Should You Follow These 2 Legendary Investors Into Apple?

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Apple (NASDAQ: AAPL) and its long-suffering shareholders finally got a positive catalyst to come their way when news broke that legendary money managers Carl Icahn and Leon Cooperman had taken long positions in the stock.

It’s no small accomplishment to count two of the world’s most famous investors in your corner, and not surprisingly, Apple has rallied on the news.

Is now the time for investors to buy? Or is their optimism misplaced?

A clear investment case
It’s not hard to see why Icahn and Cooperman are both bullish on the world’s biggest company.

Apple recorded 45% revenue growth and 60% growth in diluted earnings per share in fiscal 2012. This year, despite the market being repeatedly ‘disappointed’ by the company’s numbers, Apple has booked 15% revenue growth over the first six months of the year.

It’s worth noting the company’s margin compression has resulted in a 9% decline in first-half diluted EPS year-over-year. But, are the numbers presented here really grounds for a nearly 40% haircut off the share price?

It’s clear that Icahn and Cooperman don't think so. According to regulatory filings, Cooperman's Omega Advisors bought 31,000 shares of Apple. And although it's not yet confirmed, rumors circulating through the financial media place Icahn's investment in the neighborhood of $1 billion.

In short, it appears that when the world’s most valuable company goes on sale, it gets the attention of a couple of hugely successful investors, and it doesn't hurt Apple's case to sport a 2.5% dividend yield and a $60 billion share buyback.

Apple’s situation is especially perplexing when you consider that other technology titans haven’t been nearly as severely punished in recent months. At its current valuation multiple, 12 times earnings, Apple is similarly priced to other technology stocks that don’t have nearly the promising outlook that Apple does.

Software juggernaut Microsoft (NASDAQ: MSFT) booked $2.62 in per-share adjusted profits in its most recent fiscal year, a 6% drop year over year.

Furthermore, Microsoft is under siege from its detractors who claim that the slow erosion of the personal computer will serve as a drag on the company. Microsoft itself warns investors of the slowing PC market, noting in its 2012 annual report of the continued challenges facing the PC industry. And Microsoft's other recent products have largely flopped, including the notoriously poor-performing Surface tablet.

And yet, that hasn’t stopped shares of Mr. Softy from soaring 30% between the end of 2012 and the middle of June.

Even after giving back some of the gains, Microsoft trades for 12 times its 2012 adjusted diluted EPS, equal to Apple's multiple despite more notable headwinds.

Same for chip giant Intel (NASDAQ: INTC), which trades for 12 times trailing earnings and, like Microsoft, is still heavily reliant on the personal computer.

Intel is frantically trying to get its chips into mobile devices, where the clear growth trajectory is within the consumer technology landscape. However, success in this endeavor has been slow to materialize for Intel, and any significant mobile penetration is going to take time and considerable resources.

Intel’s recent performance bears this out. Revenue and diluted earnings per share fell 3% and 25%, respectively, year over year, in Intel’s most recent quarter.

Intel does present investors with a compelling income proposition. Intel’s dividend yield stands at a hefty 4% annualized, a compelling payout in light of the fact that the S&P 500 only yields about 2%.

A separate catalyst for Apple
And at long last, there’s finally a reason for optimism regarding a possible new product. Enthusiasm is building around the company’s impending product announcement, set for September 10.

Apple could announce a cheaper iPhone, or an iPhone with a bigger screen. No matter what Apple does, it’s a positive sign to once again generate this kind of buzz around an Apple product. Apple has suffered through a product lull over the past year, which largely explains the corresponding investor lull surrounding its shares.

Not to be left out, there remains the possibility for further market penetration in China. Apple still does not have its products offered by China Mobile, the largest telecom carrier in the world by subscribers, and if there’s any success on that front, it means 2014 could be a great year for the house that Steve Jobs built.

Take a bite out of Apple
The support of two of the world’s most well-known investors adds to the optimism around Apple.

Interestingly, it is surprising to see that Apple only started rallying strongly after the news of Icahn and Cooperman taking positions, because there are far better reasons to buy Apple.

Apple is still cheap at $500 per share, but it was even cheaper at $400 per share, when nobody wanted to own it. Apple’s massive buyback, healthy dividend, and compelling valuation only seem to be obvious to everyone now -- after a 25% run.

In any event, Apple shareholders are likely grateful for any catalyst they can get, and things are shaping up very well for Apple next year.

Investors should be glad to see Mr. Icahn and Mr. Cooperman are long Apple, and I’d recommend that Foolish investors go long at these levels, while the opportunity lasts.

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Robert Ciura owns shares of Apple and Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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