Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Apple Inc. (AAPL)’s Capital Allocation Miss

Page 1 of 2

Apple Inc. (NASDAQ:AAPL) investors have been in for a wild ride. As the market hits new highs, Apple Inc. (NASDAQ:AAPL) is finding new 52-week lows.

Some say its because of Apple’s transition to a value stock from a growth name. Others say its the on-going battle with David Einhorn about a preferred dividend straight out of a financial engineering book.

I think it’s just capital allocation, and nothing more.

Apple Inc. (NASDAQ:AAPL)

Where Apple missed

The belief that Apple Inc. (NASDAQ:AAPL) needs huge amounts of cash for investment purposes – primarily to buy new product – is folly. The company best known for the iPhone runs on negative working capital, selling its devices and collecting payments before it even begins to think about paying suppliers.

So much of the cash and securities Apple Inc. (NASDAQ:AAPL) owns are, as far as the business goes, completely dead weight.

More importantly, Apple’s holdings are dragging down the company’s potential performance. Investors should look closely into the latest quarterly report to see what Apple owns.

Here’s a snapshot:

What do you see? Poorly-performing security after poorly-performing security.

A simple allocation shift for a higher valuation

Fixed-income is a drag on investors who want equity exposure. While Apple’s stock price sank in the last six months, the company’s investments failed to keep pace with the rising tide of the equity markets.

Apple Inc. (NASDAQ:AAPL) could make things easier for investors who want equity returns: move money into equities. Let Apple’s cash sit in something more exciting than corporate bonds and mortgage-backed securities. At the end of the day, investors aren’t worried about the cash coming back as much as they’re worried about the company dragging down its business performance because of its poor investment habits.

Moving into equities solves three basic fundamental problems:

1. Increasing the return on the company’s retained earnings, which are currently being invested in low-return securities, dragging down the company while the market is up.

2. Satisfying investors demand for equity exposure without requiring the company to move cash back to the United States. The company’s “hedge fund,” Braeburn, was invented solely for the purpose of allowing Apple Inc. (NASDAQ:AAPL) to invest its overseas earnings in marketable securities without paying taxes to repatriate its building reserves.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!