Carl Icahn Dumped AAPL Stock—Should You Drop Apple Inc. Too?

Bad News for AAPL StockBad News for AAPL Stock?

Apple Inc. (NASDAQ:AAPL) is having a very bad week. Billionaire Carl Icahn, once the most ardent fan of AAPL stock, has sold his entire stake in the company.

Icahn was trying to convince lawmakers that corporate America should get a tax holiday. Apple has $216 billion stashed overseas. If he succeeded, Apple could have brought that capital back to the U.S. at a lowered tax rate.

But Icahn abandoned that goal after Apple’s recent earnings report. The company reported fewer “iPhone” sales, shrinking margins, and political trouble in China. Icahn seems upset at the latter.

“You worry a little bit—and maybe more than a little—about China’s attitude,” he said on CNBC, later adding that China’s government could “come in and make it very difficult for Apple to sell there…you can do pretty much what you want there.” (Source: “Icahn: We’re out of Apple, and it’s China’s fault,” CNBC, April 29, 2016.)

By saying the Chinese government can “come in and make it very difficult for Apple to sell there,” Icahn is referring to an incident from last month. The government banned the “iTunes Movies” and “iBooks” stores, crippling Apple’s business in the region.

According to the billionaire investor, that explains why revenue from the Greater China region fell by 26%. The Middle Kingdom was still a major frontier for Apple. Without expansion in China, investors are skeptical of the firm’s growth potential.

However, Icahn was quick to add that Apple isn’t dead in the water. When asked about the company’s share price, he said that AAPL stock was “cheap” when judged “on a multiple basis.” (Source: Ibid.)

He also said that Apple is a “great company” and CEO Tim Cook is “doing a great job.” (Source: Ibid.)

Despite his assurances, a lot of people are starting to worry. If Apple’s most prominent cheerleader dropped his stock, what should the rest of us be doing?

Of course, none of us will know until the “iPhone 7” comes out. If that product exceeds expectations, perhaps we’ll look back on this incident as a minor crisis of faith.

However, there may be two reasons to follow Icahn’s lead:

For one, the smartphone market has reached peak penetration. Almost everyone in the world who can afford a smartphone has one. Although China showed potential for growth in this market, it was an outlier in the broader trend. It was a single data point in a sea of darkness.

There are plenty of reasons to love AAPL stock, but the iPhone sales figures are not one of them. To put it bluntly, I wouldn’t bet my retirement on seeing those sales figures pick back up.

The second reason is simple: Apple is just too big for any new product to make a difference. I wish I could take credit for this point, but it was originally made by Profit Confidential’s Editor-in-Chief, Robert Baillieul.

We were discussing Apple’s earnings report and he pointed out that the company had sold $4.0 billion worth of “Apple Watches,” yet it hadn’t impacted the stock at all. (Source: “Apple has probably sold more than 5 million watches so far,” Quartz, October 28, 2015.) Why? If any other firm built a $4.0-billion business, it would be big news.

It’s because Apple is simply too huge. Until this week, Apple was a $600-billion company, which makes its $4.0 billion from wearable tech look like chump change.

Both of those are compelling reasons to avoid AAPL stock. But we don’t have enough information yet, so the smartest move might be to wait on the sidelines until Apple’s next earnings announcement.