| NEW YORK
NEW YORK Feb 7 Buy low, sell high. That's the
investor's credo, and one Apple Inc appears to have
followed when it pounced on a drop in its own stock price to buy
$14 billion of its shares in two weeks.
The move will not likely satisfy those who say Apple needs
to introduce a new product - such as a rumored wristwatch - to
boost long-term sales. But Apple shares rose 1.4 percent on
Friday to $519.68, and the buyback should afford Chief Executive
Tim Cook some kudos from big investors like Carl Icahn, who have
been urging the company to return more money to shareholders.
The size of Apple's buyback will meaningfully adjust key
valuation metrics, such as estimates on its first-quarter
earnings, which were expected rise to $10.48 a share from $10.15
a share as a result of a 3 percent reduction in the float,
according to Greg Harrison, senior research analyst at Thomson
Apple's forward price-to-earnings ratio would fall to 11.65
from 12.02, bringing it further below the 13.02 average P/E of
its peers. Had Apple bought these shares prior to the fourth
quarter, it would have reported a profit of $14.96 a share
instead of $14.50.
"If you're a long-term investor in Apple, this is a reason
to buy," said Minyi Chen, who manages the TrimTabs Float Shrink
ETF, an actively managed exchange-traded fund that buys
companies with shrinking floats and which added to the fund's
position in Apple on Thursday.
"This is more of a value-stock strategy than a growth-stock
U.S. companies that have made a habit of steadily reducing
their share count have beaten the broader stock market for the
last several years.
According to Tobias Levkovich, the chief U.S. equity
strategist at Citigroup, S&P 500 companies that regularly reduce
their share counts rose 550 percent between 2003 and mid-2013,
outpacing the index's "dividend aristocrats," which have
returned about 400 percent in that time.
Apple's latest share buyback is part of its plan to
repurchase $60 billion of its stock. The tech giant has
struggled to regain its once-blistering growth rates in the
absence of new product categories. Cook has said the buyback is
a sign of management's confidence in the company.
There has been concern about the rate of growth in the U.S.
economy, with some analysts blaming sluggish growth on large
companies spending more money on share repurchases and dividends
instead of capital expenditures or research and development.
"The question is ... if the best use of cash is to put it
toward reducing the denominator on your earnings per share and
try to grow your growth that way as opposed to trying to grow it
from the top down," said Daniel Morgan, senior portfolio manager
at Synovus Trust Company in Atlanta, which owns the shares.
"I have mixed feelings about it," he said.
Last week, Icahn bought another $500 million of Apple
shares. His proposal for the company to give back $50 billion
more through share buybacks will be voted on at the Feb. 28
"If Tim (Cook) wants Icahn's proposal shot down, he needs
the stock to look strong going into the meeting. He needs to
show that management is doing something about the stock's
under-performance," said Antony Filippo, a Toronto-based
independent investment manager, who does not own the stock.
Filippo has a short position in call options with an $800
strike price expiring in January 2015 - a bet that only becomes
a loser if the stock exceeds that price by that time.
The company's buying could be why the stock stemmed its
losses after falling 8 percent on Jan. 28, after Apple reported
quarterly results. The shares are up 3.8 percent in February,
compared with a 0.8 percent rise in the S&P 500.
On that day, Reuters asked Icahn in a telephone interview if
Apple should be buying back shares as the stock was falling.
Icahn answered, "I hope so. That's what we're doing."