answer is to help greedy and well compensated execs unloaded inflated shares. But for the good of all shareholders...there is no good reason why.
I don't see why AAPL cannot say use $15 bil to initiate a buyback of around 15%. and then have like $10/share cash safety net, and use a chunk of cash flow..maybe 4$/share/year for dividend.
Then AAPL can have a floor in two ways...buyback and yield support.
I just say this because all the DOW stocks buying back stock at DOW 14,000 burned through the cash, they should be using now to buyback their stock at DOW 8-9000.
Don't feel bad NL.
The computers just seem to be doing everything - overwhelming humans. Here is a piece from Rev Shark over at Realmoney.com who is generally a swing trader but has been daytrading to make any money lately. The point being he is generally someone with a short term focus. Humans just cannot keep up with this type of market - even for people who stare at the screen every second of the day and make a living out of it; HAL9000 is smashing them. In the long run it cannot continue like this because humans will pull out their money and then the computers won't have anything to play with. But between "now" and "then": is the question.
*****
Even Daytraders Can't Handle This Volatility
By Rev Shark
RealMoney.com Contributor
10/29/2008 4:15 PM EDT
URL: http://www.thestreet.com/p/rmoney/revsharkblog/10444952.html
What a roller-coaster ride of a market. The DJIA moves about 400 points in the final 10 minutes of trading, wiping out the days gains. Anxiety about being left behind, a short squeeze and program trading gave us another powerful up move in the final hour of trading, but with about 10 minutes left, a huge selling wave hit and drove us sharply back down.
The moves in the last hour have been so crazy lately they are a joke. Even the shortest-term daytraders are complaining about the level of volatility. The moves are so fast and whipsaws so big that it is impossible to employ any money-management discipline. It has to be huge programs operating, because human traders just can't move that fast manually.
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