In the last three months, notorious activist investor Carl Icahn made several interesting points about Apple Inc. (NASDAQ:AAPL), supporting a bullish case for the company. Last week, Carl Icahn was a guest on a Wall Street Week episode, where he talked about activist investing, provided his take on the current market situation and yes, mentioned some interesting points about Apple.
“I am very concerned about the market,”Icahn said. The investor considers that the market is moving up in a zero-interest rate environment, but the economic news isn’t very optimistic and earnings “aren’t good” also. Icahn added that he expects a correction, therefore he is heavily hedging his portfolio. Aside from the stock market, what also worries the investor is the high-yield ‘junk’ bond market. “I think it’s ridiculously high,” he said. One of the reasons for this growth is that the public keeps investing in high-yield funds, betting on the yields to keep growing. However, when the yields will start falling, there will be a great “run for the exits,” as Icahn put it.
Another point that Icahn talked about during the interview is activist investing. The key to successful activism is to find a company that has great assets, but for some reason doesn’t make any money and often this reason is a CEO who is incapable of generating value for shareholders. Therefore, one of Icahn’s main objectives when he goes activist is to force the company to increase its shareholder value for all investors. However, currently there are many other investors who claim that they are activist and create a lot of noise around a stock, often insisting that they will push for a sale of the company and then dump their shares once the stock jumps on the back of this news.
Nevertheless, Icahn hedges its long exposure and often goes activist when he finds a company that requires a push in order to maximize its value, but when it comes to Apple Inc. (NASDAQ:AAPL), Icahn said that he is feeling very secure about this stock. In fact, he added that he is not worried about it and when it declines, he prefers to buy more shares.
Icahn also said that he likes Apple Inc. (NASDAQ:AAPL)’s CEO Tim Cook, whom he considers a great manager and one who is “obsessed” with the company. “Every fifty years you get a company like this that has everything going for it,” Icahn added.
Icahn has been claiming that Apple Inc. (NASDAQ:AAPL) is undervalued for several months now. In February, the investor published a letter to his Twitter followers saying, among other things, that Apple, trading at 10 times earnings, is valued by the market at a significant discount in comparison to the S&P 500 Index, which has a P/E of 17. The letter that was published on Icahn’s website Shareholder’s Square Table stated that Icahn values Apple at a P/E of 20x, which would value the stock at around $216, including $22 per share that the company has in cash. “This is not a future price target. $216 is what we think Apple is worth TODAY. Also, to the extent Apple introduces a TV in FY 2016 or FY 2017, we believe this 20x multiple is conservative,” the letter added.
Moreover, on April 28, prior to Apple Inc. (NASDAQ:AAPL) releasing its financial results for the first quarter, Icahn tweeted that Apple is still “undervalued and misunderstood” and said that he would issue a new report within a couple of weeks.
So far, Icahn holds 52.76 million shares of Apple (as of the end of 2014). The stock has climbed 13% since the beginning of the year, fueled by strong financial results for the first quarter that beat the estimates and came above the results for the same period of 2014.
Apple Inc. (NASDAQ:AAPL) is the most popular stock among hedge funds, as we determined from the previous round of filings with a total of 149 investors holding $20.88 billion worth of stock. However, when we break down this figure, we can see that aside from Icahn, who owns the largest portion of this aggregate position (around $5.82 billion), the rest 148 funds hold slightly more than 2% of the company. Therefore, this shows that “smart money” aren’t so overweight the company how it seems at first look.
Nevertheless, Apple Inc. (NASDAQ:AAPL) has one of the most profitable businesses and it has been growing its dividend and has one of the largest capital return programs among the companies from the S&P 500. Some of the greatest investors, such as Icahn, are still bullish on the company. Another example is David Einhorn of Greenlight Capital, who in the latest letter to investors also said that market values Apple at a sizeable discount. His thesis about the company hasn’t changed much over the last five years during which Greenlight held shares of the company and the value of the stock jumped by more than 2.5 times.
Disclosure: none
