The Difference Between Carl Icahn And Chicken Little

Summary

While there was lots of news and activity the past week, most of it didn't matter.

The reasons behind Carl Icahn's exit from Apple's shares may have been misinterpreted, even as they may have been disingenuous.

Carl Icahn, armed with free cash, may have reason to suggest that investors should be fearful of an overpriced stock market.

There was potentially lots that could have moved the market last week.

Earnings season was getting into full swing as oil continued its march higher.

As if those weren't enough, we had an FOMC Statement release and a GDP report and even more earnings to round out the week.

But basically, none of those really mattered.

The FOMC expressed some confidence in the economy even as the GDP may have said otherwise the following day, and earnings were all over the place with the market not being very forgiving when already lowered expectations weren't met or were being pushed out another quarter.

Again, none of that mattered.

What really mattered was when Carl Icahn, who unlike Chicken Little, calmly told the world that he had sold his entire stake in Apple (NASDAQ:AAPL) for fears of what China's "attitude" might be with regard to the company.

The initial interviewer misinterpreted Icahn's comments to mean that he was worried about the Chinese economy itself and that may have been exactly how traders interpreted Icahn's words, although a second interviewer correctly interpreted Icahn's comments and got him to add clarity.

Icahn confirmed that he was actually worried about the possibility that China would be less of a reliable partner for Apple and not that he envisioned a new round of meltdowns in the Chinese economy or in their financial institutions.

Big difference.

The reaction to Icahn's exit was pretty swift and not only in shares of Apple, which already had a disappointing earnings report the prior day and saw shareholders faced with a large overnight losses.

Icahn's sense of calm in reporting that perhaps the Chinese sky was falling down on Apple was in contrast to Chicken Little in another very different way.

Chicken Little, while he may have been wrong about the sky falling, had good intentions for society as he sought to spread the word so that everyone would have an opportunity to seek protection.

Not that Carl Icahn had any obligation to do so, but his exit from Apple and the sounding of the warning came too late for most.

Beyond that, I'm not too certain that any suggestion or interpretation of a clarion call from Icahn leading to the exit from stocks is intended to do anything other than leave him in a better position as a predator.

Given that Icahn Capital Management's largest holding is in the eponymous Icahn Enterprises LP (NASDAQ:IEP), representing approximately 50% more of the portfolio's value than did Apple, it may not be too surprising that this was a good time to cash in on a very successful 30-month investment in Apple shares.

Shareholders in Icahn Enterprises may wonder when their share of the estimated $4.3 billion in pre-tax cash resulting from the Apple sale will find its way into their pockets.

Good luck with that, unless you've got some skin in Icahn Capital Management.

Like Pershing Capital's profitable exit from Mondelez (NASDAQ:MDLZ), sometimes there's more to a sale than may meet the eye, especially when your portfolio is populated with some very heavy and risky bets that had seen better days.

Not to say that Icahn needed the cash, and he is certainly in a better position this week after some recent strength in some very hard hit energy and commodity related positions.

Icahn is actually in a great position at the moment as others take cover heeding his warning.

With lots of cash and the ability to move markets lower by making bearish comments, as he has been making for the past couple of years, this Chicken Little easily stands to profit from those who heed his warnings.

It's not exactly like warning everyone to seek shelter at the fire station as the tornado is approaching and then taking the opportunity to ransack people's homes, but it's close.

After suffering some significant losses over the past two years, it may be time for Icahn to start his ransacking as he looks for those left vulnerable after seeking shelter.

With a quiet week ahead, despite an seemingly unending stream of earnings, I don't have too much interest getting ahead of Friday's Employment Situation Report. Neither am I very interested in being part of the test group that discovers that the stock market will finally disassociate itself from energy prices, as the climb in the latter continues.

That doesn't mean that I'll be selling, it just means that I may not be all that excited about buying in the coming week.

As usual, the week's potential stock selections are classified as being in the Traditional, Double Dip Dividend, Momentum or "PEE" categories.

This coming week I have a singular interest and only a handful of stocks that may satisfy that interest.

The interest is in accumulating dividends.

If I had to have a dual mandate for the week, it also would be to minimize risk while seeking those dividends.

In addition to Apple, which goes ex-dividend this week, I also have sights set on shares of Intel (NASDAQ:INTC) and Starbucks (NASDAQ:SBUX).

There's nothing terribly exciting about Intel at the moment, just as there isn't anything terribly exciting about anything that's classified as "old technology."

As weak as the S&P 500 was last week, those old technology names were even weaker. While I'm no Icahn, sometimes that really is the time to look for advantage, although in the case of another old technology name, Seagate Technology (NASDAQ:STX) that also is ex-dividend this week, weakness sometimes only begets more weakness.

I don't think that will be the case for Intel, which, after a strong move higher that started when the market began its February turnaround, has lots of price support below its current level.

Intel's shares have traded in a fairly narrow range over the past month and that appeals to me as a possible source of recurring premium income if able to execute serial rollovers while awaiting some appreciation on shares.

Starbucks doesn't have a terribly exciting dividend, but what it does do very well is to rebound from sharp declines.

It also generally doesn't take very long for those rebounds to get underway.

Those occasional sharp declines also help to nudge its option premiums higher as there will always be those who are of the belief that declines do beget more declines and the uncertainty that creeps in serves to boost those premiums.

While their coffee makes me exceptionally jittery, I've never felt the same about the shares, although I haven't owned any for a couple of years. I think this may be a good time to consider opening a position and selecting an out of the money strike price in an effort to get the best of all worlds this week.

Finally, Apple.

I find it pretty amazing that in the absence of really any good news for what seems like an eternity for Apple, its price hasn't suffered even more.

That's faint praise, for sure.

However, ever since the inception of its dividend, purchasing shares just prior to that ex-dividend date, has generally been a good move, if armed with a short-term horizon.

What distinguishes this upcoming ex-dividend date is that shares have taken quite a hit in the days immediately preceding that date.

With the exception of Apple's decline from its 2012 highs, when most everyone was giddy about how it would become a $1,000 stock and surpass a $1 trillion market capitalization, those declines have been fairly short lived.

However, on the flip side, in addition to whatever truth may be found in Icahn's stated concerns, there really hasn't been any obvious catalyst for Apple other than ever improving sales of its flagship product.

With that phenomenon perhaps on hiatus, one does have to consider that there aren't too many supports between its current price and about $85.

And then $75.

With that in mind, I still am not ready to run away from the possibility of share ownership.

WWID?

What would Icahn do?

Well, he did it already, just by pushing for the buybacks and the dividends some 30 months ago.

Amid the lack of good news at last week's earnings was the announcement of a dividend increase and the expectation that share buybacks will continue and be able to provide some price support.

Whether those buybacks in the past few years have been a good use of its cash may forever be open to debate, but while it's happening, it is definitely a comfort to those in a position of risk.

While those buybacks and declining share price shrink Apple's market capitalization to a point that it's now half of that anticipated $1 trillion, I think it is again becoming a good trading vehicle, as opposed to a good investment.

Thank you, Uncle Carl, for having forever changed Apple.

Traditional Stocks: none

Momentum Stocks: none

Double-Dip Dividend: Apple (5/5 $0.57), Intel (5/4 $0.26), Starbucks (5/3 $0.20)

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. The above selections may become actionable - most often coupling a share purchase with call option sales or the sale of covered put contracts - in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week, with reduction of trading risk.