This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Silicon Valley's First World Problem

Carl Icahn disclosed via Twitter's (TWTR) social media app in January that he had boosted his Apple holdings to $3.6 billion. He added that more aggressive buybacks were a "no brainer" in a letter to fellow Apple investors.

Pacific Crest Securities analyst Andy Hargreaves suggested that Tim Cook and Apple are not bowing to pressure from activists by repurchasing shares and paying a dividend.

"It's great that Carl Icahn figured out how to use Twitter and that he's got a 1% stake," Hargreaves said.

Apple appears "perfectly comfortable" with the system of deploying cash that its management has devised over years of analysis, he suggested.

Must Read: Woodside to Become No. 2 Shareholder in Israeli Field

"In the spectrum of ways you return cash, one way is to be loud, say what you are going to do and how are going to do it, which pops the stock and is good for activists" who may want to flip their shares, Hargreaves added. "It also generally results in your buying back your stock at an artificially inflated price."

The alternative is not to broadcast intentions and avoid driving up the price of securities your company is purchasing. "That's what Apple is doing and I appreciate that method," Hargreaves said.

Barclays Capital analyst Ben Reitzes suggested in a Friday note that Cook detailed Apple's buybacks in a Wall Street Journal interview "to remedy several inadequate answers on last week's [first quarter] conference call that we believe many investors found disappointing." One question after the call, he suggested, is why Apple was not buying shares more aggressively while the price neared $500 per share.

Cash stockpiles are not the sole focus of agitators. Pressure on Ebay and Juniper stems, at least in part, on a critique of the companies' asset portfolios.

In the case of Hewlett-Packard's (HPQ) 2011 clash with Ralph Whitworth's Relational Investors, governance was a central issue.

Given the political tension in Washington, D.C. and the place in the political cycle, Moody's analyst Lane suggested that temporary or permanent legislation to encourage repatriation of cash is not likely for the current administration.

Companies may take steps to preempt activism, he suggested.

Following Apple's disputes with David Einhorn's Greenlight Capital in 2013, Altera (ALTR) increased its stock buyback from about 11 million shares to more than 40 million shares, issuing $1 billion in note to fund the purchases. Unlike Apple, the San Jose chipmaker had not faced activist threats.

"You might see some companies saying we want to better control our fate," Lane said, "as opposed to having a disproportionate amount of pressure from an outside party."

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
AAPL $110.38 -2.10%
GOOG $603.92 -2.30%
JNPR $25.27 -1.70%
MSFT $42.00 -3.50%
FB $88.01 -1.60%


Chart of I:DJI
DOW 16,143.27 -384.76 -2.33%
S&P 500 1,931.19 -40.99 -2.08%
NASDAQ 4,692.2990 -84.2090 -1.76%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs