Apple Recently Announced a $110 Billion Buyback Program. Here's Why That Doesn't Make the Stock a Sure Winner

Apple's stock experienced a significant surge of 6% on Friday following the release of better-than-expected fiscal second-quarter results and the announcement of what is deemed the largest stock buyback program in the history of U.S. corporations.

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In principle, Apple's mammoth $110 billion stock buyback initiative should theoretically propel its share price upward. This move generates additional buying pressure within the market and, by diminishing the share count, is anticipated to augment earnings per share, rendering the stock more appealing to investors.

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Nevertheless, recent trends suggest that lavishing billions on share repurchases doesn't necessarily translate into an unequivocal triumph for the stock. Dan Nathan, the principal of RiskReversal Advisors, expressed skepticism during a recent segment of "Fast Money" on CNBC. Nathan pointed out that Apple has already been actively engaged in stock buybacks, questioning the rationale behind expecting this new program to ignite a significant rally.

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"Over the last three fiscal years, they've been averaging $20 billion in share repurchases on a quarterly basis. So they've been retiring these shares," Nathan remarked, emphasizing the substantial sums Apple has already allocated to this endeavor.

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Yet, despite these considerable buybacks, Apple's stock performance hasn't mirrored this investment. Even with the Friday surge, Apple's stock remains in negative territory for the year and has trailed behind some of its prominent Big Tech counterparts over an extended period.

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"They've been buying that, and the stock has massively underperformed the Nasdaq. So investors have made the decision that that cash they have sitting on the balance sheet is probably better off earning that 5% than going back and buying their stock," Nathan explained, highlighting investors' preference for alternative uses of Apple's funds.

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Apple isn't an isolated case in witnessing lackluster outcomes from its buyback endeavors. The Invesco Buyback Achievers ETF (PKW), which tracks U.S. companies that have reduced their outstanding shares by at least 5% over the past year, has trailed behind the S&P 500 ETF both year to date and over the preceding 12 months.

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Interestingly, Apple is not listed among the holdings of this buyback ETF. Despite this omission, the fund's underperformance cannot be attributed to smaller companies dragging it down. In fact, the five largest holdings in this market-cap weighted fund are all underperforming the broader S&P 500 this year.

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For instance, the top stock in the ETF, T-Mobile, has only seen a modest 2.8% increase in 2024, in stark contrast to the 7.5% gain observed in the broader market.

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