The faces of Apple Inc. (NASDAQ:AAPL)’s investors are very slowly beginning to change, according to Bernstein analysts. They cite some interesting statistics which indicate that the company’s popularity among growth funds has declined a bit, but guess who’s helping fill the gap? It’s value investors.

Apple shifts gradually to a value investment thesis

Analysts Toni Sacconaghi, Jr., Eric C. Garfunkel and Jonathan Cofsky conducted their analysis using U.S. large-cap mutual funds with more than $1 billion in assets. They report that in December 2011, 82% of growth funds owned Apple. If they owned Apple Inc. (NASDAQ:AAPL) shares, the weighting was 1.3 times Apple’s weighting within the Russell 1000 Growth Index. Today, however, 73% of growth funds own Apple Inc. (NASDAQ:AAPL) at a .6 times rate, which is far below the company’s Russell 1000 Growth Index weighting.

Apple Value Large Cap Ex 1

Meanwhile over that same period of time, a greater percentage of value funds have been snapping up shares of Apple Inc. (NASDAQ:AAPL), partially offsetting the decline in growth fund ownership. Now 36% of value funds have a position in Apple Inc. (NASDAQ:AAPL), and the average weight has increased slightly from .4 times Apple’s weight in the S&P 500 to .5 times Apple Inc. (NASDAQ:AAPL)’s current weight.

Apple performance

Why Apple may be turning into a value stock

So what’s behind this shift? Sacconaghi and his team suggest that part of the problem is Apple Inc. (NASDAQ:AAPL)’s current cash return program. They note that it represents an “annual average cash outlay” of around $33 billion, which is about equal to Apple’s free cash flow after adjustments for possible taxes due to repatriation of cash.

They say the “conundrum” Apple Inc. (NASDAQ:AAPL) is dealing with is the fact that if it did return more cash, then it would have to consider taking on incremental net debt—which is what activist investor Carl Icahn has been pushing for in his $150 billion share buyback proposal—or pay a cash tax for repatriating earnings from offshore operations.

The other issue is whether a dividend or a share buyback would be the better option. Bernstein analysts specify that a one-time injection, which is what Icahn is pushing for, wouldn’t be enough to bolster shares in the view of value investors.

Why a dividend may not help Apple shares

The Bernstein analysts have been speaking with value investors, and based on those conversations, they don’t think a higher dividend will put a floor on Apple Inc. (NASDAQ:AAPL)’s stock because of the volatility which exists in the company’s business. Big investors probably wouldn’t count on a big dividend, and value investors told Bernstein “repeatedly” that “an ongoing commitment to and framework for cash return is principally important, with a modest bias toward a dividend.”

So what about a share buyback?

Carl Icahn has continued his public push for Apple Inc. (NASDAQ:AAPL) to greatly increase its share buyback. On Monday he suggested in an interview with CNBC that he was making progress with CEO Tim Cook, who seemed uninterested in his proposal at first but had finally read it. But would his plan put a floor on the company’s stock?

That’s the big question being pondered by investors and analysts right now. Icahn believes buying back more shares would raise Apple Inc. (NASDAQ:AAPL)’s share price because he thinks it is undervalued. The shift from growth investors to value investors indicates that the market is increasingly coming over to this part of his mindset.

However, many remain concerned that returning more capital through a one-time cash return injection will not have a big effect on Apple Inc. (NASDAQ:AAPL) shares. Numerous big-name investors and market watchers have spoken out against Icahn’s share buyback plan. Sacconaghi and his team agree with Icahn that a share buyback is the key to getting Apple Inc. (NASDAQ:AAPL) started and that taking on debt is the right answer to getting it down. However, they disagree with the amount of that buyback and see a long-term cash return policy as being better than a one-time injection.

Bernstein agrees with Carl Icahn—partially

While Icahn is pushing for a massive $150 billion share buyback, Bernstein analysts suggest that Apple Inc. (NASDAQ:AAPL) should complete a one-time share buyback of between $30 billion and $50 billion. They think the company should also commit to returning 75% of its annual generated free cash flow. They also advocate a 60% dividend and 40% buyback split of returned cash and suggest this would generate a 3.9% yield at the current levels.

They’re estimating that Apple Inc. (NASDAQ:AAPL) will generate $40 billion in free cash flow with $12 billion of that being generated in the U.S. This would mean the company would return $30 billion by either drawing down on cash reserves in the U.S. by $18 billion or taking on incremental debt, which is their recommendation. The analysts also recommend that Apple borrow between $30 billion and $50 billion right now to buy back shares, which would retire almost 10% of the company’s outstanding shares.

What will happen to Apple shares in the near term?

Even though there’s a mild shift from growth investors to value investors, Bernstein analysts believe changes in earnings per share estimates will continue to be the main driver for Apple Inc. (NASDAQ:AAPL) shares. They note that Apple shares have moved mostly in line with revisions to estimates for the company’s earnings per share.

They continue to rate Apple Inc. (NASDAQ:AAPL) as Outperform with a $600 per share price and believe that the company could beat in December but might miss in the March and June quarter unless new products or a China Mobile deal is revealed.