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Yes, the Apple Cash Hoard Really Is That Big

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People come from all around the world to see Mount Everest. But if you lived in Nepal and saw it lurking in the distance every day, it might not seem nearly as impressive. You might take it for granted or even dismiss it as no big deal.

That’s really where we are today with Apple (AAPL) and the absolutely gargantuan Apple cash hoard. It’s been so large for so long that no one really pays attention to it anymore. In fact, it seems the most common thing I hear said about the Apple cash stockpile these days is that “it’s really not that big when you take debt and potential taxes into consideration.”

Frankly, that’s ridiculous. Even allowing for a massive tax haircut, AAPL’s cash hoard would rank as one of history largest treasures… a fortune that would make Croesus blush.

As of Apple’s latest quarterly earnings report, the company had $231.5 billion in cash and marketable securities. The Apple cash balance — the gross number, before any debt or tax considerations — would be the 13th-largest company in the world… bigger than Wal-Mart (WMT) and just a hair smaller than Procter & Gamble (PG).

Now, of course, the Apple cash is mostly overseas, while Apple’s $72.4 billion in debt is mostly domestic. Let’s pretend that Apple suddenly got religion and decided it wanted to be debt free… now. And let’s further assume that Apple wanted to move its entire cash hoard stateside because… go America!  And let’s take this one step further and assume that Apple is paying the full 35% U.S. corporate tax rate on the whole pile of money. (None of these are realistic assumptions, mind you, but let’s go through the exercise anyway…)

After taxes, Apple’s $231.5 billion in cash becomes $150.5 billion. That would still put the Apple cash hoard in the top 30 largest companies in the S&P 500… about on par with Phillip Morris International (PM) and just a hair smaller than IBM (IBM), Disney (DIS) and Pepsico (PEP).

After stripping out the $72.4 billion in debt, the $150.5 billion becomes $78.1 billion. That’s still not exactly chump change. In fact, that’s nearly double the average market cap of all S&P 500 and more than four times bigger than the median market cap of all S&P 500 companies.

And remember, this all assumes the absolute worst case scenario for taxes. Were Apple to actually attempt to repatriate its cash, it would likely negotiate much better terms.

So, yes. The Apple cash hoard is a big deal, no matter how you slice it.

To read the full article, see Call the War Chest Waahmbulance!

Charles Lewis Sizemore, CFA is the principal of Sizemore Capital Management, a registered investment adviser in Dallas, Texas. As of this writing he was long AAPL.

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Energy Transfer Equity (ETE) Back in Second Place

What a year. At one point, I was down 70% on my recommendation of Energy Transfer Equity (ETE) and smack dab in last place in InvestorPlace’s Best Stocks for 2016 contest. As of this afternoon, I’m in second place… and with half the year left to go, winning is still a very real possibility. Go ETE!

ETE

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Stocks That Are Fit for a President

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Photo credit Donkey Hotey

I wrote a tongue-in-cheek piece for InvestorPlace on 12 Stocks Fit for a President. The following is an excerpt:

We’re in the middle of a presidential election year, and what a campaign it’s been so far. It’s looking like our choices will be two of the most polarizing political figures in modern history. But no matter who wins in November, we all have to get up and go to work the next day.

We also have portfolios to manage.

So, in the spirit of the 2016 election, I’m going to propose a portfolio fit for a president. And by “fit for a president,” I mean that the stock shares its name with a former commander-in-chief.

This probably isn’t the most scientific way to build a portfolio. But can you credibly say it’s any more ridiculous as a basis for investment decisions than the Hemline Indicator, the Super Bowl Indicator, or the Bangladeshi Butter Indicator?

Alas, Donald Trump’s companies are not publicly traded, and there’s no public company with “Clinton” in its name. Though there is a Sanderson Farms (SAFM), so perhaps the market is telling us to expect a Bernie Sanders upset in November.

Hail to the Chief … I guess.

