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TheStreet Open House

Apple's Big Buyout Draws Wall Street Shrugs

NEW YORK (TheStreet) -- Apple (AAPL) announced late Thursday, in an unorthodox interview CEO Tim Cook gave with the Wall Street Journal, that the company had bought back $14 billion worth of its stock in the past two weeks.

People were genuinely surprised. "Apple makes a $14 billion acquisition -- of itself" read one headline.

Most expected the stock to jump Friday morning. As of right now, it's up 1.3%. To me, that's not really a game changer.

To be sure, there are a lot of dynamics going on right now. I'm sure Tim Cook and other Apple employees are frustrated with the "low" stock price. That was stated as one of the justifications for the buyback.

However, a bigger factor, in my view, is that Tim Cook knows he'll be facing Carl Icahn at an Apple shareholder meeting later in the month. He wanted to able to say at that meeting he's already been aggressively buying back stock, so why would shareholders want to vote for Icahn's proposal for the company to buy more?

In fact, it actually serves Cook's needs better that the Apple stock has had such a meh reaction to the news of the buyback. He can get up and say, "Why should we be buying back $50 billion if spending $14 billion did nothing for us? Why not spend that money on R&D or acquisitions?"

The shrugging of shoulders by Wall Street to the $14 billion buyback news just goes to show that $14 billion is just not that significant in the context of a $465 billion company.

The only way I could see a buyback moving the needle in terms of a material uptick in the stock would be if the company came out and said it is using at least $50 billion in one shot to buy back a bunch of shares. And I'm not talking about $50 billion over five years, when Apple is generating something like $15 billion in new cash each quarter. I'm talking all in one shot.

But the truth is the big thing that will move Apple's stock price up is mega-hit new products. To get to over $1,000/share, I think that Apple needs iWatch, TV, an iPhablet, a few buybacks and probably one more surprise new hit product. The company will never be able to financially engineer its way to $1,000/share.

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