Apple Buys Back the Right Way

 | Feb 07, 2014 | 7:29 AM EST
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It was one line in an otherwise fine call, one line that really rankled me.

That line? When Apple (AAPL) CEO Tim Cook was asked about the Apple buyback he said "So, we're a big believer in buying back the stock, whether the stock goes up or down."

I read it and I said, "Huh? Up or down?" What kind of buyback is that? Some autopilot buyback, one where you give the buyback to a broker and tell him to buy 500,000 shares a day over the course of the day with the best average price possible, regardless of the price for that day?" That's one of those conned buybacks where your banker says he will take care of the buyback and he buys back the same amount regardless of the weakness?

That's the kind of moronic buyback that so many companies have done for years, the kind of buyback I have railed against and, when given a chance to help a company do it, I advise the exact opposite. I say you buy back stock opportunistically and aggressively, waiting for those absurd moments when people don't realize how well your company is and they sell the stock willy nilly because they haven't thought about what they are doing and act with emotions not brains.

Apple must have listened, because its bought back $14 billion worth of stock and it has done so, to quote Tim Cook in today's Wall Street Journal, in a way that is "aggressive" and "opportunistic."

And why did he do it that way?

"It means that we are betting on Apple," he said. "It means that we are really confident on what we are doing and what we plan to do. We're not just saying that. We're showing that with our actions."

To which I say "BRAVO!"

Here's a company that truly believes that the action in the stock is ridiculous vs. the prospects and when the prospects play out the company will have retired an immense amount of stock at lower prices than it should have gotten because people have given up on it. And why not? The company came to the bond market in a brilliant way not that long ago, capturing almost the exact bottom in interest rates, issuing 3-year debt and 5-year debt, at 0.51% and 1.076%, making the buys quite a bargain right before it shelled out a dividend with the equivalent of a 2.38% yield.

Most of the time when I see buybacks that are done irrespective of price I have to laugh. They can be such wastes of money, like the endless Cisco (CSCO) buyback that has been done above the market price or the moronic accelerated buybacks of ADT (ADT), which had the gall to purchase 10 million shares  at $44.01 back in November from a dissident shareholder, Keith Meister, who happened to be on the board representing the interests of his hedge fund Corvex. Unless Meister was brain dead, he must have known that business had softened dramatically.

Now the stock stands at $29. That was opportunistic and aggressive all right, an opportunistic and aggressive sale to the company in a transaction that should be investigated by the SEC nine ways to Sunday for potential insider-trading violations.

Cook's buy is the exact opposite. It also happens to be something that Carl Icahn, a huge shareholder, approves of as he has said that buying back stock here is a "no brainer."

Now, of course, Apple has to execute on its plans to produce the best new products in a way that will increase sales growth. But just as important, this buy signals that the company really does think the stock is cheap.

It's exactly what's right to do. If you complain about it, you should sell it because, alas, you shouldn't be along for the ride anyway.

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