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Christopher Maverick
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Former Investment Advisor for 7 years Focused on the Big Ideas or Great Value for my Investing dollars I believe stocks are really business, and i'm just looking for a few that i really like, with the understanding that great things sometimes takes time. i can be found tweeting my favorite tech... More
  • Best Way To Play Apple Is With The January 15 500 Calls 2 comments
    Sep 18, 2013 1:01 PM | about stocks: IEP, AAPL

    I like to follow the smart money, and right now there is no one smarter with his or shareholders money than Carl Icahn who boasts a net worth of $20.3 billion, all from investing in the market. So when "King Carl" appeared on CNBC on September 11th to talk about his views on Apple (NASDAQ:AAPL), he took the opportunity to indicate that he is still buying "quite a bit of stock at these levels". Carl went on to state that Apple stock is a "no brainer" when shares were trading around with share trading at $467.

    I personally like taking Carl Icahn advice as he has made me money consistently (NFLX, MMI and HLF recent examples), an investment legend who's holding company Icahn Enterprises L.P (NASDAQ:IEP) has returned 70.1% (before dividends payments of $3.75) over the last 5 years. By comparison, the "Oracle of Omaha", Warren Buffet's Berkshire Hathaway (NYSE:BRK.A) has returned 17.89%, with no such dividend, over the same 5 year period

    So in regards to apples recent drop back below 500, it seems Wall Street is a little upset about the fact that Apple didn't release a cheaper iPhone intended for price sensitive consumers in emerging markets, and the much anticipated agreement with China Mobile (NYSE:CHL) was not announced. This is no reason for the stock to sell off, especially since, well… Apple already has a cheaper iPhone, it's called the iPhone 4 & 4s! We will see a China mobile deal, just not on the day Wall Street had hoped. Poor babies!

    So this leads me to an important comment Tim Cook made on Apple's 2Q 2013 conference call:

    "I don't want to be more specific, but we've got some really great stuff coming in the fall and across all of 2014…"

    So what potential "really great stuff" could investors expect to see over the next 15 months that will drive growth?

    New iPads - We should expect a new iPad tablet before Christmas, with a thinner bezel in the spirit of the iPad mini and at some point perhaps in 2014, a retina display iPad mini. This is a much needed upgrade for the iPad, as users are holding off new iPad, as they haven't been given a reason to upgrade yet. But if the iPad gets the 64bit A7 chip and an expected thinner Bezel, Apple will have a winner on its hands and many current iPad customers will finally upgrade from previous models

    China Mobile - We will more likely than not see a China Mobile deal before the upcoming Christmas, giving Apple access to 700 million new potential customers.

    iWatch - With the hiring of Jay Blahnik (Nike FuelBand's Guru), Paul Deneve (former CEO of high end fashion brand Yves Saint Laurent) and current Apple legend Bob Mansfield's (Apple's former Senior Vice President of technologies) all reported to be working on the Apple smart watch, which is dubbed "iWatch". I fully expect that we will see the iWatch sometimes in 2014, and unlike Samsung's Galaxy Gear watch, I don't think it will be dead on arrival. Samsung's smart watch has seen little early success thanks to the limited pairing options (for example the device can only pair with the Note 3 at launch) and limited battery life (25 hours). From what I understand, Apple is trying to achieve 4-5 days of battery life, a possible indication of why the product hasn't launched yet as Apple is still fine tuning the device.

    iPhone 6 - In Apple's product cycle the next generation iPhone 6 could be a whole new design, this is in line with Apple's product cycle for the iPhone - "Refine, Overhaul, Refine, and Overhaul". Thanks to a 64 bit A7 chip, dedicated M7 sensor chip and revamped iOS7 I think this was more than just the standard mid cycle refine personally.

    iPhone Phablet - Analyst Ming-Chi-Kuo of KGI Securities, who has the best track record in regards to Apple future product roadmap believes that Apple will launch a Phablet in 2014. Phablet being an iPhone model with a 4.5 - 5 "display. Kuo's track record includes accurately predicting the September 10th iPhone launch and many previous Apple product launches. This makes Kuo a legitimate source of information in regards to Apple's rumored products. Much like a potential iPhone 6, the company wants to make sure it gets the battery life up to a standard one would expect with a brand new product.

    iTV - Apple TV is a clear wild card but we could see a potential launch of an Apple TV in 2014 which I believe will sell. I personally held off buying a new TV as I'm waiting for this, but being a long time Apple consumer, I'm the exception, not the rule in this regards. One of the key missing ingredients for Apple is landing an ESPN or HBO type content deal to complete the offering, to go with Netflix (NASDAQ:NFLX), HULU and iTunes.

