Whitney Tilson: Two Significant Catalysts For Apple

Join The Motley Fool for a conversation with author, investor and philanthropist, Whitney Tilson. In addition to managing Kase Capital, Whitney has coauthored More Mortgage Meltdown: 6 Ways to Profit in These Bad Times, Poor Charlie's Almanack, and most recently The Art of Value Investing, a collection of interviews with over 200 successful value investors.

A full transcript follows the video.

Brendan Byrnes: I can't let you go without asking you about perpetually the most talked-about stock on the market, Apple (AAPL -1.79%). I believe you don't have a position at Apple anymore. Could you talk about how you feel about the company, going forward?

Whitney Tilson: Yeah. I actually do have a position, as of a couple of weeks ago. The stock, I was in it last year, and got out. It was a stock that I sort of felt emotionally attached to, so I needed to just get out.

I waited 30 days, took a tax loss, waited and waited, and finally got back in at about $396 a share, right before they reported their last earnings, when I just felt the negativity was so high and the stock was trading at something like 6x cash flow, if you net out their cash.

I felt like there were two significant catalysts that could move it up. Number one is the announcement of any new products, and I think they do have new products in the pipeline, many of which they just haven't announced.

They're sort of in an innovation air pocket right now, that's convinced everyone that Apple's just not going to come out with anything innovative in the future, and I think they are likely to.

Secondly, capital allocation. Apple's cash balance alone is larger than all but the market caps of 17 companies in the S&P 500. It's just gargantuan, and the company wasn't really doing much with that capital. Now they've announced a very large share repurchase program, it pays a nice dividend.

Right now I'd give them a grade of a C on both innovation and capital allocation, but the capital allocation grade has gone from an F to a C, and innovation I think could go from a C to a B in the next six months or so.

At a little under $400 a share, I saw a possible six month pop to in the $550 range, let's say, and then at that point I'm going to need to reevaluate whether I think it can double over the next five years or so.

I think I'm going to need to see more on innovation and capital allocation, to stick around for a multi-year time period, but sometimes even the most widely held stocks become too cheap and just hated, and everyone just piles on, on the negativity, and that enables you to get in at a good price and make a good six-month return, even if you don't stay around long term.

Brendan: Whitney Tilson, coauthor of The Art of Value Investing, great perspectives from over 200 very successful investors. Great book. Thank you so much, Whitney.

Whitney: Thank you.