Please ensure Javascript is enabled for purposes of website accessibility

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

By Daniel Sparks – Jan 22, 2014 at 1:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hedge fund guru Carl Icahn is back with some more Apple ruckus. Loading up on more shares, he still thinks Apple is undervalued. Is he right?

Apparently, Apple (AAPL -1.96%) 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.

Fool contributor Daniel Sparks owns shares of Apple. The Motley Fool recommends and owns shares of Apple. We Fools may not 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Stock Quote
$148.11 (-1.96%) $-2.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.