It would appear tech giant Apple Inc. (AAPL) is no longer the “no-brainer investment” Carl Icahn once touted it to be. And retail investors are now floundering in the aftermath of Icahn’s discarded faith in the stock.
Taking His Money and Running
In a CNBC talk Thursday the billionaire activist investor, who once owned nearly 1% of Apple’s outstanding shares, said he had sold his entire stake in the company. On the news AAPL stock declined more than 2%. Prior to Icahn’s disclosure, shares of the iPhone maker were down about 1%, still reeling from its brutal second-quarter results. Icahn, however, further fanned flames of bearishness that were already punishing the stock.
AAPL stock closed Thursday at $94.83, down 3.06%. The shares, which have plummeted 13.69% just in the past five days, are now down 10% year-to-date, against a 1.56% rise in the S&P 500 (SPX) index. And while Icahn didn’t specify when he exited the stock, he did reveal that he made about $2 billion in profit from the initial position. (See also:Turnaround Titan: How Carl Icahn Does It. )
Big Trouble In Little China
It’s unclear whether Icahn will buy back AAPL shares. But he cited Apple’s struggles in China as the reason for his exit. “You worry a little bit – and maybe more than a little – about China’s attitude,” Icahn told CNBC. China has become Apple’s second-largest market in terms of revenue. And analysts project that in the next couple of years, the word’s most-populous country will surpass the U.S. to become Apple’s largest market.
But with so many assumptions about China’s growth factored into Apple’s own revenue and profit projections was too much for Icahn, who later asserted that China’s government could “come in and make it very difficult for Apple to sell there.”
Nonetheless, Icahn has not given up entirely on Apple, saying “I think they have the opportunity to go into many things, and I think they’ll be successful.” That’s all well and good. But with Icahn no longer in the trenches with retail investors, his parting words should be taken with a grain of salt. (See also: Apple Stock In Bearish Terrain Ahead of Earnings.)
The Bottom Line
Icahn says his decision to exit his Apple stake was largely influenced by China’s attitude toward the company. But with $2 billion in profits on the table, surpassing the valuation of several S&P 500 companies, how big an influence could China have been? There’s nothing wrong with taking profits, which is the lesson investors should take from Icahn’s decision. As to what it means for Apple’s “no-brainer” status? The company has many more years to answer that question.
Originally Posted on Investopedia: Apple Stock Falls As Carl Icahn Exits Position (AAPL) | Investopedia