Activist investor Carl Icahn has said there was a chance the stock market could suffer a big decline, saying valuations are rich and earnings at many companies are fueled more by low borrowing costs than management's efforts to boost results.
"I am very cautious on equities today. This market could easily have a big drop," Icahn said.
He said share buybacks are driving results, not profitability.
"Very simplistically put, a lot of the earnings are a mirage," Icahn told the Reuters Global Investment Outlook Summit. "They are not coming because the companies are well run but because of low interest rates."
He also hinted at his ongoing plan for Apple, the most valuable US 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.
Icahn said he still thinks Apple's stock price is undervalued and said the company's chief executive, Tim Cook, feels the same way.
Icahn, who runs Icahn Enterprises, a diversified holding company, is urging Apple to buy back $150 billion worth of shares. The company has not committed to that. Icahn owns about 0.4% of Apple's outstanding shares, according to Thomson Reuters data.
Icahn said that he and Cook are friendly, but he still spoke critically. "Apple is not a bank and it should not be run like a bank because investors did not invest in a bank," he said. "Apple has all this money, they should be using it."
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 seats on the board of directors and held the shares as long as an Icahn representative stayed on those boards would have earned 28% on an annualised 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 micro-manage corporations. He prefers 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."
