Will Icahn’s ‘Half Price’ Approach Boost Apple Stock?

Andrew Nyquist

apple store logoApple has been accumulating cash for several years now. And Carl Icahn has been accumulating Apple stock for several months. And Icahn wants Apple to dig deeper into their cash pile and buy back more stock. This isn’t news to Apple (AAPL) shareholders. If anything, antics like Icahn’s “Half Price” letter to Tim Cook have helped bolster Apple stock. Just look at Apple’s share price since he announced his position in the stock.

Repaying shareholders through buy backs and/or dividends is a big topic in investor circles, but timing is everything. When Apple stock was the hottest thing on earth and the share price was rocketing higher, investors could wait for dividends because their payback was coming through share price. But when the stock suffered a huge correction in 2012-2013, investors began to feel unsettled… especially as the company’s large cash pile became larger. Therefore, the timing (and mood) was perfect for an activist investor to step in and demand more on behalf of shareholders.

Today, Apple’s stock was down 0.29%. The NASDAQ was down 2.33%.  For the week, Apple was up 1.11%, while the NASDAQ was down 4.44%. The stock price is definitely showing strength and holding up well thus far in the face of a weaker market. It’s also worth noting that Apple’s forward P/E is just 13.82, while competitor Google’s (GOOG) is at 18.42. And Apple’s 5 year expected PEG is 1.30 to Google’s 1.40 (stats sourced from Yahoo Finance). Note that PEG stands for Price/Earnings to Growth.

The chart below highlights Apple’s performance relative to the Powershares QQQ Trust (QQQ). It’s clearly been outperforming. And thus far, it’s been holding up against the deeper stock market pullback.

AAPL to QQQ Ratio – Relative Performance Chart

apple stock relative strength to nasdaq 2014

It’s worth noting that AAPL shares have come a long ways over the past 6 months and face some price resistance. The stock is currently consolidating around all-time highs and if the stock doesn’t break out soon (in the coming weeks), it may be susceptible to a deeper pullback.

That said, activist investors typically don’t stick around forever, so enjoy it while it lasts.

No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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