After billionaire investor Carl Icahn announced a stake in Apple (NASDAQ:AAPL), shares jumped nearly 5%. The 77-year old activist investor announced his position on Twitter two days ago: "We currently have a large position in Apple. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come."
The Wall Street Journal reported that he's been building his $1.5 billion stake in Apple over the last month. What's his outlook? Icahn says, "Even without earnings growth, we think it ought to be worth $625." He's recommending that CEO Tim Cook increase the record $60 billion share buyback program. Doing so would decrease the number of Apple shares, and raise the EPS.
This is just the latest news that helped lift Apple shares by more than 100 points. The stock is now up around 27% since its July lows of $393, marking a big comeback for the tech giant. I've been bullish on Apple shares. In "The Truth About Apple," I told readers:
Like all big tech companies, Apple has matured. The idea that innovation at Apple died with Jobs doesn't sit well with me. While Apple will continue to innovate and create new products, it doesn't really matter. Because Apple's stock price reflects a stale business that will never grow again.
In that June 18 article, I advised readers to buy Apple stock. Here's exactly what I said:
Value and income investors alike should love the stock, thanks to the shareholder-friendly initiatives and the cheap stock price.
At $432, now is the perfect time to buy Apple shares. The stock is cheap, with a P/E just north of 10. The company's growth is superior to most companies of its size. And the balance sheet is pristine, with more cash than many countries.
Apple may not have the high dividend yield that most income investors seek. But you should be attracted to the growing dividend, huge share buyback program and the cheap stock.
I've personally owned Apple shares since 2010. The decline of Apple shares from $700 to less than $400 was painful. But like many Apple shareholders, I kept every one of my shares. In fact, I even violated a crucial investing rule: Don't try to catch a falling knife. Even as Apple shares plunged, I bought a little more stock in January at $508 and February at $459. Averaging down can be a mistake, but it occasionally creates big profits.
Just eight days after telling readers to buy Apple shares, I made a big move. I doubled-down on Apple in late June, and bought a sizable position at $398. Those shares are now up 25% in less than two months. Why did I buy Apple at that time? The reason is simple. I looked at Apple and saw value. The stock was trading at just 10x earnings. That's cheap for any company. And when you get a chance to buy a great company at a bargain price, you snap it up.
Plus, I'm an Apple customer who loves the products. My iPhone, MacBook, iPad, and iTunes are all intertwined in the Apple ecosystem. Like millions around the world, I'm a customer for life. That's why, when I saw Apple briefly dip below $400, I pulled the trigger. At the time, there was rampant pessimism. And that can be a sign of a bottom.
Apple shares are now up considerably. But the stock is still cheap. On an enterprise value basis -- which removes the value of the company's cash -- shares trade at a multiple of just 9x this year's earnings estimates. That's a 45% discount to the S&P 500.
My view on Apple hasn’t changed: "Apple is truly a unique opportunity to buy a world-class company at a very reasonable price. With the stock market near all-time highs, Apple certainly appears attractive. Especially when you consider the potential for substantial gains if the company unveils another device that changes the world..."
If you're looking for value in this rising stock market, look no further. You've found a great bargain in Apple shares. That's why Carl Icahn is buying Apple shares. I hope you've done the same.