Apple’s (AAPL) latest earnings report, which included its decision to raise its dividend and increase its stock buyback plan, have renewed the debate over whether the company has hit a temporary lull or entered a permanently slower growth period. Apple shares have rebounded some from the 52-week low of $385 set on April 19 and closed today up about $3 per share at $408. The stock is down 23% on the year as of April 25.
Earlier this week, we heard from Covestor manager Eric Steiman about his decision to short the stock. On the flip side, Covestor manager Patrick Larkin is still upbeat on the company’s prospects. Here’s his rationale for sticking with Apple as one of his holdings.
Covestor: Patrick, you bought Apple shares back in late February for the Covestor All Cap Value Investment model that you manage. What’s your investment thesis here--and how would you rate CEO Tim Cook so far?
PL: I think that the buyback is the exact right move for Apple at this moment. Apple will still have plenty of cash left to fund new product development. There are diminishing returns to throwing money at innovation. It is highly unlikely that Apple or any other company could put $100 billion dollars to work in more attractive investments than buying into the iPhone, iPad, and Mac franchises at today's valuation, which is essentially what Apple is doing by repurchasing stock.
Tim Cook has shown outstanding leadership by weighing the facts and making the right decision on capital allocation. The key point is not whether it was his idea in the first place, or who will approve or disapprove, but that he made the right move to maximize shareholder value. If he stays on course and avoids shareholder-killing large acquisitions, he is will likely be recognized in the end as one of the outstanding capital allocators of the era.
The investments discussed are held in client accounts as of March 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
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Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.
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