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Apple's Turn In the Barrel



January 28, 2013 – Comments (4) | RELATED TICKERS: AAPL

Board: Apple

Author: Goofyhoofy

I don't know that I've ever advocated this before, heck, I'm not even sure I believe it, but...

The time has come for Apple manage to "manage" the stock. Oh, not in any big way, just a tweak here or there to stop this wild overshoot and hysteria that seems to enveloped the shares the last month or two.

I know, I know, people will tell me "manage the business, the stock will take care of itself." I've believed that for my 40 years of investing (although I noticed a few places where "managing the stock" might have been appropriate back in the 90's - generally to the "less frothy" side of things, as I recall.)

In fact, isn't "managing the stock" precisely what companies do when they provide guidance of any kind? What other reason would there be, except to tell holders what to expect going forward. Do consumers care about that? Not a drop.

So, having convinced myself of the righteousness of my cause (heh), I note that the Annual Meeting is coming up just about a month from today, a perfect time to drop the bomb(s).

1) Announce a dividend increase. This is a no brainer, since the company has more in the bank than it had when it announced the dividend in the first place. Profits are increasing (not that the Street has noticed.) There are literally hundreds of billions of dollars parked in low interest bonds or other liquid investments, and even if the company had to pay some repatriation tax to get at it (unnecessary, but I'm trying to overcome arguments that haven't yet been made), it would be worth it.

[As a sidebar, I understand why Apple and other companies don't want to do this. Who wants to pay the repatriation tax, only to have a tax holiday declared a few months down the road? This is one of those cases where expectations have been set, since such a holiday has happened in the past.] I will brook no argument that Apple needs to have $200 billion sitting overseas doing nothing. They couldn't open enough stores, build enough fab plants, or take over FoxConn facilities to make such an argument legit.

2) Announce a one-time "special dividend." Whack the Street upside the head, and say "Did you notice? We have enough cash on hand to give every shareholder size dollars, and we'll have more next quarter."

3) Announce a stock buyback. Oh, sure, they already have one, barely enough to keep up with dilution for bonuses to employees. Make it meaningful. Manage the ownership base (and manage the stock.) With the stock at these (insanely) cheap prices, now would be the time to acquire - if you have the money. Apple has the money. They have $16 billion more than they had three months ago - and that's including having paid out a dividend of $2 billion and modest buybacks of another $2 billion.

4) Share some meaningful information to counter the worst of the conventional wisdom in circulation. Admit that ASPs on the mini are lower, but give some actual numbers so people see the explosion in sales. Talk about the split between the 5, the 4, and the 4S. Success in China isn't saying "We increased sales" it's saying "Our strategy for a lower priced phone is to keep making the 4 and 4S available at ever decreasing price points in emerging markets." (OK, maybe those aren't the points that need to be made; they're just examples.)

Well, that's it. No great magic, there, just a few suggestions on how to get out of the barrel. The barrel? When I was in corporate life we used to talk about having "your turn in the barrel", i.e. when you'd done something stupid or wrong and everybody else wanted to stay far far away from you lest they get the stink on themselves. Then eventually you would do something good (really really good) and get out of the barrel, or you would be fired. It appears that many shareholders (fund managers, mostly, judging from the size of the flows) have fired Apple, and probably won't come back in until the stink fades away.

Just as it was important for funds to show Apple in the portfolio when it was zooming to the top, it seems it's not such a good idea to show it now that it's bi-polaring its way to the bottom. Manage the stock. Bring them back. Climb out of the barrel. It's a shame you have to worry about it, given the incredible performance of the company, but sometimes logic doesn't work as well as the rest of us think it should. There's an opportunity just four weeks away. Use it.

4 Comments – Post Your Own

#1) On January 28, 2013 at 4:12 PM, jbarrick1 (< 20) wrote:

Actually, GoofyHoofy, there's another version of "your turn in the Barrel," and it is quite risque.

 It has something to do with sailors on a long voyage and an empty Apple (no pun intended) barrel.

 I'm just sayin'

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#2) On January 28, 2013 at 4:14 PM, joesiff (< 20) wrote:

Does anyone know whether and/or when Apple plans to create Options with the followinfg expiration dates: 5/12, 8/13, 9/13, 11/13, and 12/13 ??  Any info. on if or when these options may be created automatically would be helpful.

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#3) On January 28, 2013 at 5:15 PM, constructive (99.95) wrote:

joesiff, companies don't create publicly traded options, the CBOE does. You can request them on their website.

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#4) On January 29, 2013 at 11:49 AM, CoreAndExplore (75.12) wrote:

Very cleverly-written article, and I agree whole-heartedly with your prescription for Apple's woes.  A meaningful commitment to share buybacks is the thing I'd most like to see right now.  Decrease the share count, increase the EPS, lower the dividend obligation, and take advantage of a very, very cheap stock - you couldn't find a much better way to deploy some of that stagnant cash IMO.  

I would also like to see a dividend increase, as you mentioned, that sets a precedent of moderate growth: 10-15% per annum.  A 15% increase would make it $3.05 (quarterly), and that's reasonable enough. 

Thanks for the insight and Fool on! 

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