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The biggest company in the world - but one of Apple's biggest investors says it's actually undervalued

And he says it’s ‘poised’ to enter two major markets soon.

Image: Eric Risberg/AP/Press Association Images

APPLE WILL BE entering two major markets over the next five years which will make the company more profitable: television sets and automobiles.

Carl Icahn, an activist investor who has a significant stake in Apple, said in an open letter to Apple CEO Tim Cook that it was “poised to enter and, in our view, dominate two new categories” the television market next year and the automobile market by 2020.

Talk of Apple entering the automobile market with its own set of electric cars started back in February, and it’s believed that 200 people are working on the project.

Rumours of Apple entering the television market have been around for years and Icahn believes the company will start selling 55-inch and 65-inch ultra high definition television sets by 2016. The sets, he believes, will be sold at an average price of $1,500.

As for cars, he believes that it’s a good time for Apple to enter the industry as the technology behind self-driving cars continues to improve.

As autonomous driving would release drivers’ attention from the activity of driving and navigating, and perhaps even increase the time people actually want to spend inside a car, both an automobile and the services provided therein become even more strategically compelling.
While Apple currently addresses this market with CarPlay, it seems logical that Apple would view the car itself as a (sic) the ultimate mobile device to which it could bring its peerless track record of marrying superior industrial design with software and services, along with its globally admired brand, and offer consumers an overall automobile experience that not only changes the world but also adds a robust vertical to the Apple ecosystem.
And for Apple, the car market is more than big enough to “move the needle” significantly, even as the world’s largest company.

Apple Event Smartwatches was one of the of the new industries Apple recently entered. Source: Eric Risberg/Press Association Images

Icahn’s letter to Cook was in relation to Apple’s share price and how he believes the company is currently undervalued at $1 trillion.

He praised Cook and Apple’s management team for “impressive operational performance and growth… despite several foreign exchange headwinds and massive growth in investment (in both R&D and SG&A), the company will still grow earnings by 40% this year, according to our forecast.”

He believes that shares should be worth $240 now instead of its current value of $130.04. If shares reached this value, it would mean Apple would be worth nearly $1.5 trillion.

“It is our belief that large institutional investors, Wall Street analysts and the news media alike continue to misunderstand Apple… Collectively, these failures have caused Apple’s earnings multiple to stay irrationally discounted, in our view,” said Icahn in his letter.

Apple has clearly demonstrated a track record of excellence and success when entering new categories.  We expect this to continue with the Apple Watch, the television, and the car, and the world will look back on today’s undervaluation as a fascinating example of market inefficiency (and likewise on our valuation at 18x earnings per share as conservative).

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About the author:

Quinton O'Reilly

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