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January 2014 Blogs
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This article was originally published on on January 28, 2014 at 10:13am EST

Carl Icahn is possibly today’s most famous corporate raider — a modern day Sir Larry Wildman, without the cool accent. Or eloquence. Or good looks. Or tact.

Like him or not, though, he and his tactics have been effective over the years and his publicly traded partnership, Icahn Enterprises (IEP), has delivered outstanding returns to shareholders.

Except with its Apple (AAPL) investment.

Icahn’s announcement of a $1.5 billion stake in the company came via Twitter last August, when Apple was trading around $450 per share. The initial investment came as a result of research and advice provided by Carl’s Jr — Icahn’s son Brett. Apple’s stock immediately popped 5% and continued levitating above $500, all the way to its recent high of $570 on Dec. 23. Icahn’s seal of approval was one thing — it put an imaginary floor under the stock for the nervous nellies — but his promise to strong-arm Tim Cook into sharing the company’s cash hoard with investors added additional appeal.

It just hasn’t worked. While Tim Cook and his board are under no obligation to listen to Carl Icahn (he owns less than 1% of outstanding shares), I do believe their reaction is indicative of a more serious problem.

The message being clearly sent by Cook and interpreted by Icahn and other shareholders is: “You are not that important.” Do you want to own the stock of a company whose share price is not its top priority?

Since Icahn’s initial investment the stock was up more than 17% through yesterday’s close of $550.50.

But after Monday’s earnings and guidance disappointment, Icahn is up just over 11% on his initial stake.

However, since August Icahn has more than doubled his stake in Apple — as of today his position is estimated at over $4B, a third of which would have been purchased around $550 per share. It’s very possible he is flat on his overall investment thus far.

As we pointed out here back in November, there are a lot of factors weighing down Apple’s stock. Sales and revenue continue to grow but it’s the lack of sales growth and falling profit margins that are the current Achilles Heel.

Something else in the news the past week is the fact that overseas economies, particularly those of developing nations, are running into currency pressures. We are seeing Turkey in the headlines most recently but the story is much the same in Latin America and Asia. With the looming Federal Reserve taper and the U.S. emerging as by far the most solid economy in the world again, companies that do a great deal of business internationally must prepare for a stronger dollar.

While a stronger dollar will be beneficial in keeping labor costs down, it will not help international sales and profits. Cheap labor in emerging economies has facilitated a large part of Apple’s growth over the past decade, but now the technology giant would like to rely more on the emerging consumer, and not just the laborer, to expand its global reach.

If an iPhone costs $250 to make, and Apple hopes to sell them for $400, that means Apple makes $150 per unit (these numbers are fictitious). But if I live in Brazil and my local currency has depreciated by 30% against the U.S. Dollar, $400 may now be out of reach. In this case Apple might need to consider reducing their price in order to simply maintain their existing sales growth. The discrepancy would have to come from the company’s already declining profit margins.

As a public company, Apple has an obligation to its shareholders, and if I were one I wouldn’t be too happy. My guess is Carl Icahn isn’t too happy, either. I wouldn’t be surprised if he starts sniffing around for better opportunities for that cash, and an Icahn exit would likely not bode well for AAPL shares.

I’d rather trust Icahn will generate value for his shareholders and buy shares in his IEP — which currently yields 4.50% and is 30% off its recent high — than follow him into one of the stocks he owns whose management doesn’t seem interested in doing the same.

Interested in initiating a dialogue or becoming a client? Give us a call or email….

Adam B. Scott
Argyle Capital Partners, LLC
10100 Santa Monica Blvd, #300
Los Angeles, CA 90067
(310) 772-2201 – Main

Adam Scott’s profile on can be found here.


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