By Svea Herbst-Bayliss and Jennifer Ablan
REUTERS - Activist investor Carl Icahn said on Monday he is "very cautious" on the stock market, saying he could see a "big drop" because earnings at many companies are fueled more by low borrowing costs than management's efforts to boost results.
Unnerved by the billionaire investor's prognosis, investors pushed stocks lower. The S&P 500, which was trading near unchanged before Icahn spoke, was down 0.4 percent.
Icahn, speaking at the Reuters Global Investment Outlook Summit, also hinted at his ongoing plan for Apple Inc (AAPL.O), the most valuable U.S. company by market value, saying he does not want to fight with management at the iPhone giant but has no plans to walk away from his investment.
Shares of Apple were at $518.92 a share, down 1.2 percent on the day, after trading at $523.11 before Icahn's remarks. Icahn said he still thinks Apple's stock price is undervalued and said the company's CEO, Tim Cook, feels the same way.
Icahn, who runs Icahn Enterprises (IEP.O), is urging Apple to buy back $150 billion worth of shares. The company has not committed to that. Icahn owns approximately 0.4 percent of Apple's outstanding shares, according to Thomson Reuters data.
Icahn said that he and Cook are friendly, but noted that "Apple is not a bank and it should not be run like a bank because investors did not invest in a bank.
"Apple has all this money, they should be using it," Icahn said.
Known for decades of strong-arm tactics, including proxy fights, Icahn was diplomatically vague about exactly how he planned to proceed in his efforts with Apple. He did joke that if Reuters reporters had joined him for a cocktail, he might have said more.
The 77-year-old investor's views on markets and individual companies are widely followed in light of the strong returns he has generated.
Icahn said that in the last five years, investors who bought shares of companies in which his firm took board positions and held the shares as long as an Icahn representative stayed on those boards would have earned 28 percent on an annualized basis.
Icahn is known as one of the market's most powerful activist investors. But he said he and his colleagues do not want to micromanage corporations. Instead, he likes to speak with top management and "set up parameters" for performance, such as return on equity or performance against competitors.
"Boards should be keeping the CEO accountable," Icahn said, adding: "That's what a board should do."
Activism has become a hot-button topic in the hedge fund industry this year, in part because returns at activist funds are roughly 14 percent, nearly twice as strong as gains at the average hedge fund.
While he pointed to a handful of managers who practice activism well, Icahn took a swipe against William Ackman, whose Pershing Square Capital Management is one of the industry's biggest activist managers, with average annual returns of 20 percent over the last decade.
"What we don't do is exactly what Ackman does do. We may have an idea, but we never push it," Icahn said.
(Reporting by Svea Herbst-Bayliss and David Gaffen; Editing by Leslie Adler and Dan Grebler)