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Apple: Don't Ignore This Billion-Dollar Buy Signal

By Alex Dumortier, CFA – Jan 28, 2014 at 7:00PM

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Apple's earnings disappointment creates an opportunity for long-term investors.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

U.S. stocks managed to break a three-day losing streak today, as the benchmark S&P 500 index rose 0.6% on Wednesday. The narrower Dow Jones Industrial Average (^DJI) also gained 0.6%. One stock that bucked the trend was the S&P 500's largest weighting, Apple (AAPL 1.92%), but if you think that's a problem, you need to keep reading.

Yesterday evening, in the wake of Apple's "disappointing" after-hours earnings release, I argued that Wall Street's disappointment could be long-term investors' opportunity:

Last Wednesday, legendary investor Carl Icahn tweeted that he had bought $500 million worth of Apple shares within the past two weeks. Thursday, he again took to Twitter to announce that he had added another $500 million worth that very day, bringing his total position to $3.6 billion. If today's after-hours action is any indication, investors will get the opportunity to buy shares at a discount to the price this wily billionaire paid on a billion-dollar commitment. Just remember: Carl Icahn didn't accumulate a $20 billion fortune listening to Wall Street weathervanes.

Yesterday's after-hours session turned out to be predictive, as Apple's stock opened down 7.6% today and finished the session down 8%. I don't know if any of my readers took advantage of the opportunity, but one large investor did: Carl Icahn himself. This morning, he tweeted:

Just bought $500 mln more $AAPL shares. My buying seems to be going neck-and-neck with Apple's buyback program, but hope they win that race.

— Carl Icahn (@Carl_C_Icahn) January 28, 2014

It's plainly the case of a savvy investor being opportunistic, but don't take my word for it -- CNBC's Scott Wapner spoke to Carl Icahn before tweeting this:

Of $AAPL, @Carl_C_Icahn says over the years he's made a great deal of money buying on these dips esp when reason for dip is misinterpreted.

— Scott Wapner (@ScottWapnerCNBC) January 28, 2014

Furthermore, Icahn was energized by one of the topics from Apple's earnings call:

@Carl_C_Icahn tells me there was a major positive in $AAPL's message yesterday-new products in new categories coming within the year.

— Scott Wapner (@ScottWapnerCNBC) January 28, 2014

When he was asked about new product categories on yesterday's call, Apple CEO Tim Cook said:

[Apple's innovation cycle] has never been stronger. I'm very confident with the work that's going on, and I think our customers are going to love what we're going to do. ... We have zero issue coming up with things we want to do that we think we can disrupt in a major way. The challenge is always to focus to the very few that deserve all of our energy. And we've always done that, and we're continuing to do that.

Icahn went on to tell Wapner that Apple's long-term picture is completely unchanged, i.e., while fiscal first-quarter iPhone sales and fiscal second-quarter revenue and profits guidance may have fallen short of Wall Street's expectations, the company's long-term prospects are just as good as they've ever been.

Given the randomness in daily stock price movements, investors have roughly even odds of witnessing even better prices tomorrow. This is your second alert: Apple shares are worth looking at now.

Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him on Twitter: @longrunreturns. The Motley Fool recommends and owns shares of Apple. 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.

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