updated 07:51 pm EST, Thu November 15, 2012
Investors strangely skittish, perhaps on capital gains fears
A dubious analysis by CNBC of the culprits behind the unusual downturn in Apple's stock price has identified hedge funds as having dumped their shares in the world's most valuable publicly-traded company in an effort to take profits from it before the end of the year. AAPL, which has seen a spectacular increase in value over the last several years, is thought by some analysts to be heading for a period of less-remarkable gains now that competition in the smartphone and tablet space has matured, which may have triggered the drop in price.
The shares are down nearly 25 percent since late September's high of over $700 per share, and hit a six-month low at closing today of $525.62 despite the company coming off a record quarter, introducing new products for the holidays, spending $2.5 billion on dividends to investors on Thursday and reports of stronger-than-expected sales of iPad minis and iPhone 5 units. CNBC quotes David Greenberg of Greenberg Capital as saying "someone yelled fire in the theater where the hedge funds were safely booking their year-end profits," causing a run to dump the stock on the perception that the company, while continuing to grow and prosper at a healthy rate, won't manage the kind of spectacular returns it has in the past due to increased competition.
More than 800 hedge funds, which rely on strong growth in their investments to generate profits, have invested in AAPL in recent quarters, as the stock has been seen for several years now to be a reliable growth source and formerly seemed unstoppable. Volume of shares, which had been hovering in the 20 million traded range over the past few days, picked up on Thursday, possibly on speculation that the stock's fall is approaching a floor and may represent a strong buying opportunity again.
The number of funds invested in Apple is far higher than any other company, including ExxonMobil and Microsoft. Some analysts had been predicting AAPL to reach $1,000 per share in the foreseeable future, and a turnaround in the stock is very likely once better indicators of holiday sales are known.
At least in the short term, Apple looks to be on track to improve on its record $156 billion in revenue from fiscal 2012, which for the company ended on September 30. Though both the iPad and iPhone face more and better competition than last year, early indications are that both product lines continue to do well, and a deal with China's largest telecom (expected in early December) is likely to push the stock upwards again as "value" investors who hold the stock longer move in. Some short-term investors, worried that capital gains taxes will rise next year, may also be cashing in en masse before the new Congress is seated and has to deal with the matter.
Many analysts see the drop as an aberration, and have continued to post greater-than-$700 price targets for AAPL. Some have said that while the rocketing growth phase of the company might be plateauing for a while, Apple is transitioning to a "high-quality branded company" that can assure long-term investors of continuing outperformance of the market overall. An example would be Toni Sacconaghi of Bernstein Research, who has an $800 price target on the stock, and believes Apple will likely announce an increase in the next dividend (the one paid out today was $2.65 per share) and an expansion of the existing share repurchase program.
Investors worried that the company, while capably run, has run out of "innovation" following co-founder and former CEO Steve Jobs' death last year may take a conservative stance while the effect of Cook's recent executive shuffle is slowly unveiled over the next few years. Sir Jonathan Ive, along with several other key members of the executive team, have taken on expanded roles in an effort to consolidate groupings within the company. Ive's new focus on software as well as hardware design in particular will be keenly watched to see if he and new combined OS chief Craig Federighi can rejuvenate Apple's superior -- but aging -- OS X and iOS operating systems.