Apple 'extremely undervalued'

Activist investor is agitating for a cash return, but the main game is the company's product plans

Scott Phillips (TMFGilla)

Scott Phillips is The Motley Fool’s Chief Investment Officer in Australia. He is Advisor of The Fool’s flagship investment service, Motley Fool Share Advisor and the Portfolio Manager of Motley Fool Everlasting Income and Premier Portfolio, as well as running our most premium service, Motley Fool Platinum. He is passionate about investing, having managed his own portfolio for over 15 years. A dyed-in-the-wool Fool (in the best way), he has been a member of The Motley Fool since 1999. Scott holds a Bachelor of Commerce (Management) and a Graduate Diploma of Accounting. Before joining The Fool, Scott worked in various Sales and Finance roles in industry, which has allowed him to see the good, bad and the ugly of corporate management close-up. Giving him a great understanding of the way businesses run – and what separates the business wheat from the chaff – Scott wholeheartedly agrees with Warren Buffett when he said he was a ‘better investor because I am a businessman and a better businessman because I am an investor’. Scott left a successful career to follow his passion – helping our members achieve the best possible investment returns, and helping Australians learn to better manage their money. It’s no surprise he ended up at The Motley Fool.

Published August 14, 2013 8:30 am AEST

For most of 2012 and the first part of 2013, Apple (Nasdaq: AAPL) was the largest company in the world. A share price over $700 gave it a market capitalisation in excess of US$600 billion.

That was then – the shares fell below US$400 towards the middle of this year, and Steve Jobs' baby lost the mantle to oil giant Exxon, from which it had taken the crown.

Concerns about its ability to continue to innovate – and with stiffer competition coming from Android devices from the likes of Samsung and Google itself – left many wondering if Apple's best days were behind it. Each new iPad and iPhone were iterative improvements on the last ones, but not the game-changing breakthroughs that Apple was known for.

One investor, well known corporate activist Carl Icahn, has taken to Twitter (of all things) to call Apple 'extremely undervalued' and to let the world know he's pressed Apple CEO Tim Cook for a larger buyback of the company's shares.

While that might be good news for Apple shareholders, real value will only be created by the Cupertino Kid if it can return to its roots as innovators of stylish, easy to use and ubiquitous consumer devices.

Certainly, the likes of JB Hi-Fi (ASX: JBH), Harvey Norman (ASX: HVN) and even David Jones (ASX: DJS) – which recently inked a deal with the private equity-owned Dick Smith Electronics – will be hoping Apple and its kin can recreate the kind of excitement that sent consumers rushing into their stores for the newest, latest and greatest.

Foolish takeaway

A prudent and shareholder-friendly use of a company's cash pile is important – and if a company can't reinvest it at an attractive rate it should be paid out to shareholders – but the health and future of its operating business is arguably the most important determinant of long-term shareholder returns. And that's something Apple shareholders are waiting for with baited breath.

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Motley Fool advisor Scott Phillips owns shares in Harvey Norman and David Jones.

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