An Activist Investor Gooses a Golden Apple

NEW YORK (TheStreet) -- Finally, after so long a wait, the crown jewel of the mobile tech tsunami is seeing its stock get some respect.

Apple ( AAPL) has come a long way up from its 52-week low, when seemingly no one had anything nice to say about it.

Yet, when billionaire activist investor Carl Icahn reveals he's taken a large position in Apple and believes the company's stock is "extremely undervalued," suddenly the Rodney Dangerfield of tech titans turns into a Chris Rock! AAPL closed Tuesday up nearly 5% to $489.57.

Gosh sakes alive, the three-month average daily volume on AAPL is a little more than 12 million shares. Mr. Iconic Icahn steps into the picture and -- swish bang -- the volume skyrockets above 36 million shares.

Perhaps Steve Jobs is channeling himself through Icahn but Tim Cook has awakened to a powerful ally who wants to keep in touch with him. I can't imagine him minding Icahn's revelations.

When Carl Icahn suggests the stock buyback has to be boosted quickly, you can run but you cannot hide. That's one of the reasons Apple spokesman Steve Dowling confirmed Icahn and the CEO communicated on Tuesday, saying that Cook had a "very positive conversation" with Icahn.

Apple said in April that it would expand its stock buyback program to $60 billion, marking the largest buyback authorization in history. The buyback, combined with an increased dividend, is part of the company's plan to return $100 billion in cash to shareholders by the end of 2015.

Let's see how AAPL shares have been performing in just the past three months. Its share value has almost turned suddenly to gold!

AAPL Chart AAPL data by YCharts

Perhaps Icahn has also looked at AAPL's price to tangible book value and shouted, "This stock could go as high as $600 in the blink of an eye or in the same time it takes me to write a check!"

After all, why should a smartly managed company that has over $181 a share in trailing 12-month (TTM) revenue be trading at a forward (one-year) price/earnings ratio of barely more than 11? Any wonder Icahn is tweeting that AAPL is not just undervalued but "extremely undervalued?"

Although I don't own directly own shares of Google ( GOOG), I'd buy an exchange-traded fund that invests in both AAPL and GOOG.

Yet, GOOG has a forward (one-year) PE of over 17, even though its TTM revenue per share is just $169. Its operating margin (TTM) is just shy of 24% but Apple's is almost 30%. Let's compare apples to apples here!

Is it any wonder that a billionaire with a large stake in AAPL would tell CEO Cook that the maker of iPhones and iPads should be using more of its $147 billion in cash to buy back its own stock? Cook can't tell Icahn that it's none of his business.

As a result of today's revelations and chats between moguls, the world's most valuable company saw its market cap goosed up to almost $445 billion dollars. There's more to the story than meets the eye.

In my opinion, Apple isn't telling the world yet about what else it has up its sleeve to create more streams of recurring revenue. Plus, its management is doing all it can to reduce operating costs.

Many analysts surmise Apple is ready to commence selling a lower-priced version of the iPhone to help lift its sales and bottom line. A cheaper model may be introduced as soon as September, when it's anticipated we'll a sneak-peak of its latest and greatest version of the high-end iPhone.

So, my fellow patient buy-and-hold and buy-on-the-dips AAPL investors, it may be too soon to celebrate, but the golden Apple is shining just a little bit brighter right now.

To sweeten this moment, may I remind you that a stock buyback is like stealth, tax-advantaged dividend? If APPL purchases 10% of its outstanding shares it should increase share value accordingly.

You won't be taxed on that stock appreciation, or its revaluation until you sell it. Meantime, even at $490 a share the $12.20 annual dividend payout still offers a dividend of 2.49%. So, Icahn, please keep talking with Cook and completely remove the tarnish of a prolific golden Apple.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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