There are many reasons to be bullish on Apple (AAPL) stock right now. It just launched the iPhone 6S, which set sales records and sold 13 million phones in its first weekend. The Apple Watch, Apple TV, Apple Pay and supposedly even an Apple Car are a few of the company’s many innovations.
The list goes on. I own AAPL stock myself, and have for years. I think it’s one of the few must-own names in the stock market today.
But one of AAPL bulls’ favorite reasons for buying the stock — Apple’s $203 billion cash and investments hoard — is an incredibly misleading figure, and not the compelling buy signal you may think it is.
Here’s why:
Uncle Sam’s Gotta Get Paid … And So Do Apple’s Partners
As Mark Twain once quoted, “There are lies, damned lies and statistics.” Sure, numbers don’t lie, but you’ve got to put them in context for them to tell the whole truth.
It’s true that AAPL has $203 billion in cash and equivalents on its balance sheet, and that’s just through June 27 — that number will doubtlessly increase come its next quarterly report on Oct. 27. But where is that money held?
An astonishing $181.1 billion of that is held overseas, which is important because in order for AAPL to truly put that money to work for shareholders via share buybacks or dividends, it would first need to repatriate that money.
A new report from Citizens for Tax Justice notes that if AAPL tried to repatriate that dough, it’d have to pay $59.2 billion to Uncle Sam before doing anything else with it.
AAPL is not going to do that, as it has explicitly said before. So then, how is the vast majority of Apple’s cash — the $181 billion overseas — so beneficial to shareholders? It’s nice to have, don’t get me wrong, and it allows the company to make investments across the globe without taking a $60 billion hit to do so.
But what exactly is the best-case scenario here? Apple invests $181 billion in foreign markets and turns it into $200 billion, then $240 billion, then a higher, equally unfathomable sum of money … that it can’t use to pay dividends or buy back AAPL stock.
Then, you’ve got the not-unsubstantial amount of money AAPL owes to its suppliers and other partners: it has liabilities of around $179 billion, all told.
Sure, Apple’s sheer size enables it to collect more quickly from the companies that owe it money, and conversely, it can kick the can down the road on paying its creditors. But pardon me, that doesn’t exactly elicit the sort of unabashed bullishness that the $203 billion cash hoard statistic does.
Bottom Line
At the end of the day, AAPL desperately needs Uncle Sam to give a corporate tax holiday for that cash figure to mean anything substantial for investors. Later this month, when the company reports quarterly results, you’ll again see sensational headlines about a different, larger amount of cash that AAPL has on its books.
And I suggest you ignore them.
As I said, there are plenty of reasons to be an Apple bull, but the $203 billion in cash shouldn’t be the crux of your thesis.
As of this writing, John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
