Legg Mason portfolio manager Bill Miller has some strong words for Apple Inc. (AAPL) on its capital allocation policies. He calls the company’s strategies “idiotic and dysfunctional,” “dumb” and “probably the worst in the history of corporate America.” According to Miller, the markets now have a love-hate relationship with Apple, which is like Dr. Jekyll because of its innovations and Mr. Hyde because of its poor capital allocation management.
An exclusive interview with Miller about Apple will air tonight on public television (check your local listings) and on WealthTrack.com on Monday; however, we got a sneak peak today.
Of course when Miller called Apple the Dr. Jekyll and Mr. Hyde of the stock market, he was referring to the hubbub surrounding Apple Inc.’s (NASDAQ:AAPL)’s capital allocation strategy, which has been the topic of debate for days. Hedge fund manager David Einhorn even filed suit against Apple because of its capital allocation strategies—or lack, thereof, according to Miller.
“They’re Dr. Jekyll in the sense that they’re one of the greatest product innovators creating the products people love and a brand people love,” Miller said. “And they’re Mr. Hyde in their completely idiotic and dysfunctional capital allocation, which is probably the worst in the history of corporate America.”
Miller says cash is equity, and he points out that equity has a cost. He equates the cost of equity between 6 and 8 percent, and he said when you multiply that by $137 billion, “that’s how much they’re destroying in value every year with dumb capital allocation.”
According to Miller, Apple Inc. (NASDAQ:AAPL) could double the dividend tomorrow, continue its share buyback plan, and still never even touch its huge cash hoard. He believes Apple’s stock went up because people didn’t care about the company’s poor capital allocation policies but he says times are changing. Now he says Apple Inc. (NASDAQ:AAPL) has matured, so investors are starting to put it in a camp with Microsoft Corporation (NASDAQ:AAPL) and Cisco Systems, Inc. (NASDAQ:CSCO).
Miller said just as the market took Microsoft Corporation’s (NASDAQ:MSFT) multiple down every year, it now wants to know why Apple Inc. (NASDAQ:AAPL) is sitting on such a big pile of cash. He believes investors want to know why the company isn’t raising its dividend 25 percent a year instead of 15 percent and continuing to buy back extra stock.
Analysts see all of this capital allocation attention as a near-term catalyst for Apple’s stock although one firm notes that most of the company’s cash is overseas, so bringing it home would come with a hefty tax cost.
Of course it’s highly likely that Apple Inc. (NASDAQ:AAPL) will keep all of us waiting with bated breath until after the next shareholder meeting later this month to find out what it will do with its capital allocation strategies this year.
It could be March before we know anything concrete. Until then, we’ll just have to live with rumors and what-if statements.