Super-investor Carl Icahn made waves recently when he announced that he had liquidated his entire stake in tech giant Apple (NASDAQ:AAPL).
As an investor, you don't accumulate a fortune in excess of $17 billion without a keen sense of risk versus reward. However, even though Apple is experiencing its most noticeable rough patch in recent memory, I believe Icahn is dead-wrong in his decision to walk away from Apple stock. Let's review why.
Icahn dumps Apple
Icahn took to the air on April 28 to announce his decision to move out of Apple stock.
Even after Apple's recent drop, Icahn's investment decision turned out quite nicely. As of the close of trading on Tuesday, Icahn's nearly three-year investment returned a total of 46% before factoring in dividend payments, beating the tech-heavy Nasdaq by roughly 17%.
In the interview with CNBC, Icahn said, "We are not short-term oriented." His nearly 33-month holding period is appreciably longer than today's average holding period of just 19 months for shares trading on the NYSE, though it's still not exactly what I'd call "long-term oriented." However, Icahn's decision to liquidate his Apple holdings serves as a sharp reversal of opinion from his letter to Apple CEO Tim Cook on May 18, 2015, in which Icahn publicly stated, "We now believe Apple shares are worth $240 today."
Disingenuous? I'll leave that for you to decide, though in fairness, some factors upon which Icahn based his investment thesis have shifted in the year since its publication. At the same time, though, I see Icahn's timing as short-sighted when considering Apple's product roadmap in the second half of the year.
One man's trash ...
With the smartphone market gradually approaching maturity, it's plausible to think that Apple's iPhone growth could become more cyclical with its well-documented form factor refresh schedule. The thing about Icahn's move that seems strange, then, is that the timing seems to be favorable for Apple in this regard.
It's no secret that the iPhone 7 is expected to launch in September, and it's probable that consumers will buy new iPhones in droves, so long as Apple delivers on a redesign. I've already discussed how investors' anticipation of Apple's return to growth tends to make its stock meaningfully outperform the broad market indices in the six months before a new iPhone form factor rolls out. This effect isn't a given, but it seems rooted in some fairly sound logic.
Longer term, Apple's growth outlook seems as if it should be moderately favorable as well. Though China was disappointing in Apple's most recent quarter, the country's promising long-term growth outlook should, on balance, be a tailwind for Apple in coming years. Similarly, Apple's recent successes in entering India in recent weeks should expose the Mac maker to another long-term growth market.
There are also potential new revenue drivers in the form of Apple's Project Titan (allegedly auto), and Apple's massive capital return program should help buoy EPS growth even it revenue growth stalls.
None of this is necessarily news, though, which I why I find Icahn's decision to sell confounding. Either way, Apple's long-term outlook remains as positive as ever, regardless of what Icahn says.