Kaminsky's Call: 5 Ways Companies Can Spend Cash
Morgan Stanley, Vice Chairman
Imagine someone pointed a gun at your head and forced you to buy stocks. That's how institutional investors feel all the time. They don't have the luxury of holding cash. And in a lot of cases, neither do the companies in which they invest.
At Neuberger Berman, "Team Kaminsky" always believed that investors penalized corporations for holding cash. We always felt that how a company deployed capital said more about overall market conditions than it did about management.
My Call-to-Action today? Watch what Apple does with its mountain of money.
Generally, there are five ways a company can spend cash:
- Grow The Business Organically. This is by far the most attractive option of the bunch as it signifies healthy expansion.
- Dividends and Distribution. When shareholders are rewarded with cash in hand, there are positive ramifications.
- Share Repurchases. This may bring higher earnings per share, but in some respects, the market looks through it, and multiples compress.
- Mergers and Acquisitions. Strategic in concept, but nine out of ten don't add value.
- Hold cash. The worst way for a company to penalize itself. Recent examples include Microsoft and Google . 'Nuff said.
Why is this important? Apple has over $20 billion in cash. Their next strategic move will send a major message to the market.
Watch Apple or another significant holding in your portfolio. Think of these five choices, see which one is followed, then make your own choice before the market does.
- Apple Surpasses Microsoft in Market Cap
- Steve Jobs Takes the D Stage
- Slideshow: Biggest IPad Competitors
*An earlier version of this story incorrectly stated that Apple has $30 billion in cash instead of over $20 billion. It is corrected in this copy.
Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, begins Monday, June 7 at Noon ET on CNBC.
Gary Kaminsky does not hold any equity positions.
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