Tuesday, November 19, 2013

Why Higher Interest Rates will be Great for Apple

Investors don't like high interest rates. Investors worry that rising rates will make it more difficult to buy homes, make it more costly for businesses to get and repay loans, and the possibility of higher rates on credit cards. Many companies may suffer with higher interest rates, such as banks, REITs and utilities, and other companies with debt.

However, there is one stock that will do extremely well with higher interest rates. The  company is Apple Inc. (AAPL). The reasons are simple.

The company has a huge amount of cash. It has so much cash, that it is practically money market fund. Apple has $14.259 billion in cash and cash equivalents plus $26.287 billion in short term marketable securities, for a total of $40.546 billion.

Apple's weighted average interest rate is 1.03% for the current year. Of the funds in cash and short term, total income based on the weighted rate is about $417.6 million.

If the rate increased to 3% and assuming the balance remains the same, interest income on this cash would rise to $1.216 billion, and at 5%, the income would be $2.027 billion, or $1.13 in additional earnings per share. This additional interest is a pre-tax number, but based on the company’s effective tax rate, additional earnings would be $0.83 a share.

Plus there are no other expenses related to the production of this income. No salaries, no capital expenditures of manufacturing equipment, no purchase of raw materials, no office space rental, no nothing; maybe just the salary of someone to keep track of the investments. This is an easy way to make money.

If you want to check out the lists of stocks which have a lot of cash, which can be downloaded, sorted, and updated, go to WallStreetNewsNetwork.com.

Disclosure: Author owns AAPL.

By Stockerblog.com


Shruti Gupta said...

Currencies are traded worldwide in many countries and it is profitable way as well. I do in commodities in Indian market and following the services of the Best Agri tips provider

Stockerblog said...

By the way, Apple (AAPL) does hedge their currency risk with all the cash they have around the world.