Here's what is so amazing about Apple's stock buybacks

By Philip van Doorn

Also: Mario Gabelli talks about how he selects stocks for long-term investment

Late on Thursday, Apple Inc. (AAPL) announced its quarterly results, which included a 4% decline in sales from the year-earlier quarter to $90.75 billion and a 2% decline in net income to $23.64 billion. The company also reported a 10% decline in iPhone sales to $46 billion.

So why were Apple's shares up 7% in midday trading on Friday? Therese Poletti pointed to a restoration of confidence for investors because the company's board had authorized an additional $110 billion in stock buybacks.

It turns out that Apple's buybacks have had quite a positive effect on its earnings per share. When a company repurchases stock, the share count is lowered, which boosts EPS. But if the company has been shoveling new shares to its executives at the same time, the buybacks might only serve to mitigate the dilution to nonexecutive investors.

In the case of Apple, the net share count keeps going down. Even though the company's net income was down 2% from a year earlier for the most recent quarter, earnings per share actually increased a penny to $1.53, because the average share count used to calculate EPS had declined 2%.

Those may not seem to be astounding figures, but consider this: Over the past 10 years, Apple's share count has declined by 37%, according to FactSet.

How much of a difference can that make? Consider this simple example:

A company's profit is $1,000.There are 100 shares.That makes for $10 in earnings per share.

What if the share count had been reduced by 10%?

The company's profit would still be $1,000.There would be 90 shares.EPS would be $11.11.EPS would have increased 11%.

Using similar math, a 37% decline in the share count would lead to a 59% increase in EPS, if all other things were equal. And for the greater part of the last 10 years, Apple's profits have been increasing.

Apple's buybacks have been an effective use of the company's excess cash, even with the recent declines in revenue.

This is why Apple scored so high among the S&P 500 SPX in this look at 20 years of returns on invested capital.

More on Apple:

Apple shakes off China fears - but not this more existential questionApple vs. the world: Can the tech giant survive a global regulatory onslaught?

The AI build-out

One theme on the mind of investors and analysts following Apple's report was impatience, as they were kept waiting for the company to provide details on how it will make use of generative artificial intelligence in new products and services.

But we are still going through a period of infrastructure upgrades by data centers to support their corporate clients' development of AI.

So all eyes will once again be on Nvidia Corp. (NVDA), which brings up the rear in the semiconductor industry when it comes to reporting financial results. The company will make its next earnings announcement on May 22. Meanwhile, here is some of the reaction to other chip makers' reports:

Qualcomm earnings benefited from AI-enabled devices, and there's more potential aheadQualcomm could prove to be an underrated AI storyNvidia is chip sector's only hope after AMD and Super Micro disappointAMD is the latest company to show that AI is an expensive proposition

Gabelli talks

Michael Brush interviewed Mario Gabelli, whose firm, Gamco Investors, now manages $32 billion in assets in 32 mutual funds. Here is what Gabelli had to say about researching companies and selecting stocks.

More from Michael Brush: Corporate insiders are on a buyers' strike - signaling more downward pressure on stocks

Retirement planning: Watch for hidden fees on this type of account

The combination of a high-deductible insurance plan and a health savings account can help you put away pretax money to pay for medical expenses over the course of your life. An HSA has no "use it or lose it" feature, which means it will always be there if you need it, and you will never pay taxes on that money if it is used for medical expenses. The HSA can be invested as you like, and it allows you to invest pretax money even if you have already hit annual contribution limits for an IRA, 401(k) or other retirement account.

But there can be many hidden fees. Here are the HSA fees to avoid or minimize.

More from Alessandra Malito's Help Me Retire column:

I'm 62 with no debt and a part-time job. My advisers say keep saving, but my kids say spend - do I go for a Roth 401(k)? 'Probably everyone is interested in pursuing FIRE,' says this single mom who retired at 49My wife and I have $850,000 saved for retirement. I'm 66 and plan to work another four years. Should I do a Roth conversion? Is your financial adviser on your side? There are new rules for managing retirement savings - why investors should care.

Maybe they should have remained happily unmarried

Quentin Fottrell - the Moneyist - is never afraid of getting in the middle of a bitter squabble over money. And he doesn't necessarily side with the person asking for advice. There is usually something to learn about how financial disputes are handled and how proper planning can prevent some of them.

Here's an example: 'Our prenup stirred up resentment': My husband, 62, lives in my home. I pay for his credit card, car loan, vacations and groceries. Now he wants to pool our assets.

Read on:

'I live in a slum': My ex-husband knocked down, then rebuilt my home and left it in foreclosure. Now he refuses to pay alimony.'He's holding all the cards': My mother, 86, has dementia. Her partner of 30 years is on the deed to her home. How can I gain control of her finances?My mother-in-law died. My husband, her executor, did not file a will or open probate. What happens if we sell the house?

Rest your eyes with a dynamic podcast

In the latest episode of the On Watch podcast, Jeremy Owens spoke with personal-finance reporter Venessa Wong about how inflation affects the middle class and with reporter Eleanor Laise, who covers the healthcare industry, about problems with people taking ketamine for depression without proper guidance.

Who has gone back to the office?

Trends can be exaggerated, including working from home rather than in an office. What is really going on, and how has it varied by region? Louis Goss and Barbara Kollmeyer dug deeply into the work-from-home trend and the counterreaction among employers in the U.S. and around the world.

Which pet is better for your wallet?

Dog lovers and cat fanciers will always argue over which type of pet is better. But what about the economic consequences of owning one or the other? Andrew Keshner answered that question.

How about a catalyst for Boeing?

Investors have gotten used to bad news from Boeing Co. (BA), mainly related to quality-control problems with passenger jets. But on Monday evening there might be reason for the company to celebrate. That is when NASA is scheduled to send two astronauts into space during the first manned launch of Boeing's Starliner.

Should you expect the inflated U.S. housing market to crash?

MarketWatch real-estate reporter Aarthi Swaminathan interviewed Amy Nixon, a housing economist and a contributor at MacroEdge Research, who drew parallels with the current U.S. housing market and that of the 1980s - a period of high interest rates when home prices surged. Here is what Nixon sees ahead for U.S. housing.

More real-estate coverage: 10 places in the U.S. where people who make under $100,000 can easily buy a house - for now

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-Philip van Doorn

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05-04-24 0629ET

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