Tags: apple | stock | buyback | 9 billion

WSJ: Apple Lost $9 Billion Buying Back Own Shares

apple corporate logo symbol amid scattered dollar bills
(Mikhail Primakov/Dreamstime)

By    |   Friday, 28 December 2018 08:27 AM

Tech giant Apple Inc. reportedly used much of its windfall from the Trump administration’s tax overhaul to buy back its own shares, but the recent plunge in stock prices has made that strategy a $9 billion losing bet.

Apple (AAPL) and companies including Wells Fargo (WFC), Citigroup Inc. © and Applied Materials Inc. (AMAT) repurchased their own shares at rich prices, only to see their value decline sharply, The Wall Street Journal reported.

Companies contend that buybacks are a good way to return excess capital to shareholders and that the paper losses can reverse themselves if their stocks rebound. But the sharp declines call into question their decision to devote so much of their tax savings to buybacks, rather than using it to invest in their businesses, raise employee pay or pay higher dividends, the Journal explained.

“If they made an acquisition that decreased in value this much, people would be up in arms,” said Nell Minow, vice chairwoman of ValueEdge Advisors, a corporate-governance consulting firm. “They have one job, and that is to make good use of capital,” he said.

Apple, one of the market’s biggest repurchasers, spent about $62.9 billion on buybacks in the first nine months of 2018, according to securities filings, the WSJ explained.

The Cupertino, California-based company is the second-worst performer in the group of large-cap internet and technology stocks, Bloomberg has reported.

It’s been a year that saw the iPhone maker become the first to reach a $1 trillion market capitalization and then lose its crown as the world’s most valuable company to Microsoft Corp. Apple’s 7 percent decline trailed Facebook, whose stock has fallen 24 percent amid a slew of controversies. Netflix Inc. is up the most this year with a 32 percent gain, followed by Amazon.com Inc.’s 26 percent climb. Google parent Alphabet Inc. is off less than 1 percent.

Apple's repurchased shares were worth about $53.8 billion as of Wednesday’s close, some $9.1 billion less than it paid for them. Apple stock (AAPL) closed at $156.15 on Thursday.

“Apple makes iPhones. Timing the market is not what they do,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Companies that try to time the market in buying back shares “are going to be in the red at times.”

However, Apple does still have its true believers.

For example, veteran analyst Gene Munster thinks Apple will be the best performing FAANG stock in 2019, Bloomberg reported.

Apple will be rewarded in the coming year as investors focus more on revenue and earnings growth rather than iPhone unit sales, said Loup Ventures’ Munster, who has covered the company for more than a decade.

Apple will also benefit from excitement about a network upgrade in the U.S. that could occur as soon as 2020.

Apple’s success in safeguarding consumer data could also help the company in 2019, according to Munster, who predicts U.S. lawmakers will pass data-privacy regulation. Munster expects Apple to spend $1.4 billion on original television content in 2019 and release a streaming service late in the year.

But savvy investors should remember: Munster’s biggest prediction for 2018 -- that Amazon would buy Target Corp. -- hasn’t panned out.

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Tech giant Apple Inc. reportedly used much of its windfall from the Trump administration’s tax overhaul to buy back its own shares, but the recent plunge in stock prices has made that strategy a $9 billion losing bet.
apple, stock, buyback, 9 billion
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2018-27-28
Friday, 28 December 2018 08:27 AM
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