Icahn Scoops Up Apple Stock Post Product Launch Plummet
Sep 13, 2013 5:00 AM PT
Apple received a rude rebuff from Wall Street Tuesday after rolling out its latest line of mobile phones, but Tim Cook's loss may turn into a gain for Carl Icahn.
When Apple's share price tumbled from a little north of US$500 before the announcement of the iPhone 5s and 5c to less than $470 after it, former corporate raider Icahn swooped in and began buying stock.
Icahn, recently bested by Michael Dell in a struggle for control of the company Dell founded, told CBNC Wednesday that adding more Apple shares to those already in his portfolio was a "no brainer."
Apple stock was selling at about 5.6 times earnings, he explained, making it a real bargain. The fruit will get even sweeter if the company makes good on its promise to buy back $150 billion in shares, which would bring its price-to-earnings ratio down to three for investors.
Icahn sees Apple's stock taking a beating in the short term, although there were signs Wednesday that shares were beginning to recover from their post-new product swoon.
If Apple expected its new iPhones to bump up its stock price, then it must be disappointed -- and it may remain so, said J.P. Morgan Securities analyst Mark Moskowitz in a recent research note.
"We think the dual launch could be a neutral to negative event for the stock in the near term," he wrote. "The lower-priced iPhone 5c may not be priced low enough, in our view, which could limit incremental penetration of the midrange smartphone segment."
Another short-term shock to Apple's share price has been its inability to hammer out a deal for wider distribution of the iPhone in China.
"The No. 1 disappointment was there was no China Mobile deal, although I think that deal is coming," business professor Scott Testa told MacNewsWorld.
The longer it takes for that deal to come, however, the more Apple's share price may suffer.
"China Mobile still is untapped after today's launch, which could be a negative for the stock in the near term," Morgan's Moskowitz wrote.
5c No Cannibal
Wall Street was also disappointed with the price point for Apple's developing world phone, the 5c, Testa noted. "It feels the handset business is a commoditized area that Apple should be super aggressive in and go after the low-end Android phones."
Keeping the pricing between the 5s and 5c iPhone models close may have disappointed investors, but it minimizes the impact of the 5c on Apple's margins, as well as the potential to cannibalize 5s sales.
"Although the price point on the 5c base model is only $100 lower than the 5s base model with a wireless contract, we think the 5c's lower-quality form factor and features could minimize cannibalism risk of the 5s," Moskowitz wrote.
"Based on our evaluation of the devices, 5c's plastic body and buttons do not feel as sleek and elegant," he added.
Although Icahn framed his recent buying spree of Apple shares in terms of numbers, he may also be considering the potential of the new iPhone 5s, which seems to have been lost in all the noise about Apple shares falling.
That potential will be fired by the 64-bit processor in the 5s.
"Having a 64-bit operating system on a smartphone without changing the form factor is a phenomenal innovation," Trip Chowdhry, managing director for equity research at Global Equities Research, told MacNewsWorld.
It's a development that's stoking the enthusiasm of developers.
"Developers are hot about this -- they're creating more applications, and more applications means more iPhone sales," Chowdhry said.
"Applications drive hardware sales. That can't be underestimated," he observed. "Carl Icahn may be seeing that too, which is why he's building a position in Apple."