How Much Cash Does Apple Have?

Commentators sometimes make exaggerated remarks about the amount of cash Apple Inc. holds. The figure often cited is that Apple has about $80 billion in cash. That's not quite right, but this is how they arrive at that number.

According to the company's recently filed 10-K, Apple actually has $9.8 billion in cash and cash equivalents. It also holds another $16.1 billion in short-term marketable securities. Although these securities are not exactly cash, they can be converted into cash rather quickly if needed. Including short-term marketable securities in the mix is not unusual. So that brings us to about $26 billion. In addition to this, Apple also has $55.6 billion invested in long-term marketable securities. These securities are less cash-like than short-term marketable securities. It is true that they could be sold and converted into cash, but so could any long-term asset. It isn't quite right to classify long-term assets, even the ones that are marketable, as cash. Nonetheless, the total of cash, cash equivalents, and marketable securities (both short and long term) does come out $81.6 billion, or approximately $87.70 per share of outstanding common stock. Any way you look at it, that's a lot of dough.

Where is all this money invested? Apple holds U.S. Treasury and agency securities, foreign government securities, certificates of deposit, commercial paper, corporate securities, and municipal securities. The company's 10-K states that in fiscal 2011, the entire amount earned a weighted average interest rate of 0.77%! Can Apple find no better use for this money? Perhaps a dividend is in order.

By the way, Apple says $54.3 billion of the total is held by foreign subsidiaries. This money would be subject to U.S. taxes of as much as 35% if Apple ever tried to repatriate it. But the tax would not end there. If Apple repatriated the money and then paid a dividend, shareholders would have to pay an additional tax. Is it any wonder that the company is sitting on so much money earning next to nothing? It is high time for Congress to revisit this inane tax policy.

Tweet

Defense Stocks Could Rally on Supercommittee Compromise

The so-called supecommittee, tasked with finding a way to reduce the national debt by at least $1.2 trillion over 10 years, is facing a looming deadline. It it fails to agree on a proposal by November 23, there will be automatic spending cuts. There are those who would welcome such a dire outcome. The problem is that some of those automatic cuts would put our national security at risk. Defense Secretary Leon Panetta warned that such cuts would be devastating.

For this reason, I am still hopeful that the committee will find some resolution. It is difficult to believe that even the most partisan politician would be willing to put our nation at risk. If a compromise is reached, defense stocks could rally. Some of my favorites include Raytheon (RTN), ManTech International (MANT), and ITT Exelis (XLS). All three also pay generous dividends.

Tweet

Should You Mimic Buffett?

A few years ago, a couple of academic scholars did some research on Warren Buffett's trades. Their paper, entitled Imitation is the Sincerest Form of Flattery, concluded that investors could indeed have earned excess returns simply by buying the same stocks Warren Buffett bought for Berkshire Hathaway. This is true even if they bought the stocks after the information became public.

In today's interview with CNBC I discuss some of Buffett's recent investments, including IBM, and explain why it matters if Buffett is actually buying the common stock or if he is making a private investment in public equity (PIPE).

Tweet

Supercommittee Rally?

The conventional wisdom says the Supercommittee, charged with finding a way to reduce the deficit by $1.2 trillion over 10 years, will not be able to reach a compromise. If they don't, automatic spending cuts will go into effect. Cuts to defense spending would put this nation's security at risk. That's why I believe (at least hope) that the committee will put forth a reasonable proposal. The result would be a surprise rally in defense stocks. Read more at MarketWatch.

Tweet

Market Continues to React to Europe

The stock market has been paying more attention recently to events in Europe than to economic numbers in the U.S. This may continue for some time. Click here to watch and listen to a recent discussion I had about this with Tracy Byrnes of FoxBusiness.

Tweet

Berkshire Buffeted by Financial Weapons of Mass Destruction

Warren Buffett is a critic of derivative securities. Soon after his company, Berkshire Hathaway, acquired General Reinsurance, he discovered a boatload of derivatives that took years to unwind and resulted in massive losses. That's what prompted him to label derivatives, "financial weapons of mass destruction."

So it's a bit of a surprise to see Berkshire report $2.44 billion worth of derivative-related losses (on a before-tax basis) for the third quarter. These derivatives are European style equity index put options. A European option is one that can be exercised only at maturity, but never before.