Presidential Stocks: Washington Real Estate Investment Trust (WRE)

George Washington is the father of our country, the leader of our war of independence against Great Britain and our first president. He’s also the only person to be elected to the presidency with a unanimous vote of the Electoral College.

I’m not sure what President Washington would think of our nation’s capital, which bears his name. But as a successful businessman, he’d know a good profit opportunity when he saw it. If there is one sure bet in this life, it would be that the government will continue to get bigger. And as government grows, so does the city that supports it.

Washington REIT (WRE) is a real estate investment trust that focuses on office, retail and apartment properties in the Washington DC area. It’s a small-cap REIT with a market capitalization of just $2 billion and a respectable dividend of 4.1%. George Washington himself preferred to invest in farmland, but you could do a lot worse than Washington DC real estate.

Presidential Stocks: Carter’s Inc. (CRI)

Poor Jimmy Carter gets even less respect than Gerald Ford, whom he succeeded as president. Carter’s presidency was best remembered for runaway inflation, the Iranian hostage crisis, and that unfortunate sweater he wore during a fireside speech encouraging Americans to turn the thermostat down. But Carter wasn’t all bad. Some of the reforms and deregulation that Reagan is known for actually started under Carter’s administration. Whether Carter is actually smart enough to appreciate the pro-business accomplishments of his presidency is debatable, however.

Regardless, Carter’s, Inc. (CRI) is a stock you ought to keep on your radar. It’s one of the biggest makers of baby clothes in the world. That hasn’t been a great business to be in lately, as American births have been trending downward since 2008. But with millennials starting to enter their family formation years, I expect Americans births to start ticking up again, and soon. And when they do, you can bet that you’ll see a sustained bump in sales for Carter’s and its peers.

You can read the rest of the article… and all 12 presidential stocks… here: 12 Stocks Fit for a President

Disclaimer: I built a portfolio of 12 stocks with no other criteria than sharing a name with a past president. This is a spoof. For crying out loud, please do not consider this serious investment advice.

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Energy Transfer Equity: Back in the Race

In early February, it was looking ugly for me in InvestorPlace’s Best Stocks for 2016 contest. I was down 70% year to date… and squarely in last place. My what a difference a few months can make. I’m now in 4th place and very much back in the race.

ETE

Jason Moser is off to a great start in Ellie Mae (ELLI), up over 50%. But we still have a good eight months left in 2016… and I like my chance in Energy Transfer Equity (ETE).

May the best stock win!

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Apple STILL so cheap, it’s actually ridiculous…

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I wrote earlier this year that Apple is so cheap, it’s actually ridiculous. I still feel that way, and after a lousy start to the year, the market seems to be coming around to my view. Apple (AAPL) shares have enjoyed a nice rally of late, and I expect a lot more to come. Excluding the oil sector, Apple is one of the cheapest large companies in the world, trading for half the market’s earnings multiple, and sits on a mountain of cash large enough to pay its dividends at current levels for the next ten years… even if Apple were to never earn another cent of profit.

At any rate, Barron’s had an interesting take on Apple this week (see Jack Hough’s  Why Apple is Worth $150 per share.)

Hough’s basic argument is that Apple should not be priced as a high-growth tech company. Instead, because of the stickiness of its ecosystem, it should be valued more like a cable TV company. As Hough writes,

Maybe it’s time to start measuring Apple against companies with similar financial attributes, rather than smartphone sellers. Based on a survey, Needham analyst Laura Martin, who initiated coverage with a Strong Buy rating on Tuesday, calculates a yearly customer churn rate of 12% for the iPhone ecosystem, or an eight-year average stay, on par with cable companies. Applying a cablelike valuation to Apple would put shares at about $180. Martin expects the stock to move toward that level over time, beginning with a rise to $150 over the next year.

I agree, and I would add that these figures are close to Carl Icahn’s target of $200 per share.

I don’t do precise price targets. But I know a cheap stock when I see one, and Apple fits the bill.

Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas.

Photo credit: obihirorabbit

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