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On a big, down day for Wall Street, shares of Apple are bucking the trend by staying about even, the catalyst likely being Carl Icahn urging the tech-media firm to buy back more of its own stock, a strategy the billionaire activist investor says could lead to a $203 stock price.
Just before the closing bell on Thursday, Apple shares were flat at $100.99. The S&P 500, meanwhile, was off nearly 2 percent.
Icahn owns 53 million shares of Apple, valued at more than $5 billion. At his website, Shareholders’ Square Table, he posted an open letter to Apple CEO Tim Cook that outlines his plan for a higher stock price, including the company buying back an additional $100 billion in stock, which would more than double its buyback program.
Icahn’s lengthy, open letter to Cook includes a section on each of Apple’s primary products. He raves about the iPhone and predicts that it will take more market share from competitors. “It is hard to imagine why a consumer would choose an inferior phone when the marginal cost difference is so small,” he writes.
He also expresses confidence that “the iPad will reaccelerate growth next year” after a disappointing fiscal 2014.
As for iTunes, he acknowledges revenue is small relative to other major assets at Apple, but also says it will keep growing fast and that it is an important service for “Apple’s ecosystem in terms of driving sales of its products.”
He also writes: “We expect the impact of the acquisition of Beats and accessory growth moving forward to more than offset the continued decline of iPod, which is already relatively immaterial to net sales.”
He also encouraged Apple to introduce TV sets, referencing former CEO Steve Jobs‘ famous line that the Apple TV device was a mere “hobby.”
“While Apple has not announced plans for a TV set and may never do so, we believe we have good enough reason to expect the introduction of an UltraHD TV set in FY 2016,” Icahn wrote. “It should also be noted that Reed Hastings, CEO of Netflix, has referenced UltraHD as a major catalyst for Netflix going forward, and while this is true for Netflix, we believe it is true for Apple.”
Icahn has already about doubled his money since investing in Apple a year ago, and Apple’s stock buyback plan already calls for $90 billion, though Icahn wants it significantly increased. He also says he won’t be tendering any of his shares if Apple decides to take his advice.
“At today’s price, Apple is one of the best investments we have ever seen from a risk-reward perspective, and the size of our position is a testament to this,” he wrote. “This investment represents the largest position in our investment history, reflecting the strength of the convictions we have expressed in this letter.”
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