There was a point, however, when I agreed with CEO Tim Cook in his opposition to David Einhorn's iPrefs. But I've become convinced that aside from better innovation, iPrefs is Apple's best route to get out of this rut. The Street is unimpressed with $137 billion in cash and no debts. This is what the P/E of 9 presumes. The stock is being punished because the market is discounting the future value of the cash.
Does IBM (IBM) deserve a higher P/E than Apple? How about a company like Texas Instruments (TXN), which has 43% more debt than it does cash. But Apple has no debt. Meanwhile, IBM has $33 billion in debt and only $11 billion in cash. Remarkably, both of these companies are percentage points away from their 52-week highs, while Apple has now lost more than 40% since reaching $705.
The market is willing to forgive IBM's highly levered balance sheet because the company is seen as more "shareholder-friendly." It also helps that IBM boasts 85% return on equity.
But that doesn't explain why Microsoft, which has 22% ROE, deserves a higher P/E than Apple. In this situation, Apple's cash is actually hurting the stock. And if Apple does not feel that $400 per share is cheap enough to buy-back its own shares, then why the heck am I still holding?
The direction of the company is no longer clear. Today, not only is Apple's lack of innovation a legitimate concern, I don't think Tim Cook is running as tight a ship as he can. While I do believe he's a good manager, Apple has been apologizing way too much. While this company is without a doubt still very profitable and well established, Apple is no longer executing as flawlessly as the Street expects. While I once defended the company with undying loyalty. It's no longer clear, however, that the company feels the same way about its shareholders, given the stubborn silence regarding its cash. I can say with great conviction that Apple's decline is temporary, but I take no solace in the fact that all of this shame could have been avoided had the company listened to David Einhorn. With second-quarter earnings coming up next week, I've got my hand out for an increase in the dividend, and there's no shame in that. At the time of publication the author had a position in AAPL. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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