Apple’s board recently announced that it would conduct a $60 billion dollar share repurchase. Some investors may be hesitant to see this as good news after experiences with companies such as Dell. In that case, a share purchase eroded value as the company purchased its own stock at a premium.
Berkshire Hathaway Inc. (NYSE:BRK.A)’s Warren Buffett believes a share repurchase can create shareholder value under the right conditions. In his 2011 letter to shareholders he outlines his requirements:
1. A company has ample funds to take care of the operational and liquidity needs of its business
A glance at Apple Inc. (NASDAQ:AAPL)’s balance sheet reveals the company has a $145 billion cash stockpile. I would say this safely qualifies as “ample.”
2. Its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated.
While it’s hard to determine Apple’s “intrinsic business value,” it is only trading at 10 times earnings. For a company like Apple, that sounds like a discount. Apple passes Buffet’s litmus test with flying colors. A share repurchase should increase shareholder value.
The Oracle of Omaha once said “Be greedy when others are fearful.” With the stock market surging ahead, it won’t be long before Apple catches up. Apple Inc. (NASDAQ:AAPL)’s board and management are committed to creating long-term value. Through multiple moats of protection, new products, and a share repurchase program, shareholders will be rewarded. Now is the time to buy. Don’t believe me? Just ask Siri.
The article 3 Reasons Apple Will Make You Rich originally appeared on Fool.com and is written by Marie Palumbo.
This article was written by Joshua Sauer and edited by Chris Marasco. Chris Marasco is Head Editor of ADifferentAngle. Neither has a position in any stocks mentioned.The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Marie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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