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The Icahn Effect: Is Apple the Next Netflix?

Stocks in this article: AAPL NFLX

After Icahn announced his big investment in NFLX, the stock rose within nine months to trade at a price-to-book-value ratio of 15. A similar rise for Apple would propel its stock to $2000. Highly unlikely.

After Icahn announced his big investment in NFLX, the stock jumped within nine months to a price-to-sales ratio of 4. If AAPL jumps to a price-to-sales ratio of 4, it will be trading at $750. Hmmm. Maybe.

Icahn says that if Apple uses the cash in its coffers to increase the size of its planned stock buyback, that action alone will cause AAPL to rise to $625 per share.   Sounds reasonable, as leveraged cash is certainly worth more than idle cash.

While Icahn's announcement certainly served as an effective catalyst to propel AAPL upward through the stiff $475 resistance level, the stock had already been in the midst of a strong month-long upswing.

What had been happening prior to that, for months, was that AAPL had stopped trading like a technology stock and started trading instead like a retailer stock. This is perfectly understandable, in light of the fact that Apple hasn't had any major new product launches since the iPad three years ago -- and there have even been no minor product launches since last year. So Apple had for nearly a year settled into being merely a retailer of existing products, and its stock-price was punished, dropping to trade for months in a zone at or below a P/E of 10.

That is all expected to end soon, with a rumored Sept. 10 media event to launch its next-generation iPhone 5s and a cheaper iPhone 5c to capture market share in lower price-ranges.

Also expected to be released soon are new versions of Apple's iOS and Mac OS X operating systems and a bold redesign of its Mac Pro desktop computer. Long-shot products thought to be in development include an iWatch wearable computer and an Apple television.

>>5 New Trades From Renaissance Technologies

I have closely watched and frequently traded AAPL for years. Short-term, I expect AAPL to be an excellent trading stock. From an investment perspective, I suspect it would be wise to initiate a small position here at the $500 level. Based on past experience and the charts, I would expect AAPL to pull back to re-test the $489-level and perhaps even the $475level, but there is of course no guarantee that will happen.

Will there be over the long-term an Icahn Effect that by itself will propel Apple's stock to astronomical levels? That remains to be seen.

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