Are Apple and Applied Materials Wasting Your Money?

Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.

Today, we'll find a few companies that announced new or expanded stock buyback programs, then consult Motley Fool CAPS to see which of those the 180,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, maybe Fools should take notice.

Here are two of the latest companies to announce share repurchase programs over the last month:


CAPS Rating (out of 5)

Buyback Amount

New or Expanded

Apple (NAS: AAPL)


$10 billion


Applied Materials (NAS: AMAT)


$3 billion


But don't forget, Fools -- a company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use this list as a reason to buy by itself, rather use it as a launching pad for additional research.

Spoiling the barrel?
While investors generally cheered the decision to return some of Apple's vaunted cash horde to shareholders through a $2.65 per-share dividend and the repurchase plan to offset dilution, it hasn't been a uniform cheerleading chorus.

The Fool's Rick Munarriz points to Microsoft and Cisco (NAS: CSCO) as examples of two other tech giants that squandered shareholder value after paying paltry dividends. It wasn't enough of a sop to investors who ended up watching dividend-less Apple scream past them. He'd prefer it make acquisitions or buy back shares.

Yet Fool Alyce Lomax is no fan of the repurchase program, finding in it the potential to fecklessly spend money on a stock trading near its all-time highs. She points to Sears Holdings (NAS: SHLD) as the epitome of a company that was riding high and spending down its cash reserves on overpriced shares, only to now see them trade for half what they were back then.

In short, Foolish analysts seem to think these are plain-vanilla solutions to a cash "problem" that could have been improved with some innovative thinking such as that which goes into its products. As Fool Morgan Housel notes, Apple is generating so much cash right now that even spending $45 billion on dividends and buybacks over the next three years, its cash balances might still grow to $250 billion by 2015!

Apple not only needs to do more, but to do better. With over 27,500 CAPS members weighing in on the consumer products genius, 92% of them suggest it will, and will go on to outperform the market indexes. Add Apple to your Watchlist, and let me know in the comments section below or on the Apple CAPS page what you think it should do with its massive cash hoard.

Heads I win, tails I win
Applied Materials might not be able to print cash like Apple does, but the semiconductor equipment maker did report record revenues and cash flows last year, which are allowing it to buy back stock and up its dividend 13% -- suggesting it sees no problems with its ability to increase shareholder value. With first-quarter revenues surpassing expectations and guidance for the future also strong, the business seems on track, but there are strains of concern that don't seem to have been expressed.

The solar industry is marred by a cloudy future at the moment, with subsidies slashed, bankruptcies prevalent, and a glut that pinches margins. The market for LCDs is also weakening, with NPD group predicting an 8% decline in sales by 2015. Fortunately, those segments accounted for only 14% of net sales in the first quarter.

Samsung, though, is also expecting the electronics industry to enter a slow growth phase that will lead to an industry realignment. And the market watchers at IDC are looking at modest growth in PC shipments this year, with the bulk occurring later this year as Microsoft and Intel (NAS: INTC) unveil new products.

Making the PC relevant again remains a challenge, but the good news for Applied Materials is that mobile computing continues to be a bright spot. Last quarter, new orders for semiconductor capital equipment were 53% higher than in the fourth quarter (but partially as a result of having acquired Varian), though they were down 12% from the year-ago period.

Highly rated CAPS All-Star TMFDitty (fellow Fool Rich Smith) thinks Applied Materials is the right vehicle to take advantage of the trends that are moving its way: "A fair PEG ratio, clean balance sheet, strong dividend, and stronger free cash flow make this the right semiconductor play to be in, and the right time to be in it."

So add the equipment maker to the Fool's free portfolio tracker to keep track of how the industry's changes will impact its business.

Foolish fallout
Sign up for CAPS today and share your best pitch for why a company buying back its shares is a reason for you to buy too -- or not!

Or maybe you should check out the one stock the Motley Fool thinks will profit from the largest technological transition investors have ever witnessed, a potential trillion-dollar revolution! It's happening in the mobile industry, and the new special free report is yours free for the taking, but only for a limited time, so act now.

At the time this article was published Fool contributorRich Dupreyowns shares of Intel and Cisco Systems, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Apple, Microsoft, Intel, and Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Apple, Microsoft, and Intel.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Microsoft. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story