Apple Inc.: Who Is Right on Apple Stock, Buffett or Icahn?

Apple Inc.Here’s Why Warren Buffett Likes Apple Stock

It’s not every day that you see two high-profile billionaire investors taking the exact opposite positions on one stock. But that is what’s happening right now with what also happens to be one of the most high-profile companies in the world—Apple Inc. (NASDAQ:AAPL) stock.

First up is Carl Icahn, the founder and majority shareholder of Icahn Enterprises LP. He previously owned a less than one percent stake of Apple stock’s outstanding shares. Given the company’s more than $500-billion market cap, that’s quite a bit. Last week, however, Icahn told CNBC that his company has sold its entire Apple position. (Source: “Icahn: We’re Out of Apple, and It’s China’s Fault,” CNBC, April 28, 2016.)

“We no longer have a position in Apple,” said the billionaire investor. (Source: Ibid.)

While Icahn was skeptical about where Apple stock might go next, another billionaire investor thought otherwise. And he’s not your average billionaire; he is Warren Buffett, the “Oracle of Omaha.”

According to Berkshire Hathaway Inc.’s (NYSE:BRK.A, NYSE:BRK.B) recent 13F filing to the Securities and Exchange Commission, the firm owned a whopping 9.81 million shares of Apple by the end of March. At that time, Buffett’s Apple stake was worth $1.07 billion. (Source: “Form 13F,” United States Securities and Exchange Commission, May 16, 2016.)

In an article published on Sunday, I wrote that at its current price, Apple stock’s value is too hard to ignore. In particular, I explained why Buffett might be interested:

“Now, it’s time to remind ourselves what billionaire investor Warren Buffett said: ‘Be fearful when others are greedy and greedy when others are fearful.’ Also note that Warren Buffett is a value investor and for many of his successful picks, he bought them when they were trading at less than 10X their earnings.

What is Apple’s price-to-earnings multiple right now? It’s 9.63X.” (Source: “AAPL Stock: You Won’t Be Bearish on Apple Inc. After Reading This,” Profit Confidential, May 15, 2016.)

As it turns out, Buffett did exactly what I expected.

If you are familiar with Buffett’s strategy, you already know why he invested in Apple. For those not in the know, it’s really quite straightforward. Buffett likes companies with a durable competitive advantage, talented management in place, and a reasonable price. Apple stock ticked all three boxes.

I guess by now you would know where I stand on this matter: I’m bullish on Apple. But that’s not to say that Carl Icahn is wrong. In fact, Icahn was one of the biggest Apple bulls not so long ago.

Last summer, Icahn said that his decision to buy Apple was a “no brainer,” and “If Apple goes down, I’ll buy more of it.” (Source: “Carl Icahn: If Apple Goes Down, I’ll Buy More,” CNBC, June 24, 2015.)

What Icahn is worried about is Apple’s business in China. Over the years, Greater China has become the second-largest market for Apple in terms of revenue, falling only behind the Americas. (Source: “Apple Inc. Q2 2016 Unaudited Summary Data,” Apple Inc., April 26, 2016.)

Icahn said, “You worry a little bit—and maybe more than a little—about China’s attitude.” But then he added that if China “was basically steadied,” he would be willing to get back into Apple stock. (Source: Ibid.)

In fact, this could just be profit-taking for Icahn. He said that he has made approximately $2.0 billion on Apple stock and that despite his concerns, the stock still looked “cheap.”

So, in a way, Icahn is not really bearish. He’s just enjoying a nice bit of profit while waiting for things to clear.

The Bottom Line on AAPL Stock

In the investing world, few can challenge the wisdom of Warren Buffett. At the same time, Carl Icahn remains one of the most renowned activist investors on Wall Street. This time, Berkshire is going long big time, but Icahn is not really betting against Apple either.

Still, by not having a stake in Apple stock, Icahn might be standing on the sidelines while the Oracle of Omaha enjoys the gains from Apple’s next big rally.