Is the half a trillion dollar company ready for a haircut? With a market value — as of today — in the region of $494 billion, Apple Inc. has had a great year; its shares rocketed from the 52-week low price of $310.50 to a record high of $548.21. This turned Apple into the fifth company in US history to cross the half a trillion dollar mark.
Could the ride be over, and will Apple's valuation cool down somewhat as investors rake in some profits? Since hitting the record high of $548.21 on March 1, Apple's shares have risen and fallen like a yoyo. It has dropped about 6 percent and raked back most of the decline. Today, it fell during early trading to $516.22 before recovering by around midday to $530.72, and confirming my own conviction the company is now a favorite of day traders and other speculators. The stock can swing as much as $20 during a trading session, again a sign too many traders are jumping in and out, raking in profits on fractional percentage moves or quickly exiting short positions. Again, these are the hallmarks of a speculative stock.
Institutional investors will harshly disagree, with good reasons. Apple is one of their biggest holdings, and the company's market value is so huge that few traders have the resources to bet against it the way they might against a regular speculative stock. At a recent private meeting I attended in New York, hosted by a long-term Apple investor, many of the attendees said they remain “long” on the company's stock. They believe there's still tremendous upside for the shares, especially if Apple continues to deliver roaring sales.
At worst, some of the investors and other industry observers at the meeting indicate they believe Apple will continue to dominate the market for at least three more years. While they believe rivals are nipping at Apple's heels, they are convinced the company will remain dominant for the foreseeable future. These aren't your typical everything-Apple-is-sacred “fan boys,” though. These investors each year examine their holdings critically and, in the case of Apple, they raise the bar each year. If Apple clears the hurdle that year, their view that it would continue to dominate the market for another three years gets extended.
Nothing we see on the horizon shakes that belief. The company's pipeline of products is possibly loaded, and the planned upgrade to the iPad tablet PC could tempt many buyers on the sidelines — private and corporate — to buy the product, boosting sales and providing an upward momentum for the shares. Plus, unless Apple stumbles badly, institutional investors have poured so much of their funds into the company that they are unlikely to head for the exit in a rush. If this happens, Apple's shares will crash. Do you expect this to happen? I don't. Not unless the unforeseen happens. By the end of the March quarter, Apple is likely to post even higher year-over-year sales, and the shares will zip up again.
So, what can we make of the recent short slide in Apple's stock price. The shares may today be below their 52-week high, but I believe this is due to profit-taking by some individuals and investors, rather than based on the conviction the shares have peaked. The short-term speculators will come back in and push Apple up again. Where else will they park their money?