“Apple will announce plans for its cash hoard next month, according to Howard Ward, chief investment officer at investment firm Gamco,” Daniel Sparks writes for The Motley Fool. “But if this rumor proves true, the most important question remains unanswered: How will Apple return cash to shareholders? Would the company be wise to take ace investor Warren Buffett’s advice, and repurchase more shares?”
“Share buybacks offer corporations a tax-free way to build shareholder value by buying back their own shares and, in turn, increasing shareholders’ ownership percentage per share,” Sparks writes. “Buffett has been known to criticize companies for buying back their shares, but it’s never because he thinks share repurchase programs are inherently bad. Instead, he criticizes companies for overpaying for their own stock.”
Sparks writes, “No wonder Buffett encouraged Apple to scoop up its own shares. A purchase near Apple’s super-conservative 52-week low would meet both of Buffett’s requirements for a well-executed buyback… But no matter what Apple does with its cash, the company trades at such a conservative valuation that almost any method of returning cash to shareholders would likely impact shares positively.”
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