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Apple Stock Is a Buy — With or Without Carl Icahn

Apple (AAPL) shares jumped in late trading Tuesday on word (well, a Tweet, really) from Carl Icahn that he thought the tech giant was “undervalued” and that he had a “large position” in Apple stock.

I couldn’t agree more. And investors should follow Carl Icahn and buy Apple stock, even after the recent run.

Heck, who cares what Carl Icahn thinks of Apple stock? Because if you’re buying just because he is, you are missing the point. AAPL is a bargain, and that should be clear to everyone — clear to Carl Icahn, to you, to your sister’s ex-boyfriend … everyone.

Despite volatility in Apple stock, it is hard to argue that shares truly are at risk long-term. Yes, margins are under pressure as the older models of iPhones and iPads sell for cheaper, and that might only accelerate as plans for a cheap iPhone have been hinted at all year. And yes, Apple is far from untouchable as Samsung (SSNLF) takes market share in both handsets and tablets, and as competitors like Amazon (AMZN) with its Kindle and Google (GOOG) with its Nexus 7 tablet and new Moto X smartphone are closing in on iPad’s turf.

I won’t dignify the BlackBerry (BBRY) Z10 as a true competitor since BBRY stock is doomed, but some naive BlackBerry fans might want to add it to the list. And the Microsoft (MSFT) Surface for now is a nonstarter, too. But whether or not Microsoft and BlackBerry are “real” competitors to Apple stock, you get the idea — that the gadget space is wide open, and that AAPL is not the golden goose it once was.

All that said, why does competition mean Apple stock is a bad investment? And why isn’t this stock a bargain buy even despite margin pressure and the threat of disruption, since so much realism — or downright negativity — seems to have been priced in?

Take a look at these numbers:

  • $146.6 billion in cash and long-term investments.
  • Based on earnings estimates of $42.35 for FY2014, the forward P/E is roughly 11.
  • Back out the cash and long-term investments ($161.37 per share based on 908.44 million shares), and the forward P/E is about 7.1.
  • Annual operating cash flow of more than $50 billion.
  • Revenue per employee of $2.2 million.
  • $100 billion earmarked for dividends and buybacks through 2015.

Sure, there are risks for Apple stock, and volatility is the name of the game in 2013. But all those facts about Apple stock listed above — not rumors about products or sentiment measures but numbers — are hard to ignore.

Carl Icahn knows this. And after Icahn’s gutsy call on Herbalife (HLF) in the face of Bill Ackman and Pershing Square, investors know better than to arrive late to the train on a tip from the activist investor and bargain hunter.

Sure, Apple stock might feel overbought to some now that it’s at its highest level since January. But value investors who believed in AAPL all along would argue that Apple stock is finally back where it belongs — and now that sentiment has shifted from negative to at least neutral, big upside lies ahead.

And heck, if you want to be an Apple stock investor based on gadget rumors and product launches, there’s plenty of fodder there, too, to be bullish. From colorful iPad Minis to hints at the iWatch to cheap iPhones, Apple stock is sure to set off some fireworks in the second half of the year.

Between that and Carl Icahn buying Apple stock, the signs all point to “buy.”

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.


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