No, Carl Icahn: Apple Inc. Shouldn't Trade at Google Inc. Multiples

To hear investment guru Carl Icahn's take, iShares should trade over $1,200. Is that legitimate, or just more PR?

Feb 8, 2014 at 1:30PM

No doubt about it: Longtime activist investor Carl Icahn knows a thing or two about spotting good opportunities. Icahn's investment fund ended last year up 31%, about the same as the U.S. market. Not bad in a year when many hedge funds underperformed. Investors were also duly impressed with Icahn's stake in high-flyers like Netflix, which jumped a whopping 283% last year and netted his firm a small fortune.

The iconic investor's success in 2013 catapulted the stock price of his publicly traded investment vehicle, Icahn Enterprises (NASDAQ:IEP), to a nearly 160% increase last year. And that brings us to Icahn's latest pet project, Apple (NASDAQ:AAPL). As his tweet late last month after adding another $500 million in iShares reminded us, Icahn owns a lot of Apple stock: more than $3 billion worth, based on yesterday's close. And his seemingly unending tweets, interviews, and requests for increasing Apple's stock buyback program -- even beyond the recent $14 billion in shares CEO Tim Cook recently bought back -- makes it clear how he'd try to boost its share price. But suggesting that Apple should trade anywhere near $1,245 a share, as Icahn recently did via, what else, a tweet, is over the top.

Icahn's logic
In yet another Twitter missive yesterday, Icahn compared Apple to Google's (NASDAQ:GOOGL) valuation, tweeting:

$GOOG @ 19x2014 est operating profit. At same multiple $AAPL=$1,245 per share. Ridiculous. Keep buying Tim! You still have $145 billion cash.

Of course, as iFans know, Apple closed yesterday up $7.17 a share, to $519.68,  bout where its stock price has meandered for a while now. So $1,245 per share is quite a leap, even for Icahn.

In his open letter to Apple shareholders late last month, Icahn listed several reasons he thinks Apple is undervalued -- after reminding shareholders of his many investment successes-and it's difficult to argue with many of his assertions. Apple, as Icahn pointed out, was trading over 70% below the average price-to-earnings multiple of the S&P 500. Icahn also cited Apple's strong cash position and earnings estimates of nearly $40 billion this year as upsides.

Of course, expected earnings in 2014 and $130 billion in net cash, as per Icahn's open letter, are the impetus for his continued calls for Cook to buy back more and more stock. With its shareholder meeting scheduled for Feb. 28, you can expect to hear more Apple stock buyback chatter from Icahn in the coming days and weeks.

So why isn't Apple trading like Google?
Both Apple and its smartphone OS nemesis Google generate revenues and profits that are the envy of their peers. However, there are distinctions between Apple and Google -- some tangible, some intangible -- that have contributed to the moving of their respective stock prices in opposite directions. Apple's woes are well documented: margin concerns as the mobile industry becomes even more hyper-competitive, its reliance on iPhones for the vast majority of its profits, and a lack of innovative, new products.

The problem in comparing Apple and Google's stock price today is that the former's shortcomings are all Google strengths. With its diversity of products including search, its own and partner's websites, and world-leading mobile OS Android driving ad revenues, Google shareholders aren't worried about margins or revenue diversification. As for innovation; self-driving cars, Fiber Internet, and Glass, are just a few of the cutting-edge technologies that puts Google in a class by itself.

Final Foolish thoughts
One look at Icahn's sale of Netflix stock last year -- though he still holds a good-sized chunk -- should be telling for Apple investors. Icahn let the world know he bought Netflix, hyped it to no end, and then sold it after its incredible run-up for an $825 million gain. In short, Icahn is the yin to buy-and-hold guru Warren Buffett's yang.

Icahn is interested in gains, plain and simple, and who can blame him? And if generating those investment gains means hyping a stock via traditional and social media outlets, Icahn's your guy. But valuing Apple at $1,245 a share based on a strong cash position and rumored new products doesn't fly. Hype, good or bad, unfortunately can have a short-term impact on stock prices. The problem with Icahn's public relations campaign for all things Apple is once he gets his stock price pop, he's gone. Not exactly a model for long-term investors.

More legitimate growth picks, without the hype
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple, Google, Netflix, and Twitter and owns shares of Apple, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers