In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Total Income's Ron Gross discuss the latest big money news from Apple (NASDAQ:AAPL).
First, it will pay $38 billion in taxes to Uncle Sam so that it can finally bring its enormous stockpile of foreign profits home. That's a large IRS bill, but it's saving even more as the single largest beneficiary of the repatriation tax break the Republicans just passed in Washington. Meanwhile, it publicly proposed to invest $350 million in the U.S. over the next five years. Those big numbers generate big buzz, but how much is really "news" here, and what does it change about the company, the investment thesis for its stock, or the U.S. economy in general?
A full transcript follows the video.
This video was recorded on Jan. 19, 2018.
Chris Hill: Apple was not in the news so much this week as Apple's cash was in the news. Apple announcing it will pay a one-time repatriation tax of $38 billion on its overseas cash. The company also plans to invest $350 billion in the United States over the next five years. You tell me, Ron, which of those two should investors care more about?
Ron Gross: How long have we been talking about Apple bringing back that cash? I think --
Hill: As long as we've been doing this show.
Gross: Do not feel bad about them paying $38 billion in tax, because they're saving $43 billion as a result of the new tax plan. So that's all good. They're going to commit to $350 billion over the next five years, contribution to the U.S. economy, $30 billion in capex over the next five years, they're going to pay $2,500 stock bonuses to a bunch of its employees -- most of them, they say. This looks really good for both investors and the company itself. They're committing to investing quite a bit of money into their business, which indicates to me that they think the future looks bright.
I think the other thing to mention is, the company has returned to $233 billion to shareholders through buybacks and dividends over the last five years. But that's largely been done through debt. They've had to borrow because all the money was overseas and they couldn't really use it. So now that they're going to have all this money, it's going to be interesting to see, because now they'll be able to use their own cash, will they continue to borrow if interest rates remain low, will they choose to pay down some of that debt now that the cash is back here? It increases their flexibility very significantly in terms of returning capital to shareholders.
Matt Argersinger: This is why I think all of us sitting at this table though at some point, there would be a repatriation holiday of some kind, it would be short-term, one year or something like that, where all these companies would bring back cash, and Apple might bring back a third or half of its cash from overseas. I think that's why it was so powerful that the permanent change to the corporate tax rate is really changing behavior. It's companies like Apple saying, "If I'm going to have to pay taxes when I earn foreign profits anyway now going forward, I might as well bring it all back to the United States, which now has a low corporate tax rate." So this is one of the really positive things that I think came out of the tax reform bill. We can debate about all the other issues surrounding it, but this was a powerful impact.
Jason Moser: Yeah, I agree. It's interesting to see the divide between the politicians who really, so many were vehemently against this tax bill. And be that as it may, it still sounds like this is going to bring in somewhere in the neighborhood of $350 billion to the federal government over the course of the next 10 years. Without question, the CEOs of all of these major businesses are saying that the reason they're able to do this is because of the new tax legislation. So if you're an investor, you have to be feeling really good about this.
Hill: Ron, any chance, did Apple say anything like, "And we're going to subsidize the iPhone again"?
Gross: Keep dreaming. [laughs]
Argersinger: They did say they're going to open a new facility in Montgomery, Maryland, and employ 10,000 people. [laughs]
Gross: 1.9 miles!
Chris Hill has no position in any of the stocks mentioned. Jason Moser owns shares of Apple. Matthew Argersinger owns shares of Apple. Ron Gross owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.