Monday, February 10, 2014

Traders versus Investors: Apple

Traders versus Investors: Apple

NOTE:  Mr. Icahn withdrew his proposal shortly after I posted this.  Mr. Icahn doesn't follow my advice.  More importantly, Institutional Shareholder Services (ISS) came out against his proposal. 

There’s a battle underway between Carl Icahn and the institutional investors, such as the Comptroller of New York City, Scott Stringer.  Mr. Icahn is pushing a proxy proposal to require Apple to buy back $50 billion in stock.  Despite buying back $40 billion worth of stock in the twelve months, increasing the dividend 16%, and paying out nearly $11 billion in dividends, Apple is still sitting on $40 billion in cash.  As the company’s growth rate slows, cash continues to pile up on the balance sheet.   Should owners of Apple back traders like Mr. Icahn and require the company to repurchase another $50 billion in stock?

Sketchbook # 5(2001)

If Apple hadn’t responded to investors in the past year, there might be some merit to Mr. Icahn’s position.  After all, a growing pile of cash might tempt Apple’s board to listen to investment bankers and start an acquisition spree.  However, Apple has taken a reasonable position in managing its cash stockpile.  On this issue, the investors are right to oppose the traders.

The real question facing Apple is whether it can reignite its growth rate.  Apple’s annual revenues are about $175 billion, so even a major product breakthrough will not deliver the kind of growth the company experienced a few years ago.  At this point, Apple’s board needs to be thinking about the long-term future of the company, rather than responding to Mr. Icahn’s meddling.

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