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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

3 Reasons Apple's $90 Billion Share Buyback Is an Epic Error

NEW YORK (TheStreet) -- Apple's (AAPL) $90 billion share buyback program is one of the most egregious misallocations of capital in corporate history. These funds have done nothing to address the market weaknesses and improve the long term competitiveness of Apple. Here are three of the many reasons why.

The main one is that Apple is moving from a position of weakness, not strength. According to Finviz, there has not been single Apple insider buy since last June (there were two option exercises). There have been well over 20 insider sales at prices as low as $401.76 a share on June 24, 2013. If the stock was so undervalued, it would seem there would have been at least one Apple insider buy on the open market over almost the last year.

Which brings up the second reason: Apple is responding to speculators, not investors. There has been a great deal of pressure put on Apple by Carl Icahn and others to increase the dividend and buy back more stock. That is no way to run a company like Apple that has slipped so much (now around $595 a share, the stock was over $700 a share in September 2012 before $90 billion in announced buybacks, nearly one-fifth the current market capitalization of the company).

The third reason is that Apple has done little to diversify its line of business or augment its weaknesses, which is what investor pressure would compel. Margins for iPhones have fallen more than 20%, with more drops likely. Sales of the iPad are down. The company has always been anemic in emerging markets. Outside of China and Japan, according to Apple's 10Q, "net sales in the rest of Asia Pacific segment declined year-over-year." That is where the bulk of consumer spending will be coming from in the future.

Almost two years ago when Apple was around $700 a share, I wrote articles about how the company needed to cash in and diversify by acquiring companies like Sprint (S) and TMobile USA. At that time, Apple was rich and those businesses were rattling the tin cup. Since then, the share price for Apple has fallen close to 20% as that for Sprint has jumped by about one-half.

More importantly, that $90 billion needed to go to diversify and expand Apple's business operations rather than buying back shares that insiders do not find appealing.

At this time, Apple is like General Motors (GM) with its Cadillac and Buick line in the early 1970s. It is doing well at the top of the market with the iPhone, but future sales will reward solid lower end mobile phones of an acceptable quality and level of performance, just as cars and trucks from Toyota Motor (TM) and Honda (HMC) soared in sales due to a shift in consumer demand. Apple is also benefiting from a very tenuous preferential tax treatment policy that could dissipate very quickly when Congress goes looking for much-needed revenue to close the budget gap. While much of that $90 billion is long gone for the shareholders of Apple, the company's shortcomings remain.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs