Billionaire Carl Icahn is Bullish on Apple Stock; Should You Be, Too?
It’s one of my favorite ways to invest in technology stocks—and apparently legendary investor Carl Icahn agrees with me.
The company is Apple Inc. (NASDAQ:AAPL), one of the world’s most innovative companies. It alone accounts for almost five percent of the S&P 500 by market capitalization.
Apple is an unusual bet, as anyone who has been following the market can tell you. Shares have been in the dumps with the stock falling more than 15% over the past few months. But that might soon be about to change.
Is Apple Stock a Good Investment?
Despite the current correction in Apple stock, Icahn has reiterated his view that the company’s share price is still substantially underpriced. Speaking in an interview with CNBC last week, the activist investor underlined that no matter how much market turbulence it may encounter, AAPL stock remains a good bet. (Source: Carl Icahn: I think markets are overpriced, earnings are misstated, CNBC, September 30, 2015.)
Chart courtesy of www.StockCharts.com
Taking a billionaire’s word can be a tricky business, but there are some very positive indicators which might make you want to take a second look at Apple stock. Icahn has even gone so far as estimating its real value to be upwards of $200.00 per share. (Source: Carl Icahn: Apple remains undervalued, worth almost double current price, CNBC, May 18, 2015.)
Is this a realistic target? Maybe.
Apple’s strength is, of course, its ability to develop, manufacture, and sell devices which satisfy needs that consumers were not even aware they had in the first place. Apple then takes these needs and remakes them into industry standards such as the iPhone. Lateral expansion of its electronic ecosystem is key to future growth, and Apple’s strategy appears to be working quite well.
Analysts have gone so far as to suggest that the company could one day break into fields previously unimagined, giving examples such as an Apple car, electronic payments through Apple, smart dwellings, or perhaps even artificial intelligence.
From a financial point of view, the Apple stock is starting to look like a real bargain. The company currently has a price-to-earnings ratio of 12.5 over the last year. For the 12-month period ending September 2015, meaning the current fiscal year, Apple stock has a price to earnings ratio of 11.8. Now compare that to the S&P 500 average P/E ratio of 18.4 and you get a pretty solid indicator that Apple is considerably undervalued.
This Could Send Apple Stock Soaring
As with most influential billionaires, Carl Icahn has not been shy about calling for changes in corporate strategy. His venture into Apple, of course, has been no different. Previously, Icahn has called CEO Tim Cook to increase the company’s dividend and initiate a stock buyback program. (Source: Icahn tells investors to ‘keep cash’ given market risks, Globe and Mail, September 30, 2015.)
Both initiatives could be a catalyst for the stock if he’s successful in getting these policies approved.