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Carl Icahn’s Apple investment could make him a billion dollars richer

“It takes money to make money.”

Or at least that’s how the saying goes. For activist and billionaire investor Carl Icahn, however, the saying may soon ring true. If his Apple (NASDAQ: AAPL)  investment serves him well, he could be set to turn a few billion into a billion more.


Carl Icahn. Source: Bloomberg.

The Carl Icahn show
Icahn made headlines again last Thursday. Though the headlines didn’t boost the stock by 5% like they did last time, it still makes for some interesting discussion.

He’s apparently finally scheduled the meeting he tweeted about back in August, according to CNBC. On Monday, Sept. 30 he’ll be sitting down with no other than Apple’s top dog himself, CEO Tim Cook. What’s on the agenda? The company’s share repurchase program, Apple’s prospects, and even the possibility of Icahn adding to his massive stake, says CNBC’s David Faber.

Icahn’s position in Apple is estimated to be worth around  US$2 billion, certainly a large stake, but as the world’s most valuable company, even US$2 billion accounts for just 0.4% of the company’s total market capitalisation. Meaningful, sure — but not a large enough stake to tell Apple what to do.

On that note, Icahn likely probably won’t be leading Apple’s board of directors to any new epiphanies regarding their plans for cash or new products. But that doesn’t stop us from speculating whether he’s made a good investment — or not.

Apple to US$625?

In the month before Icahn’s initial tweet, Apple traded below US$500 the entire time — even as low as US$400. Though no one knows at exactly what price he bought shares, he’s likely already made a few dollars with Apple trading closer to US$500.

Even “without earnings growth, we think it ought to be worth US$625,” Icahn told The Wall Street Journal in August after his conversation with Cook. Assuming Icahn does add to his investment, boosting it to about US$3 billion, a rise from today’s prices to US$625 could add nearly an additional US$1 billion to his estimated US$20 billion net worth.

Of course, Icahn isn’t alone in is bullishness on Apple. The average analyst price target for Apple shares stands at a 12% premium to today’s price around US$485, and a buy rating is the most popular rating for the stock. (Though the average price target of US$543 is considerably lower than Icahn’s hope for US$625.)

But could Apple get to US$625 within the next 12 months? It’s definitely possible. The company is extremely cheap by several important metrics. Not only does the company boast a meaningful dividend yield of 2.5% that looks set to get annual increases, but the company also trades at just 12 times earnings and just 11 times forward earnings estimates.

There are also other potential catalysts on the horizon that could help investor confidence. Evidence of the China Mobile deal continues to mount, and an official announcement may be imminent. The Mac maker is also preparing to unveil new iPads next month and probably refresh other products within its lineup. Apple’s business is also very cyclical, and the busy holiday shopping quarter is nearly here.

The most stunning example of Apple’s cheapness surfaces when you look at the company’s price to its free cash flow.

AAPL Price to Cash Flow TTM Chart

AAPL Price to Cash Flow TTM data by YCharts.

Trading near its three-year low relative to free cash flow, Apple is a steal.

Icahn may or may not have the clout necessary to sway Cook & Co. But his massive bet on Apple certainly seems like a rational move. Don’t be surprised if his billion-dollar position has swelled a billion dollars higher in a few years.

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A version of this article, written by Daniel Sparks, originally appeared on fool.com.

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