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.
The content of this blog is published in the United States of America and persons who access it agree to do so in accordance with applicable U.S. law.
All opinions expressed in this blog are solely the opinions of Gary Kaminsky and do not reflect the opinions of CNBC, NBC UNIVERSAL or their parent company or affiliates, and may have been previously disseminated on television, radio, internet or another medium. You should not treat any opinion expressed by Mr. Kaminsky as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Mr. Kaminsky’s opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Kaminsky, CNBC, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Mr. Kaminsky’s statements and opinions are subject to change without notice. No part of Mr. Kaminsky’s compensation from CNBC is related to the specific opinions he expresses.
Past performance is not indicative of future results. Neither Mr. Kaminsky nor CNBC guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed on this website or on the show. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned on this website or on the show may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned on this website or on the show. Before acting on information on this website or on the show, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.