The novel coronavirus pandemic is on the minds of so many individuals and businesses around the world right now. As COVID-19 has forced the shutdown of so much of the economy, the primary objective of many companies has been to shore up enough liquidity to survive an extended period of contracting sales.
Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) are two tech giants that, for a long time, have kept vast reserves of cash on their balance sheets. Even as shareholders pressured both companies to utilize the cash pile, the two proceeded cautiously and only returned a portion of that capital to shareholders.
Now, the two tech giants are the envy of so many businesses who are regretting their lack of disaster readiness. Let's look at just how much money is on the balance sheet for these two companies and some potential ways they could put it to use now.
The Cupertino, California, company has a reputation for having an excellent balance sheet. As of Dec. 28, 2019, Apple had over $200 billion in cash and marketable securities. To put that into perspective, the entire market capitalization of Disney is roughly $150 billion. The sum is surely a sufficient stockpile to survive whatever period of economic uncertainty the world economy will be facing in the next several months.
It might be interesting to consider what Apple does with that cash now and what kind of marketable securities it might consider purchasing. In its most recent quarterly financial statement management said, "The company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The company's investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer."
What's more, Apple has enough money to continue buying back shares if it deems it a good use of its capital. It still has $60 billion in board-approved funds to use for repurchasing shares. Since Apple shares are down substantially from their peak, the $60 billion will be able to buy back more of its stock.
In its most recent quarter, the company repurchased $20.7 billion of common stock, which bought 70 million Apple shares. That means the company paid an average price of roughly $285 per share. Admittedly, circumstances are much different now, but its share price is considerably lower, raising the possibility of some massive repurchases.
Alphabet is prepared for an extended period of uncertainty with its $120 billion of cash and marketable securities as of Dec. 31, 2019. The company has a history of conservative financial management.
The following quote from Alphabet's most recent annual report goes into detail on the company policy on the type of liquid assets it purchases:
"Cash equivalents and marketable securities consist primarily of time deposits, money market, and other funds, highly liquid debt instruments of the U.S. government and its agencies, debt instruments issued by foreign governments, debt instruments issued by municipalities in the U.S., corporate debt securities, mortgage-backed securities, and asset-backed securities."
In its most recent quarter, Alphabet repurchased $6 billion of its shares and $18 billion in total for fiscal 2019. In comparison, Apple spent more on share buybacks in its most recent quarter than Alphabet did in all of its most recent fiscal year.
Importantly, the company still has roughly $19 billion available in a board-approved share repurchase program. Given the significant drop in its stock price, it may consider this an opportune time to get aggressive in using those available funds to buy shares.
Overall, the large cash position gives Alphabet the luxury of having choices. On numerous occasions, investors made a case for why Alphabet should return more money to shareholders. Times like these are presumably why the company is so careful with its money, and shareholders could now reap the benefits.
What this means for investors
The coronavirus outbreak is sure to cause continued volatility and contractions in economic activity around the world. That uncertainty will likely lead to wild swings in stock prices. Investors with a long-term focus and funds they will not need to use in the next three years should consider looking to accumulate shares of quality companies.
Apple and Alphabet are very high-quality businesses with enough cash on hand to survive even a prolonged global recession. Eventually, contracting economic activity will give way to expanding, and these two incredible tech stocks will be on the rise again.