A few weeks back, Motley Fool analyst Rich Greifner wondered aloud why any investor would trust Apple
Upon reading Rich's article and his rationale, my engineering common-sense kicked me and said that's not right.
Rich repeated several tired blemishes -- options backdating, returning cash, Jobs' health disclosure -- while intoning that you must set aside past results … even when the results are excellent.
Sorry, Rich. I'm not buying it. Here are four reasons why.
1. With the bad comes the good
It doesn't make sense to argue that you have to ignore past results and look only at past actions. Actions have consequences. If they don't have consequences, they are immaterial. If they have consequences other than what you think they should, that does not make them wrong. This includes management's actions and the operating results.
In my opinion, the truest measure of the treatment of outside shareholders is the return on investment, and in that sense, Apple's results have dominated the competition. They have been so dominating that Jobs was named CEO of the decade by Fortune magazine.
The Fool has previously put together lists of the most "shareholder-friendly companies," singling out companies such as Costco
However, Apple destroys them all on the basis of one-, five-, and 10-year returns:
|
Company |
1-Year |
5-Year |
10-Year |
|---|---|---|---|
|
Apple |
142% |
625% |
742%* |
|
Costco |
28% |
26% |
35% |
|
IBM |
69% |
34% |
21% |
|
Berkshire Hathaway |
15% |
18% |
78% |
|
Sears Holding |
133% |
(32%) |
373% |
Source: Google Finance.
*Jobs rejoined Apple as "interim" CEO in the fall of 1997.
2. Options and urban legends
Rich mentioned several areas where he believes Apple's management has been less than stellar. Fortunately, the Fool has covered those issues in the past. The first of those was the options backdating scandal.
Yes, Apple had an options scandal (as did Broadcom
The SEC indicated that no charges would be filed against Apple or Jobs. Yet somehow the myth lives on that Jobs was at fault. If he was at fault, does anyone really believe that the federal government would not have gone after him with everything it has? There simply isn't evidence to support the claim. To suggest otherwise is simply to make this an urban legend.
3. A pile of cash is a good thing
On the cash issue, this is an opinion about which I disagree with Rich and other Fools. Apple has a pile of cash and securities, about $34 billion including its long-term investments, according to the latest quarterly results.
Having that cash allows Apple to do some important things. It has the flexibility to ramp up R&D to protect its cutting-edge technology and procure companies that it feels will provide a significant benefit to its products. For example, the PA Semi acquisition is thought to have been made with an eye toward designing a processor for the iPhone.
4. The real question of health
The topic of Jobs' health is hotly debated. But I find no fault in Apple's handling of the situation.
As a public company, Apple is bound by laws that prohibit the discussion of an employee's health without his or her permission. Regardless of statements in the 10-K, individuals are still entitled to privacy in their health records.
The SEC has no set rules governing such a disclosure, so Jobs couldn't have violated any rules. According to an article from Corporate Counsel, "the agency has no clear rule about whether an executive's health problems are material."
Jobs is a visionary and important leader. And experts have argued both sides of whether his health is "material" to Apple shareholders. But let's not get ahead of ourselves -- while Steve Jobs is the figurehead, he is not Apple.
Yes, he did lead it back from the brink of collapse. But to argue that the Apple of today is the same as the Apple of 1997 -- near failure without his leadership -- is preposterous. And this wasn't the first time Jobs has taken time off. He battled pancreatic cancer back in 2004, and Apple kept making money just fine without Jobs running the show.
In fact, the real health to look at is the health of Apple. How many other companies have continued to grow even in this recession? Has Microsoft
And then there is the potential for growth. Apple still has less than 6% of the global market for computers. It has less than 4% of the market for phones. The potential for growth in those markets is significant, and will significantly impact the bottom line.
My bottom line is this: Results matter. Ignoring past results to focus on perceived past shortcomings is like rewriting a history book. Apple under Steve Jobs has continued to reward shareholders with market-crushing returns by focusing on the long term, not what Wall Street wants next quarter.
And Apple still has room to run. As a shareholder, that's the best reward any chief executive can give you.
