Cramer: Greenlight Is Playing Parlor Games With Apple
David Einhorn, president of hedge fund Greenlight Capital Inc. (NASDAQ:GLRE), thinks Apple (NASDAQ:AAPL) is sitting on too much cash. “The combination of Apple’s low (and shrinking) price-to-earnings multiple and $137 billion (and growing) hoard of cash on the balance sheet supports Greenlight’s contention that Apple has an obligation to examine all options to create and unlock additional value,” he explains.
The firm announced Thursday that it is suing the company over a proposal that would essentially eliminate preferred stock. This was conveniently bundled with two other shareholder-friendly measures — a sneaky way to force shareholders to accept or reject all three at once, which according to Greenlight, violates a U.S. Securities and Exchange Commission rule. Einhorn urges investors to demand from Apple a “perpetual preferred stock” that carries a 4 percent dividend, thus unlocking hundreds of dollars of value per share.
“We don’t know what’s really going on,” says Jim Cramer. “One of the things that Einhorn says is that they’ve got a depression mentality. He does make a very good point, which is that if they were to return more capital to shareholders, the stock would be higher. I come back and say, had they executed properly the stock would be higher.”
Apple’s hoarding is nothing new, and many other tech giants are also guilty – complaints have mostly commenced in the wake of slowing revenue. However, ”it’s not normal for a stock to be on an upward trajectory forever,” explains The Street analyst Debra Borchardt. “At some point it’s got to pull back. It gets exhausted, fatigue settles in, and a stock will naturally pull back. Then you can push it ahead.”
One issue could be the fact that Apple hasn’t released a truly groundbreaking new product since the iPad in 2010. But Cramer insists, “It’s a parlor game to play this. If people are upset with the products, that’s been an issue, but people upset with the stock price, for a stock that’s created more wealth than any stock in my lifetime, I question whether they need to feel as urgent as other companies… it’s been a great performer. If you got in at $700, you’re angry. If you got in at $200, like at Action Alerts, we’re not angry.”