In what is quite a bit of good news for Apple shareholders’, Tim Cook has finally loosened the purse strings over the last couple of weeks and has increased the buyback pace materially. Apple (AAPL) holds far too much cash on its balance sheet, which is earning a paltry interest rate. If Cook believes in Apple’s business prospects moving forward, a stock buyback makes a ton of sense as the valuation is not demanding based on metrics such as earnings or cash flow, especially if you account for the net cash position. Cook has mentioned that the company wants to maintain flexibility for a large acquisition but very few large cap technology companies would be beyond the reach of Apple, even if it doubled or tripled its stock buyback.
The company can use debt and if Apple had better capital allocation the stock would likely appreciate in value and offer another potentially valuable currency that could be leveraged at an opportune time. Cook is a phenomenal operator but the innovation side has certainly been lacking since Steve Jobs left, and capital allocation for this company is extremely poor. Carl Icahn’s involvement is a major positive and in my opinion, could be a potential game changer for the stock. I see 25-40% upside, which is great but I can find more compelling opportunities.