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David Einhorn's plan for Apple's cash isn't the best move for the company

Apple (AAPL) which is frequently in the news lately, made the headlines again Thursday after hedge-fund manager David Einhorn of Greenlight Capital filed suit against the company.

The move comes in reaction to Apple's latest proxy, which has a proposal that would remove the company's ability to issue preferred shares. Apple does not currently offer preferred stock, but a successful proxy vote would make it impossible for the company to do so in the future without another shareholder vote.

Einhorn has been pushing Apple to offer preferred stock for several months, but says the company rejected his plea back in September.

Einhorn claims that the company can unlock about $32 per share for every $50 billion of preferred stock it issues. He estimates that if Apple were to devote about half of its earnings to a perpetual preferred program, it could issue about $500 billion in preferred stock, unlocking $320 per Apple share.

While Apple is one of the most successful tech companies today, we should remember that it was not all that long ago that the company was on the brink of bankruptcy. This is perhaps why it has such a strong desire to hoard its cash. Rainy days come often in this world, so on one hand it does make sense to keep a big cash reserve, but it has gotten to the point where enough is enough.

Another option that the company could choose would be to increase its normal dividend payment. Last year Apple started paying a dividend, but at $2.65 per quarter it represents just a 2.3% annual yield, which is less than impressive considering the amount of cash that the company has on hand.

Apple could make the argument that it needs the cash to use in future litigation to protect its intellectual property, but it has more than enough cash to handle any problems that it may run into in the future, so that argument does not hold water.

A final option would be to invest heavily in research and development in order to come up with a new and revolutionary product. Apple is in dire need of something completely unique, such as the Apple TV, which never materialized, but it has not hinted that it needs the money to boost its R&D.

Greenlight owns around 900 million shares of Apple stock, but an even bigger shareholder, the country's largest pension fund, The California Public Employees' Retirement System said it would cast its vote in favor of Apple's proposal. It holds close to three times the number of shares as Greenlight with 2.7 million shares.

I think Apple should definitely do something to unlock more value for its shareholders, but I do not think issuing preferred stock is necessarily the best option. Either boost the regular dividend payment, or throw a huge amount of cash at R&D… either will go a long way toward increasing shareholder value in the stock.

Disclaimer: The author of this article has a long position in Apple.

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors. Follow him on Twitter at @MFatMICenter.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.