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AAPL Stock: 113.99 ( + 1.98 )

Printed from http://www.macnn.com

Hedge funds bail on AAPL, trigger six-month low

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.





by MacNN Staff

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Comments

  1. LenE

    Fresh-Faced Recruit

    Joined: 05-19-04

    Perhaps I'm a bit cynical, but a ten to one split would fix this "problem". The CNBC version of the truth is that there wasn't anyone left to enter the market on Apple. At the current high share price, many individual investors aren't buying. This short-term run on on the stock is creating a much more profitable re-entry point for the first institutional investors who triggered the fall. The trader (lemmings) are following the momentum, which would be cut short by significantly lowering the price of entry through a split, bringing new potential shareholders into the game.

    Much like it's other products, AAPL ownership isn't for everyone. It is aspirational. You can buy several different iPads with unit prices lower than the share price. With the company's current plan of buying back shares, I don't see a split in the near-term future.

  1. prl99

    Dedicated MacNNer

    Joined: 03-24-09

    I love basing the economic stability of the entire world on a bunch of hedge funds. We need to get rid of the term "investment" when talking about the stock market and replace it with something else. Something that has nothing to do with investing in growth of a company. Why hide behind that word, just say it. The Stock Market is legalized gambling where the only people who win are the brokers who make money on every transaction.

  1. trinko

    Fresh-Faced Recruit

    Joined: 01-01-00

    Well duh. This is the result of Obama being reelected.

    Obama is hell bent on raising taxes so investors know that they will have to pay significantly more in taxes on the capital gains they made from Apple stock.

    One year ago Apple was selling for $374 a share. Today it's selling for $527. Assuming you held the stock for 1 year your capital gains would be $143/share. At today's capital gains rate you'll pay .15*143 = $21.45/share. Starting in January the top earners, like the Apple VP who just sold $11,000,000 in AAPL, will pay 25% capital gains tax or .25*143 = $35.75 per share, an increase of 67%. For those who have had their stocks longer the impact will be even worse. If you bought AAPL for say $9 back in 2000 your tax if you sell today will be .15*518=$77.7/share vs $129.5/share if you wait to sell to next year.

  1. besson3c

    Clinically Insane

    Joined: 03-03-01

    Originally Posted by trinkoView Post

    Well duh. This is the result of Obama being reelected.

    Obama is hell bent on raising taxes so investors know that they will have to pay significantly more in taxes on the capital gains they made from Apple stock.
    One year ago Apple was selling for $374 a share. Today it's selling for $527. Assuming you held the stock for 1 year your capital gains would be $143/share. At today's capital gains rate you'll pay .15*143 = $21.45/share. Starting in January the top earners, like the Apple VP who just sold $11,000,000 in AAPL, will pay 25% capital gains tax or .25*143 = $35.75 per share, an increase of 67%. For those who have had their stocks longer the impact will be even worse. If you bought AAPL for say $9 back in 2000 your tax if you sell today will be .15*518=$77.7/share vs $129.5/share if you wait to sell to next year.



    Are you saying that investors are no longer interested in their investments making gains since Obama's re-election, or no longer interested in investing in general, or both?

  1. trinko

    Fresh-Faced Recruit

    Joined: 01-01-00

    Originally Posted by besson3cView Post


    Are you saying that investors are no longer interested in their investments making gains since Obama's re-election, or no longer interested in investing in general, or both?



    No. I'm saying that it makes sense to sell now and then potentially rebuy in January. That way the capital gains that will be taxed at the higher rate will be much less. This is true of stocks in general not just AAPL. So long as you believe that AAPL won't go up by more than what the higher capital gains tax rate will take from you between now and January it makes sense. Given that odds are the economy will continue to worsen when all the Obamacare taxes and the new taxes the democrats want go into place in January this makes a lot of sense.

  1. Shaddim

    Clinically Insane

    Joined: 04-11-03

    Long term investments aren't going to be worthwhile, without a tangible benefit to stay in for the duration, so it's best to refresh your portfolio before year end. Most of my gains in the future will be from short selling, it makes more sense.

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