Apple (AAPL) About to Make Major Capital Allocation Shift: Pro

Legg Mason‘s legendary Bill Miller tells CNBC that Apple (AAPL) may finally do something big with some of its gigantic cash hoard.

“I do think they are going to do something fairly dramatic on capital allocation,” Miller said on CNBC’s ‘Squawk Box’ on Friday. “I talked to them about this a few weeks ago. They are actively, as they said, ‘soliciting input.'”

Miller, who cut his long position in Apple “close to the highs” last fall, but completed that position just a couple of days ago, believes that something big is in the works, likely suggesting Apple is planning on a stock buyback, paying more dividends, or issuing a massive special dividend.

Back in August, Apple made a major strategic shift in its capital allocation policy by going from a no-dividend policy company to paying out $10 billion a year to shareholders.

During the interview Miller also touched on Apple’s valuation profile, saying that Google (GOOG) and Apple will earn about the same per share this year and next year. Yet, Google trades above $810 per share, while Apple currently trades for around $440 per share.

While I’m inclined to agree with Miller’s argument, in terms of the difference in the valuation multiples the market is awarding each ticker, I think it’s worth noting that at $705 p/sh Apple’s stock in September was not cheap at all. In fact, AAPL was extremely pricey if we consider that at $22 billion Cupertino’s average ttm earnings over the last 12 quarters gave the stock an adjusted P/E ratio of 30x its trailing earnings.

The idea that somehow Apple’s current value proposition is extremely compelling not to long it, is in my view unrealistic. With margins currently under pressure and continuing to fall due to increased competition, I don’t see how a company that has missed estimates three times in a row can generate significant earnings increases to keep the stock rising.

Disclosure: No position

• Become A Funded Futures Trader