I noted earlier in 2014 how Apple can use its cash more productively. Although not much innovation has taken place at Apple, its market capitalization grew from $600 b in October 2012 to $765 b now. Never mind if it is not much of an appreciation for the investors. I also argued in February 2013 that with $140 b of excess cash, Apple had to do something. In late 2014, there was much talk of Apple being on sale, what with a market valuation of equity estimated to reach $1 trillion. In November 2015, Apple's market value reached $676 b; it had peaked to $750 b in 2015; and Apple had had a marvelous decade. In August 2016, we heard that Buffett had bought Apple stock, a news of the decades event. Recently in March 2017, I had wondered what Apple could do for its investors with a market capitalization of $744 b, 34% short of $1 trillion. I also expected that Apple could be a 7.50% returns business, which is actually not that bad in the present environment.
Now we are back to Apple. At the current market price of its equity at $765 b, and a staggering cash hoard in excess of $250 b, Apple has become interesting; well, it has always been interesting. This story came up with some of the things that Apple can do with its cash. But then I thought of my version as I pleased.
This time I would like to make it more interesting by moving to an emerging economy, which of course has the potential to provide higher returns even by the dollar terms. The most valued company in terms of market capitalization in India is either TCS or Reliance, each priced between $65-70 b. Compare that to just the amount of excess cash that Apple has; the perspective is evident.
Apple has an enormous volume of fixed currency. Most of that is tottering outside of the US waiting to be repatriated once the tax laws are made favorable. This is not invested in any of its operating businesses. Consequently, Apple can use the cash as it pleases without hampering its business. The best use of excess cash is to return it back to the shareholders. It can be done through share buybacks if the stock price is much lower than its intrinsic value. If not, cash can be returned in the form of dividends.
I wanted the post to be more interesting. Unsolicited as it may, I suggest acquisition of some wonderful businesses from India, which have the potential to become bigger through passage of time. The acquisitions are only a fiction as none of this is going to be allowed as per the laws. That does not stop imagination, though.
HDFC bank is a wonderful banking franchise, which has rewarded the investors handsomely during the past decade. Interestingly, it is still a growing business.
State Bank of India has not been a performer; it rather has been a trading stock. Yet, it is a banking behemoth operating in some very interesting times.
Hindustan Unilever was struggling until 2011. Unilever offered to buyback shares at a price of Rs.600 in April 2013. The stock has been rolling since then.
Maruti Suzuki is the largest automobile business in India, and will likely continue to grow.
I strongly believe that both ICICI bank and Kotak Mahindra bank will grow at a decent rate in future.
Asian Paints is the largest paints manufacturer in India, and has been an investor's delight for years.
Nestle has done very well in India, and probably will do well in future too.
I would be surprised if Asian Paints, Nestle, Dabur, and Marico do not do well in years to come. Just have a look at the chart.
And there is Pidilite, an adhesives company, which has rewarded its investors big time.
There you go. If Apple acquires these eleven businesses at current prices, it should spend its entire excess cash, and yet be able to continue sale of iPhone, iPad, and Mac without any hitch. In fact, soon it might even generate cash, albeit in much smaller doses.
I would like to believe that over the years, these acquisitions will provide higher returns than Apple's core business unless of course Apple surprises me with innovation.
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