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Carl Icahn Just Added Another $500 Million of Apple to His Portfolio - Should You?
Posted by: Analyse360Degree (IP Logged)
Date: January 23, 2014 10:38AM

The famous Carl Icahn (Trades, Portfolio) of Icahn Capital Management LP, who happens to be a very active and successful investor, very recently tweeted about his increased stake in the mighty Apple Inc. (AAPL) and following this news, the price of the stock rose as much as 1.5%. The Princeton graduate has been very keen on Apple shares for some time now and in his words Apple is “one of the greatest no-brainers of all time.”

With an addition of another $500 million worth of shares, Icahn’s total investment in the iPhone maker has moved well above $3 billion and he intends to buy even more. This is the third time that he has upped his stake in the company in the past six months. And it’s not just Icahn, but other hedge fund gurus as well who have huge faith in the stock. For David Einhorn (Trades, Portfolio) of Greenlight Capital, Apple happens to be one of his largest stock investments, and he has added to his stake in the company from time to time.

Though Icahn seems to be a fan of Apple and strongly believes in the stock, there is one thing regarding which Icahn and Apple’s management are not on the same page. The billionaire strongly believes that the Cupertino-based tech giant should spend $50 billion (down from $150 billion which he had initially proposed) in share buybacks during the present fiscal year which ends in September. The huge cash pile on the company’s balance sheet, amounting to nearly about $150 billion, is bothering Icahn and he feels not using the cash to fund buybacks will result in harm to the shareholders.

Icahn has a reputation which precedes him. He is well known in the investment world for his aggressive techniques, proxy battles against large corporations and track record for urging companies to take decisions that have resulted in increases in their stock price. He has done it many times with many other companies and he is trying to do the same with Apple also by persuading the board of directors to take up his suggestion.

However, Apple’s board has a different point of view in this matter. Ever since Tim Cook took the charge from Steve Jobs, he has tried to make Apple more investor friendly. But, he is opposing Icahn’s suggestion on grounds that in this highly dynamic consumer electronics space, the company needs to have access to huge amounts of cash to stay up-to date and competitive. The company has been facing cut-throat competition from peers such as Samsung Electronics, Nokia (NOK), (AMZN) and Sony (SNE). Though the recent win against Samsung may act as a breeze of respite for the iPhone maker, the company has several hurdles to overcome in the recent future and parting with liquid cash doesn’t seem to be a logical choice to the board.

Moreover, Apple is already in the process of returning $100 billion to its shareholders, including a share repurchase program of $60 billion over a span of three years, and the company has returned $43 billion in the form of dividends and repurchases under the capital return program. So, as far as buybacks are concerned, the Apple board doesn’t desire that. But, that is not the final call. Apple shareholders will have the opportunity to vote and evaluate how the board should respond to Icahn’s proposal during the annual meeting, which is schedule to be held on Feb. 28.

Regardless of the outcome, the activist investor continues to invest in Apple and is ready to take the risk of not getting buybacks since he calculates the current price to be a bargain still. The stock has huge upside potential and that should automatically put Apple in an investor’s wish list. If the board decides to go for the buyback, that will surely aid the stock price. And even if there is no buyback, the stock’s upside potential should trigger the investment.

Guru Discussed: Carl Icahn: Current Portfolio, Stock Picks
Stocks Discussed: AAPL, NOK, AMZN, SNE,
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