Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.
This past week, Kass discussed Carl Icahn's relationship with Apple and the breakout in biotech stocks.
How Do You Like Them Apples, Carl?
Originally published Feb. 17 at 8:48 a.m. EST
Carl Icahn has often described his investment in Apple (AAPL) - Get Report as a "no brainer," and the business media have spent perhaps hundreds of hours discussing his and other hedge funds' accumulation of Apple shares.
Business TV has devoted entire programs to the subject, highlighting interviews with Icahn and others. I'm sure the media hoopla that surrounded Icahn's Apple accumulation (not to mention his optimistic tweets on the subject) raised the animal spirits and influenced many investors to buy AAPL over the last few years.
Check out this sampling of Icahn's quotes on the subject:
- "We look for 'no brainers' and I think Apple is just a 'no brainer," Icahn told CNBC on Sept. 11, 2013.
- "I have been around a long time (and) every decade you see a 'no brainer.' ... Invest all your money if you can. ... I don't agree that (Apple) is a two-way street. ... I think Apple just has too much going for it, and the price is so cheap," Icahn said on CNN on Jan. 28, 2015.
- "Apple's shares (are) trading for just $128.77 per share vs. our valuation of $240 per share, Icahn wrote in a May 2015 letter to Apple CEO Tim Cook, according to Bloomberg News.
- "We haven't basically changed the position. ... I am very seriously considering buying a lot more of (Apple stock), Icahn said on CNBC last Sept. 30.
Given all of the above, it's a bit bewildering that there's been nary a word or discussion so far about news that Icahn and Greenlight Capital recently disposed of a meaningful amount of their Apple shares. Indeed, nearly all the Apple-related discussion since Icahn's 13F filing disclosed the sale of 7 million AAPL shares has been about the U.S. government's attempts to unlock the San Bernardino killer's iPhone.
Personally, I've consistently argued to short or hold Apple shares since early 2015.
"First-level" thinking holds that "the shares are cheap and have a low P/E multiple" -- the opinion of some commentators and a sell-side community that has a near-universally optimistic view of Apple's futures.
By contrast, I've consistently delivered the notion that Apple faces profound challenges to profitability and sales growth over the next several years.
At the core of my ursine outlook is that Apple's past success represents the greatest headwind to its forward advancement. It's just too difficult for such a large company to "move the needle" by innovation and the introduction of new products.
Frankly, the successes of Apple's past product offerings are nearly impossible to repeat. Not only is it terribly hard to measurably impact incremental growth on a company with $233 billion of sales, but I believe the iPhone -- Apple's key driver to profits -- is currently concluding its most important product-cycle upgrade.
Position: Short AAPL
Originally published Feb. 17 at 1:47 p.m. EST
Given my risk-averse profile, I made the unusual move last week of buying a basket of biotech stocks.
And recently I noted that Biotech Could Be Close to a 'Double Bottom':
"I recently created a basket of a dozen speculative and conservative biotech stocks that I've invested in.
"This basket is doing well, and I've increased my stake in its 12 components to medium-sized from my original small-sized positions.
"In fact, I can see a possible 'double bottom' emerging in the benchmark iShares Nasdaq Biotechnology ETF(IBB) - Get Report . I think the $258 level for IBB could be a breakout -- with things getting exciting from there.
-- Doug's Daily Diary,Biotech Could Be Close to a 'Double Bottom' (Feb. 16, 2016)
Well, IBB has shot through the $258 resistance level and is now trading at around $266, up some 3% for the day.
The moves in some of biotech's more-speculative names are even more conspicuous, including gains these holdings of mine:
- Cempra (CEMP) , +14%
Position: Long XON, NKTR (small), ACAD (small), AERI (small), CEMP (small), SAGE (small), TTPH (small)
Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.