Carl Icahn: Apple, Inc. Is Still a "No Brainer" Investment

Apparently, Apple (NASDAQ: AAPL  ) is still cheap enough for hedge fund guru Carl Icahn to be bullish on the stock -- he added $500 million to his position in the last two weeks, according to a tweet from the investor this morning. His investment in the world's most valuable publicly traded company "crossed the $3 billion mark yesterday," he said. Though he's not typically a tech investor, his track record is notable enough to take a look at what he is investing in and why.

A "no brainer" investment
Carl Icahn first tweeted about his large position on August 12, when the stock was trading at $468 per share. Despite a 19% gain since then, Icahn is still calling the stock a "no brainer."

He also told The Wall Street Journal in August that he believed shares are worth $625 even without earnings growth. Then in October he said in an open letter to CEO Tim Cook that he believed the stock could soar passed $1,000 in three years if Apple boosted its share repurchase program. Of course, his expectations for the repurchase program were a bit unrealistic, but the theoretical scenario did highlight just how undervalued he felt Apple shares were at the time.

Icahn again raised some ruckus in December, when shares were trading at about $565. He tweeted that he would be making a precatory proposal to call for a vote to increase Apple's buyback program. In the proposal, he is asking shareholders to vote for $50 billion in share repurchases during Apple's fiscal 2014. The proposal, however, is only advisory so even if it's approved, Apple can essentially ignore the request. The proposal will be considered at next month's annual shareholders meeting.

As the meeting approaches, Icahn is pushing hard for the repurchase program. In one of his three tweets today, he continued to insist that Apple needs to take action.

Icahn's $3 billion position may be striking, but it still accounts for less than 1% of the company.

Icahn's street cred
Though Icahn isn't known as a tech investor, his track record is impressive enough to at least offer some reassurance for Apple shareholders. In 2013, his investment fund returned 31%, in line with the S&P 500 despite his portfolio being "hugely hedged," according to Forbes. Over the past five years his fund has returned 27% annually. During the same period, the S&P 500 gained 16.7% annually.

That said, investors would be wise to not imitate his investments blindly -- as an activist hedge fund investor, he certainly uses some investment tools that average individual investors don't have at their disposal.

Is Apple undervalued?
Fourteen times earnings is definitely a conservative valuation for a company like Apple. Consider some of the fundamentals working in its favor:

Then, of course, there is China lingering over the stock as a growth opportunity -- both as a catalyst for the short term and over the long haul.

So what do investors do with Icahn's latest noise? Despite his persistence, investors shouldn't plan for Icahn's proposal to go through. But his confidence, backed by a massive real-money investment, does bring up a point: Apple still looks undervalued.

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Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 22, 2014, at 1:26 PM, TMFJCar wrote:

    I'd be more inclined to trust that Carl Icahn has Apple shareholders' best interests in mind if he could tweet the stock symbol correctly...

  • Report this Comment On January 22, 2014, at 1:29 PM, TMFJCar wrote:

    I'd be more inclined to trust that Carl Icahn has Apple shareholders' best interests in mind if he could tweet the stock symbol correctly...

  • Report this Comment On January 22, 2014, at 1:41 PM, TMFDanielSparks wrote:

    Haha! Good call TMFJCar.

  • Report this Comment On January 22, 2014, at 2:10 PM, TypicalAmerican wrote:

    Really, a typo would influence you that strongly? While I am sure that Icahn has his own best interests at heart #1, I just see a typo being a typo, and not an indictment on someone's sincerity. I do support Icahn in the desire to free up some more of the cash hoard, though his $150B was far over the top. Since the original stock buyback is already in process, I would not object to a one-time special dividend.

  • Report this Comment On January 22, 2014, at 3:39 PM, WineHouse wrote:

    One-time "special" dividends are generally used by desperate companies that are about to tank. Remember the big "special dividend" from Dean Foods a couple of years back? A healthy company with legitimately growing profits should increase their regular dividends gradually, a little bit each year, not more than they can comfortably afford to spend "forever" without impairing their ability to spend cash on an as-needed basis when opportunities knock. Apple needs its cash in order to take advantage of exactly those kinds of opportunities which pop up at unanticipated moments, as well as cash to develop those opportunities into marketable new or improved products (this sometimes takes years!). Tying Apple into a cash-frozen straitjacket is the worst thing that could possibly happen in terms of its long-term prospects for growth.

    And perhaps you are unaware that the vast bulk of that "hoard of cash" is in foreign currencies held overseas. Repatriating that cash would incur Federal taxes of about 35%, which means that the "hoard" is much smaller than it looks. Apple would actually have to borrow cash to do the Icahn-proposed buybacks! The repayment of those loans would cut into the company's ability to increase dividends. The whole thing really makes no sense if you think it through carefully. The only one who would benefit would be Icahn.

  • Report this Comment On January 22, 2014, at 5:42 PM, RussellL wrote:

    "...in October he said in an open letter to CEO Tim Cook that he believed the stock could soar passed $1,000 in three years if Apple boosted its share repurchase program."

    "Of course, his expectations for the repurchase program were a bit unrealistic, but the theoretical scenario did highlight just how undervalued he felt Apple shares were at the time."

    The open letter was just to get retail investors excited about AAPL and start bidding it up.

    $1k in 3 years is slightly more than double of today's price.

    There are plenty of other stocks out there that will give you much better returns than that, like CSIQ, JKS, SCTY, SPWR and TSLA.

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