    Apple iWallet - This is another wildcard, which could be a killer for EBay's (NASDAQ:EBAY) PayPal service. Unfortunately, no one is sure when this potential blockbuster service will launch. I say blockbuster as Apple iTunes holds 575 million credit card accounts, quickly approaching nearly twice as many as PayPal's 132 million active accounts and Amazon.com's (NASDAQ:AMZN) 200 million active accounts combined! Apple's recently introduced fingerprint reader will allow any future iWallet to be the most secured method of payment available (no chargeback for merchants or fraud for clients). Apple's patent filings show the company is hard at work on any such potential service that could act as an extension of the current Apple passbook.

    Apple Buyback - Apple has already stated that I will buy $60billion of stock by the end of 2015. King Carl is expected to meet with Tim Cook for dinner to talk about doing an additional buyback, which could be quicker and bigger. The company so far has bought back $16 billion of stock in the last quarter or a blackberry co a month.

    If we do see the first 4/5 launches I listed before the end of 2014, we could see a much higher earnings, and more importantly, a removal of the "Apple can't innovate stigma" which has plagued Apple over the past year. As such, investors can anticipate a much higher Apple share price. This brings me to what I believe is the best way to play Apple shares: the January 2015 500 calls. This is an investment I've personally made and plan on continuing to add to for the remainder of the year and in to early 2014. Unfortunately, this wasn't something I came up with, I stole this idea from another legendary money maker Bill Miller of the Legg Mason Opportunity Trust. Bill Miller's style is described by the Wall Street Journal as "buying shares whose prices are significantly discounted by the market because of doubts about the businesses' future". This certainly sounds like Apple to me! This style has made Legg Mason Opportunity Trust the top performing diversified US stock mutual fund over past 12 month with a 58.16% return and a year to date return of 47.53%. It should be noted he also beat (after-fees) the S&P 500 index for 15 consecutive years from 1991 to 2005.

    On a March 15, 2013 CNBC segment, when Apple shares were hovering around $440, Miller stated "We are now overweight Apple and we completed the position just a couple days ago, In fact, and interesting thing on Apple, the Apple 2015 leaps for the 500's trade around 40 bucks. If apple goes back to where it was Six months ago, that is a four to five times your money"

    Those 500's currently trade for $42.66 per contract (09-17-2013), making this kind of risk to reward profile I LOVE. Trading the 500 calls allows investors to ignore the constant bickering of "fan boys" and Apple haters, and just sit back and wait for the products to rollout and allowing them to set a limit on what they are willing to lose. As an extended timeline strategy for an extra $20 per contract you can purchase the 2016 500 calls currently trading at $64.09 (09-17-2013), I'll probably be buying these in 2014.

    Disclosure: I am long AAPL, NFLX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: long AAPL January 15 500, and in early 2014 will start buying AAPL January 16 500.

    Themes: options Stocks: IEP, AAPL
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Comments (2)
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  • iOS7 needs to revolutinize
    , contributor
    Comments (86) | Send Message
     
    Very interesting propositions. I think there is a great potential in AAPL, barring irrational market behavior, and an inevitable correction markets by Fed tapering. And AAPL particularly seems to more exposed to any form of negativity these days.
    18 Sep 2013, 08:27 PM Reply Like
  • Christopher Maverick
    , contributor
    Comments (25) | Send Message
     
    Author’s reply » i agree, i think there is a obvious disconnect between what consumer think of apple products and what Wall St thinks. Plus the valuation is just to cheap by any metric for a company of this quality. Why Carl calls it a "no brainer". This happens to be a core position for me (the options)
    18 Sep 2013, 08:50 PM Reply Like
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