Chris Preston: Complaints about Apple Inc. (NASDAQ:AAPL) hoarding its massive cash stockpile have reached a fever pitch of late. Now, a New York Times story is shedding some light on why Apple has been slow to reward its shareholders.
According to a story by the Times’ Jeff Sommer, Apple, Microsoft (NASDAQ: MSFT) and Cisco (NASDAQ: CSCO) are all guilty of stashing much of their overseas earnings in low-tax countries – thus avoiding the reach of the IRS.
But keeping all that money on the sidelines is actually doing more harm than good. Money manager Robert Olstein called it self-sabotage.
“These companies have been letting the tail wag the dog. They’ve been letting taxes determine their strategy, and that’s a basic mistake. … You should have a good solid moneymaking strategy first, and only then worry about taxes.”
Clearly, making money has never been a problem for any of these three tech giants. They have plenty to spare. Yet all three are keeping a majority of that cash under lock and key overseas.
Here’s a breakdown, according to the Times’ numbers:
- 70% of Apple’s $137 billion in cash is overseas
- 80% of Microsoft’s $78 billion in cash is overseas
- 80% of Cisco’s $47 billion in cash is overseas
Yes, by bringing some of that money back home, those companies will have to pay more taxes. But they’ll also be able to use it to increase their dividends or initiate stock buybacks – a move Olstein estimates would drive up their share price by at least 20%.
All three stocks have struggled in recent months. Apple shares have fallen a whopping 16% this year; Cisco and Microsoft shares have only risen 2% apiece.
So all three could use the nice kick in the pants that a stock buyback or higher dividend would provide.
Related ETF: Technology Select Sector SPDR (NYSEARCA:XLK)
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