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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Apple Stock Hits $500 Thanks to Carl Icahn

Companies / Tech Stocks Aug 15, 2013 - 11:32 AM GMT

By: Money_Morning

Companies

Diane Alter writes: Apple (Nasdaq: AAPL) stock hit about $500 a share today (Wednesday) - a level not seen since January - and some option traders might want to send Carl Icahn a fruit basket...

You see, Tuesday afternoon, in a single tweet, the legendary 77-year-old activist investor added more than $17.26 billion to Apple's market cap. At 2:21 p.m., pre-tweet, AAPL stock was trading at $475. Following the tweet, shares shot up to $494, before settling the day at $489.57.


Moreover, as Zero Hedge pointed out, holders of Apple $480 August calls saw their contracts soar from a mere $0.20 to a whopping $16, good for an astounding 7,900% profit in just two days.

Ah, the power of Carl Icahn - and Twitter.

How Icahn + Twitter = $500 Apple Stock

Icahn's tweet read: "We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come."

What came later was: "Had a nice conversation with Tim Cook today. Discussed my opinion that a larger buyback should be done now. We plan to speak again shortly."

Icahn took a big bite of Apple with a $1.5 billion stake. He believes AAPL stock should be trading much higher and says the iPhone maker should be doing more with its $146.6 billion cash stash. He's pressing the company to buy back shares.

"Apple has the ability to do a $150 billion buyback now by borrowing funds at 3%," Icahn told Reuters. "If Apple does this now and earnings increase at only 10% the stock,-even keeping the same multiple currently-should trade at $700 a share."

Icahn added Apple has "huge borrowing power, little relative debt and trades at a low multiple."

Indeed, Apple stock currently trades at a modest P/E (for a tech company) of 12.39 and has fallen precipitously from its $705.07 peak hit in September.

AAPL Stock a 2013 Target

Billionaire Icahn's sizable investment marks the second time in recent months an activist investor has gone Apple picking...

Earlier this year, David Einhorn, founder of Greenlight Capital Inc., lobbied for Apple to return more money to shareholders through a preferred stock plan.

Apple countered it was taking a prudent approach. However, in April, Apple increased its buyback authorization from $10 billion to $60 billion, marking the largest single share repurchase authorization of any company in history. Apple expects to finish the buyback by the end of 2015.

Icahn: Good or Bad for AAPL?

Icahn has used Twitter before to pressure companies. Other tweets of late have been aimed at Dell Inc. (Nasdaq: DELL), stating his staunch opposition to founder Michael Dell's plan to take the PC maker private.

Richard Sloan, a University of California Berkley business professor, told USA Today Icahn appears to be trying "to use an angle and his ability in the press to get the stock price to move."

Icahn's involvement isn't always good for him, the targeted company or shareholders.

"This is bad for Apple. They don't need any distractions (while trying to) regain their market share lead in phones," analyst Patrick Moorhead told USA Today. "I expect Icahn to run a play similar to Dell, where he is questioning how Apple uses their cash and how they are making decisions."

Apple's next big moment is expected Sept. 10, when it is scheduled to announce new products. In particular, Apple is expected to unveil a significant upgrade to its iPhone which is expected to create a great deal of buzz, as well as a cheaper iPhone targeted at the lower end of the market.

Icahn isn't the only Apple lover in the investing universe. Money Morning Capital Wave Strategist Shah Gilani told us just last week why he would invest in AAPL stock: Two Stocks to Buy Now and One to Avoid.

Source :http://moneymorning.com/2013/08/14/apple-nasdaq-aapl-stock-hits-500-thanks-to-carl-icahn/

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