Berkshire received a premium for selling these options to investors. Buffett is making a bet that stock markets will rise over time. If he is right, Berkshire keeps the premiums. But if he is wrong and stock markets fall, the investors can force Berkshire to buy the indexes from them at higher prices.

The outcome will not be known until the actual expiration dates; however, Berkshire must mark the derivatives to market every quarter. This can introduce a tremendous amount of volatility to the company's earnings. The large derivatives-related losses in the third quarter were a direct result of falling stock prices.

The good news is that Berkshire's operating businesses are doing fine. If not for the derivatives, the company would have earned close to $4 billion last quarter. Instead, it earned just $2.3 billion or $1,380 per share. Still not too shabby.

Tweet

Poverty in U.S. Lower Than Reported

We are frequently bombarded by reports about how bad things are in America for the poor. Nations not friendly to the U.S. often use our own statistics to convince their populations that life in America is intolerable. Well, it turns out the statistics are flawed.

As reported in the The New York Times, those compiling the numbers for the government have ignored all the benefits, such as food stamps, that the poor receive. It turns out that when the calculations are done correctly, the rise in poverty since 2006 is less than half of what was previously reported.

This is not to say that poverty is not a problem. It is. We should continue to make serious efforts to address the needs of the truly needy. Yet poverty in the United States is not the same thing as poverty in most parts of the world. The average American who officially lives in poverty eats regular meals, has a place to live with heat in the winter time, and owns both a car and a color television set. In many places of the world, this person would be considered very well off.

Tweet

The Power of Competition

On October 6, I wrote about President Obama's ridiculous attack on Bank of America for its plans to impose a $5.00 monthly debit-card fee, and I explained how competition is the best way to limit profits. Specifically, I said, "Bank of America may have made a mistake by introducing this fee. If so, its competitors will pounce. They will begin advertising debit card services with lower fees or no fees at all. Bank of America will notice that it is losing customers."

This is exactly what happened. Several competitors said they would not impose debit-card fees and some customers started switching banks. Here's the latest from Bloomberg: Bank of America Eliminates Plan for $5 Debit-Card Fee. It wasn't government regulation that convinced Bank of America to scrap the fee. It was competition.

Tweet

Greece Continues to Rock the Markets

In my September 1 post, I wrote about the increasing level of volatility in the markets, which continues to be one of my major concerns. The S&P 500 plunged 7.2% in September then surged 10.8% in October. Although few investors complain about upside volatility, I see it almost as problematic as downside volatility. Upside volatility provides further evidence of the high level of uncertainty currently plaguing the markets, and it does not provide comfort to the average retail investor who is sick and tired of seeing his/her portfolio balance jumping around like the electrocardiogram of a heart attack victim. And without a critical mass of retail investors, who are more likely than institutions to invest for the long term, the market is not likely to calm down.

Clearly, there were some good economic reasons for October's gains. Most importantly, the advance GDP estimate for the third quarter was better than expected. Although the 2.5% growth figure might eventually be reduced when more data becomes available, it was a pleasant surprise to many economists and investors. However, most of October's gains can be credited to growing optimism that Europe would actually be able to appropriately address its debt problems. I continue to believe this optimism is premature.

Europe's problems are serious and they are beginning to have a negative impact on U.S. companies in unexpected ways. C.R. Bard (ticker "BCR"), for example, a $7 billion (by market cap) medical device maker, took a $7 million write down in the third quarter for the impairment of Greek bonds. I have no doubt that there will be more companies taking similar write downs in coming quarters.

Despite the recent jubilation about Europe, we are already seeing trouble ahead. The latest news that the Greek government wants to hold a referendum on the bailout package it has already agreed to, has really shaken the markets. Greek politicians hope the referendum will pass and put an end to street demonstrations and riots. However, austerity measures are extremely unpopular and not likely to be approved by popular vote. This all but assures that the markets will remain incredibly volatile.

Volatility may be a trader's best friend. Those nimble enough to jump in and out of the markets can make a quick buck. (Quick bucks, by the way, are good for the government because they are taxed at higher rates.) However, volatility does not mean that long-term buy-and-hold investing is dead. But it does make entry points more important than ever. If you are a long-term investor, I suggest taking the big selloffs as good opportunities to add to positions in high-quality, profitable, dividend-paying stocks.

Tweet