(This piece was originally sent to subscribers of Action Alerts PLUS this morning at 10:36. Sign up for a free trial of AAP here.)
This morning, David Einhorn of Greenlight Capital announced that he would oppose a proposal made by Apple (AAPL) to eliminate the ability to offer a preferred stock from its charter. Einhorn said that such a move would take away the flexibility and the option of providing cash to shareholders.
The big question is why Apple wants to eliminate the preferred in the first place, but we side with Einhorn -- it doesn't make sense to take away the ability to at some point be able to offer a preferred security.
We've been critical of Apple's handling of its cash (as have many). It has $275 billion on its balance sheet, or $145 a share, and shareholders are rightfully frustrated that Apple has not addressed its cash strategy. CEO Tim Cook is speaking at Goldman's conference next week, and there's been speculation that he will announce the company's cash plans -- a dividend increase is the rumor. Should it announce something, it certainly would make value investors more interested in the stock. The stock is cheap, but a higher yield would make it more appealing. It currently has a 2.3% yield.
Our preference still is for the company to make an acquisition (or several) in order to increase its growth rate, but we would view a buyback or an increased dividend as positive.