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JaysRage (79.69)

Apple's overseas cash hoard is like a 401K



April 25, 2014 – Comments (5) | RELATED TICKERS: AAPL , GOOG , AMZN

Much has been written about Apple's overseas cash hoard.  Most of it has generally been negative....talking about how Apple is "stuck" with all that money overseas.   It has been talked about so much that I think people literally think that $100 billion is just sitting in a bank somewhere doing nothing.   As a result, in terms of market capitalization, I think a lot of analysts and investors have simply decided to pretend that it doesn’t exist and apply a zero multiplier to that money.  

There’s a reason why Apple and many other companies park their money “over there” (over there is actually in New York….but that’s beside the point).

Think of Apple’s cash hoard as a 401K plan.   The U.S. corporate tax rate is 35% (ouch).   Apple circumvents that by accounting their earnings in another country with a tiny tax rate….like 5%.    Since they have $100 billion in earnings stashed, that’s $30 billion in savings.   The only thing that they really can’t do with that money is spend it in the good old USA.   They can invest that money in the stock market in other U.S. companies and earn a nice return.   Let’s assume an 8% return, which is the long-term S&P return.   Then they borrow at 3% to pay dividends and buy back shares stateside.   When they buy back shares, they save themselves money in dividends.   When they pay dividends, they return cash to shareholders.   On top of that, they get to write off the 3% loan interest on their U.S. taxes, saving even more money.   They end up netting 7% or so annually.  


It’s unlikely that the U.S. will increase their horrifically high corporate tax rate, so at the worst, Apple gets to accumulate 7% on $30 billion tax free and pay the tax later.    At best, they can bring their money home under either a tax holiday or a lower corporate tax in the future.    That's not worth a zero multiplier to me.  

5 Comments – Post Your Own

#1) On April 25, 2014 at 1:17 PM, constructive (99.95) wrote:

They can invest that money in the stock market in other U.S. companies and earn a nice return.   Let’s assume an 8% return, which is the long-term S&P return.

That would be cool if they did that or intended to do that, but they don't. Close to 100% of their marketable securities are in safe low yielding fixed income.

Look at the interest line on the income statement - only $1.6B. And AOCI is only around $400M. That's a ~1.3% return on marketable securities over the past year.

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#2) On April 25, 2014 at 1:43 PM, valuemoney (< 20) wrote:

#1 comment is correct. That would be one 401k with pretty crappy returns. As a company you want to return capital to shareholders or use the money to grow the company. U only want so much money in cash or u aren't doing any favors for shareholders. Your money is just sitting, getting eaten by inflation. 

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#3) On April 25, 2014 at 1:53 PM, valuemoney (< 20) wrote:

Finally they r getting yelled at by some shareholders. Guess what they r doing now? Share buybacks. In effect they are getting a return on that cash now. Equal to whatever AAPL's current earnings yield is at the price of the purchase. Which is way better than a <2% yield they are currently getting on their cash hoard.

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#4) On April 25, 2014 at 3:01 PM, JaysRage (79.69) wrote:

I see what you mean.   They got the first part right, but they could be far more aggressive with their income generation.  It's not quite the next to zero return that you're implying, but that is certainly is a pretty conservative portfolio.   Considering all of the checks and balances, it isn't likely to do much better than inflation, which isn't hurting you, but it's not going to be an incredible source of income either.   They can clearly do significantly better.   

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#5) On April 28, 2014 at 8:34 AM, rofgile (99.61) wrote:


Good analogy of foreign reserves to a 401K.  Maybe the US government wants to promote healthy savings in its corporate citizens.  Now, will any promising foreign tech company have a higher chance of being swallowed by a US tech giant? Maybe this is all a policy scheme to keep the US a leader in technology.

I like AAPL and GOOG, but I always wonder what P/E these companies should be valued at.  I see the value of a company in a foundation of market capitalization established by the desire of a larger company to buy-out the undervalued smaller corporation.  When there is no one larger enough to buy out giants like AAPL, and growth of a company slows, what value should these have?  Seems like this is when the P/E falls to values around 10 and they begin to require dividend payouts to establish a value.  

AAPL may have enough cash to personally fund a mission to Mars. 


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