“Today I received a call from one bullish Apple investor, David Rolfe, the chief investment officer with Wedgewood Partners,” Tiernan Ray reports for Barron’s. “Wedgewood manages $1.1 billion, of which roughly 10%, or $100 million, is in Apple shares. Rolfe also heads up Wedgewood’s large-cap growth fund, the RiverPark/Wedgewood Fund (RWGIX).”
“I asked Rolfe why the stock was hitting highs, and he opined the ‘sweepstakes’ on the sell-side that usually precedes Apple’s quarterly report is happening a little earlier, with analysts jousting to raise their targets sufficiently high,” Ray reports. “When I asked Rolfe about speculation that Apple might be considering a dividend or share repurchase, the question prompted a long and rather enthusiastic disquisition on his part about why that’s a bad idea.W
“Rolfe doesn’t think Apple will do either, for a long time, and he certainly hopes they don’t,” Ray reports. “‘We think Apple is doing something quite different with their cash horde,’ Rolfe tells me. ‘We view it through the lens of endowment model, call it the iEndowment.’ Apple had $76.2 billion in cash at the end of fiscal Q3.”
Ray reports, “Put simply, the enormous amounts of cash Apple will earn in coming years will give the company unprecedented staying power.”
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[Thanks to MacDailyNews Reader “David E.” for the heads up.]
Ray reports, “”
Read more in the full article here.
Somebody gets it 🙂
The penny dropped.
To be more precise, somebody finally got it! Now why was that so hard?
You want company loyalty? Imagine working for a large corporation that has the deepest pockets on earth. I can’t remember the last time Apple had to lay off people because they didn’t have enough money.
Now that has to help company loyalty, by a ton!!
That’s a thought, but I wouldn’t assume there’s any company policy behind that. Apple isn’t laying off because they’re still in a dramatic growth phase that’s been going on for a decade. But if something changed and they began to wither or if growth stagnated, I wouldn’t make the assumption that they’d spend that cash on unnecessary workers (especially when they need it for ongoing legal wranglings and patent purchases). They’re like any other company – they have an interest in staying lean.
Accordingly to an article I read last year, once Apple may top as the most valuable publicly traded company, something remarkable would happen to the stock almost overnight. The author suggested that many investment firms etc. automatically switch over a significant portion of their investments towards the top dog. He predicted, it would cause a major tipping-point of sort.
I think, with AAPL’s recent run, particularly while bucking the trend is maybe a sign of that. However, AAPL has been the top dog for a few weeks now, so what took it so long? I think, the investors were maybe watching the trend if AAPL can fend off EXXON long enough to be the legitimate leader.
That’s my theory; of course, there could be some insider’s info at play that I’m not privy to, or people are expecting big numbers in the next quarterly report. It’s often futile to rationalise anything AAPL that’s why I’m loooong on AAPL since 1999.
So Apple’s cash is like an extra dose of Viagra?
Google is trying to steal Apple’s position as the most valuable company in US history. All they had to do is increase their advertising billings by 5000%.
There is a breaking story that Google may be abusing their position as a search giant that sells your surfing clicks. It seems the Feds are interested in the fact Google stiffed a well heeled tech client by increasing a billing per click that used to be $0.10 with a 5000% bump to $5.00 per click on the very next month ad billing.
The US government believes that wasn’t very nice.
The FTC is building a case showing that Google abused its power as the owner of the world’s most popular search engine, violating the Sherman Act and other antitrust laws.
It is a good thing investors think Google is worth billions, the courts may eventually take a lot of that wealth away from the proud papa of the illegitmate Baby Android.
You can read all the ugly details at this link …
http://goo.gl/2pNnm
Perhaps a better strategy is to set a target of cash (say $100B) and then provide a formula above that of adding to balance sheet and returning cash to shareholders. Maybe 2/3 of cash generated to balance sheet, 1/3 to dividends, or some combo.
This still gives Apple staying power, an “iEndowment” and will get more investors interested in the stock. This is the correct approach.
Rolfe makes the same error that many do here. That is, they’re confusing the interests of investors, executive management, and consumers/fans of the company.
For investors, an iEndowment simply doesn’t make sense, at least it hasn’t made sense to date. That is to say that the return on Apple’s cash has been so low, that it has been a very poor investment not only compared to Apple’s business, but compared to most other options. Likewise “money for a rainy day” isn’t good for investors, as it’s not in their interest for Apple to get to the point where that cash would be needed and then spent. Rolfe proposes that Apple could take the growing cash each year and take chances with it…buying Facebook. Yes, Apple could invest their cash by buying companies that returned a better yield than the poor return from cash they’re sitting on, but again, as an investor, one doesn’t want to see portions of their investment just whimsically allocated into things that may distract Apple.
The whole endowment concept makes sense for something like a university where you’re not trying to actually return a profit for investors, but want to build something to last. This is in conflict with the primary goal of investors, although it is aligned with what the executive team wants, and is in the interest of consumers and fans.
This is why he mentions the LBO and cash becoming an increasing percentage of the market cap. As long as Apple continues to grow its cash horde, do expect this to be the case, and thus a lower P/E ratio along with every dollar one invests in Apple, a growing amount isn’t going to be invested in Apple’s business, but set aside as a near-zero returning cash pile. Right now, it’s around 20 cents on the dollar as a “cash horde tax”.
Don’t get me wrong, I’m a consumer and fan more than an investor. I’d rather see Apple hold on to the cash horde too. However, I’m also not sitting around confused as to why Apple’s stock is so significantly undervalued with a TTM P/E of 16.
Although, as an investor/consumer/fan, I would like to see Apple buy Adobe. They could do this, and untouched, it would yield a better return than their cash does now. Or they could get involved and whip it into shape. It’s only $16B.
This explanation for Apple’s decision to hold cash & equivalents is way too complicated. Although it’s true that Apple could do all of the things Rolfe claims, cash can be used for nearly anything: develop a space program, pay a dictator to leave office peacefully, or buy Facebook. Let your imagination run wild.
But virtually every large company, banks and even households — both here and abroad — have been accumulating liquid assets since the Panic of 2008-2009, and Apple’s reason is the same as everyone else’s: to cope with the unknown. GM had low cash reserves in mid 2008 and went bankrupt, while Ford had several billion dollars in the bank and survived. Ford’s CEO remained with the company, while GM’s was fired. Clearly it’s the fear of another panic — possibly originating in Europe — that has motivated people to accumulate liquid assets over the past three years.
Apple does NOT buy companies in other industries ‘just because it can’ — and anyone who’s failed to realize that is not a very astute observer of the company. Steve’s legacy (what Rolfe refers to as an endowment) is focusing the company on a single task: applying computing power to the everyday needs of its customers.