When Apple Investors Go for the Exit

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?

20 comments on “When Apple Investors Go for the Exit

  1. Nemos
    March 6, 2012

    “Apple's shares will crash. Do you expect this to happen?”    No I don't believe either that is possible to happed now or in the near future. As you said where else to put their money? For the moment, Apple is one of the best options.

  2. Barbara Jorgensen
    March 6, 2012

    I read today that Apple's stock has tended to do this for several weeks before a product announcement. I think it will settle down again after we see what the iPad3 is all about.

  3. Eldredge
    March 7, 2012

    The entire market is near a high, and has been seeing profit-taking across the board this week. It makes sense that Apple would be aprt of that, given the large holdings and high valuation. I suspect Apple will do well for some time yet.

  4. bolaji ojo
    March 7, 2012

    Barbara, If the iPad 3 or iPad HD or whatever Apple introduces today is as well received as its previous products the stock will probably spike again and push through the current record level. This is expected already as demonstrated in the pre-market one percent increase in stock price today.

  5. bolaji ojo
    March 7, 2012

    Eldredge, Correct. The market typically reflects performance for the economy and sales for the coming 12 month period so it's possible everyone is betting strong growth or recovery will happen over the next one year. In the case of Apple, the shares have appreciated so much over the last one year individual buyers may want to harvest their gains and then see where to jump in again. For large, institutional buyers holding for the long term, these troughs only represent buying opportunities.

    March 7, 2012

    I agree that many big institutions are probably keen to keep their money with Apple and to feed the hype to keep the share price elevated.  However I must believe like any great star it must eventually supernova and collapse.

  7. _hm
    March 7, 2012

    Apple has very good position and they should use this opportunity to diversify. They should also become major player in semiconductor – embedded processor, memory and others.

    Apple sholud also make non-electroinc consumer products.



  8. Anna Young
    March 8, 2012

    There's no appearance of  Apple's valuation cooling based on this figures -$548.21. I envisage further profit if the new ipad3 hits the market in March. I don't think its investors will be ready to exit just yet particularly in the face of record high profits. Although for how long will Apple continue to ride high? Difficult to predict it seems. I think time will tell.

  9. maxmin
    March 8, 2012

    Apple's has become a casino stock as said in

    There're a few others once reached the $500b mark and none of them were able to sustain that value.  I believe Apple is no exception, just as the climate prior to the dot-com, many of my colleagues in 1998 discussed jumping into stock market to make quick money and I warned them that the stock market could crash some day.

  10. bolaji ojo
    March 8, 2012

    Maxmin, You may be right but why would people want to pull back from Apple now? Like you, I believe the stock has become speculative and the idea that Apple is doing something so extraordinary that it has redefined the business environment is silly. Many have viewed other companies in the same light before, including Google and Microsoft at one point. We can also add Facebook to the mix.

    The involvement of institutional investors in Apple's case complicates valuation. Many of these have so much money to invest and few opportunities that the more they pile in the higher the stock price, kind of like feeding on themselves. When they go for the exit, which they will eventually, we'll be able to determine Apple's real value.

  11. bolaji ojo
    March 8, 2012

    _hm, All of which they won't do. Investors will begin to question Apple's value once they diversify into all of the slower growing markets you mentioned. Apple indeed has a problem — it must continue to grow rapidly to maintain its high valuation and has to decide what to do with its growing pile of money.

  12. bolaji ojo
    March 8, 2012

    Flyingscot, Could you take a stab at answering this question: When and why would the Apple star fade and be less compelling for investors? Of course, if you foretell this accurately and follow your own prescription, you would be very rich. 🙂

  13. bolaji ojo
    March 8, 2012

    A reader had a different take on the issue of Apple's market valuation and whether or not Apple investors will retrace their footsteps. Jonathan Allen had the following to say in a message to EBN editors:

    For me, a problem even more important than Apple's stock price is the company's labor practices. Will Apple continue to exploit foreign workers with overly long hours and lousy pay on top of unsafe working conditions? Unless this policy improves I will buy neither their stock nor their products, regardless of economic arguments or how “cool” their stuff may be.

    Is Apple listening? If it is, it seems some of the actions the company has recently taken have not really convinced everyone the company is committed to a different labor system. What else should/can the company do?

  14. Hawk
    March 8, 2012

    News of the iPad3 was tempting. For the first time in a while, I inched myself towards buying the tablet PC from Apple. That was yesterday. Today, I wondered again why the purchase would make sense. The first reason was the hype about the display. The reports I have read indicate they are several times better than the iPad2 display. How tempting!

    Then I pondered the price and how other tablets in the market perform the same functions but are so much lower in price. I have to say I concluded Apple's iPad is  overpriced. I am not convinced yet to pony up $500 or more for a display.

  15. Barbara Jorgensen
    March 8, 2012

    @Hawk: stay strong! Resist temptation! Don't go into the light….


  16. _hm
    March 8, 2012

    Think Again! You will not mistake. Apple is addictive and highly productive for that matter. Try it once.


  17. Hawk
    March 9, 2012

    Apple is addictive? Okay, I am out then. There's no benefit except to the drug pusher if someone becomes addicted to their products. I guess that's the same for Apple: the company wins a lot, suppliers a bit and customers pay too much for products that produce a great high but change nothing in their lives. Not for me!

  18. t.alex
    March 9, 2012

    Not so addictive for me 🙂 however, i think still loads of people will buy the new iPad still.

  19. itguyphil
    March 9, 2012

    Keep it as cash on hand. It can never really hurt to have liquid assets. Especially in today's climate where M&A's are prime.

  20. dalexander
    March 10, 2012

    Bolaji, I think Apple will dominate because of a very significant factor. They put a lot of their money into R&D under the radar. Apple has huge recruiting power and the sex-appeal of a youthful image. I hate to say it, but as a former employee of MS, when WebTV hit the streets and then X-box, that was the last of the youth appeal. Zune was a me-too product and now webcams, mice, keyboards are no longer differentiators in the marketplace. So, watching MS stock is like watching paint dry, but watching Apple stock, is like inhaling the fumes of the fresh paint. It can make your head spin, your stomach queasy, and your mind boggle.

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