Activist investor Paul Singer increased his put option on Apple (AAPL) sequentially by 343% last quarter. The put options represent 1.72% of Elliott Management’s total holdings. Paul Singer is Elliott Management’s founder and CEO.
Paul Singer’s strategic move
In a letter to AT&T’s (T) management on September 9, Singer revealed that he bought a stake worth $3.2 billion. With the purchase, AT&T could be one of Elliott Management’s largest holdings. In the second quarter, the Invesco QQQ Trust put option worth around $1.7 billion was the firm’s single-largest holding.
How Elliott might benefit from the strategy?
Since the second quarter of 2018, Elliott Fund Management has been holding Apple put option. On September 10, with the launch of iPhone 11, Apple announced TV+ services. Three days later, Goldman Sachs reduced its target price on Apple. The investment banker sees a possible downside of more than 20% in Apple’s stock prices next year. According to Goldman Sachs’ analysts, the Apple TV+ free trial will have a negative impact on the company’s financials. Notably, a possible downside in Apple’s stock prices could benefit Singer. Since the second quarter of 2018, Apple’s stock prices have risen 31.9%. The Nasdaq-100 Index (QQQ) rose 22.9% during this period.
Paul Singer sees significant upside in AT&T’s stock prices. He expects the stock prices to reach $60 in the next two to three years—a potential upside of around 61% from the last closing level. With the launch of streaming services, Apple competes with AT&T. With the 5G roll-out and plan to increase the subscriber base by 50 million until 2024, AT&T could unlock a higher value for its investors.
In contrast, Apple’s iPhone 11 isn’t a 5G phone. So, if AT&T aggressively rolls out 5G services, it could have a negative impact on iPhone sales due to technological backwardness. Apple’s streaming service subscriber base also depends on iPhone sales. Overall, Paul Singer made a clever bet.
Paul Singer’s previous bets
On a year-to-date basis, Apple and AT&T’s stock prices have risen 39.4% and 30.7%. During this period, the Nasdaq-100 Index rose 24.1%. However, in the last five years, Apple’s stock prices outperformed AT&T by 111.2 percentage points. AT&T’s returns are in the high single digits. However, Paul Singer is known for his controversial bets. In 2016, Singer won his 15-year battle against Argentina’s government. His firm NML Capital was entitled to a $2.28 billion settlement including principal and interest repayments. NML Capital’s returns were 370% on the total investment. In South Korea, Singer changed the corporate attitude towards minority stakeholders.