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Concern about the health of Apple's co-founder and chief executive has reportedly been one factor damaging stock prices.  (Source: Cupertino City Council)
Concerns about overvaluation, succession are top on investors' list

By market cap Apple Inc. (AAPL) is the world's biggest tech company, having recently passed Microsoft Corp. (MSFT) for that spot.  Apple also recently passed Microsoft in quarterly profits.  And the company blows past analyst estimates virtually every single quarter.  Still, all is not well for Apple in investors' eyes.

Apple stock hit a high of $364.90 in February 2011, and has since churned, cycling up and down.  But since the start of June there's been consistent downward momentum, which has dropped the stock to well below its cyclic lows, plunging it to $315.32 USD a share at the bell on Monday, June 20.

Most analysts attribute that 15.7 percent drop to uncertainty about the succession plan for Apple, after the departure of chief executive Steve Jobs.  Mr. Jobs, who co-founded Apple in 1976, returned to the company in 1997 and transformed it from a struggling boutique vendor to the world's largest gadget maker.

But with Mr. Jobs suffering from complications of pancreatic cancer, which caused him to need a liver transplant, his health has been a major concern over the last several years.  Most recently Mr. Jobs took yet another medical leave of absence, though he's still giving public presentations and attending company meetings.

Henry Blodget at Business Insider writes:

In a way, the situation Apple finds itself in is akin to an impending CEO retirement--without a successor having been named. In such "lame duck" periods, companies can become paralyzed, as managers focus more on their own future and political stature and uncertainty and less on the business.

And, in Apple's case, unfortunately, the situation is even worse: No one knows whether Steve will return, or when, or even when the question of his return will finally be put to rest. So the company is in a sort of perpetual purgatory.

The source of Apple's stock drop may also be of a more technical nature.  In terms of price-per-earnings ratio, the stock is somewhat overvalued at a P/E ratio of 15.0 (by contrast Microsoft has a 9.7.  P/E ratio isn't always the best judge of performance, but some fear that Apple's stock has risen too far, too fast.

Additionally, some believe the options markets are dragging the stock down as trading was flat for much of last week until Thursday-Friday.  However, a 1.5 percent drop on Monday dispels that theory somewhat.

Some investors still stand firmly behind Apple.  Andy Zaky of the Bullish Cross says that Apple stock will likely reach $500 USD/share, so is a great buy at $300-$320 USD/share.  He writes:

Because of the market's short-term blindness to this obvious reality, we find it prudent to put a strong-buy rating on the stock if it so happens to trade under $300 during a potential brutal summer correction.

His sentiments are echoed by Horace Dediu at Asymco.



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Pluhleeze
By room200 on 6/21/2011 8:17:18 AM , Rating: 2
What makes them think that Apple's stock prices should have reached 300 bucks in the first place? Don't stocks fluctuate like this all the time?




RE: Pluhleeze
By Mitch101 on 6/21/2011 9:51:37 AM , Rating: 5
Im guessing your thinking of Profit taking but this isnt the case.

I think people are starting to realize that Apple has 7 areas of income and what caused the overvaluation is their huge growth came from just two areas (iPhone and iPad) that are losing traction as the competition heats up. Take out the iPhone and iPad and Apples real computer growth doubled in 5 years.

Where Apple makes thier money.
http://www.iclarified.com/entry/index.php?enid=135...

Why the downturn?
We all know Andorid is eating up the Phone and starting to take over in tablets.

Apples cloud failed to impress anyone and there are alternatives from Microsoft, Amazon, Google, and soon Facebook.

Lion is an incremental update of the OS. Sure it will have its neat new features but its not radically different from the previous version. It wont spur huge sales of Apple computers.

I hate to say Steve's health issues are a problem for the company but more for the man himself.

5 Years ago Apple stock was $60.00 a share. Its currently over $300 a share 5X from 5 Years ago.

Look at the chart reduce the iPad and iPhone sales numbers, then consider the company has no magical unicorn in the pipeline with extra operating costs you can see the stock is overvalued at the least recognize that the 3/5 of the companies profit is being threaded by competition.


RE: Pluhleeze
By vision33r on 6/21/11, Rating: -1
RE: Pluhleeze
By Mitch101 on 6/21/2011 10:18:23 AM , Rating: 2
Are there 500,000 categories of applications? I reasonably think there are maybe 30 even Windows Phone 7 has that covered.

In order to sell iPhone apps one must own an iPhone. If people are buying Android devices it wont matter how many the Apple App Store has they dont purchase from the Apple App store.

Please tell me where in the Apple product lineup they will be selling a huge increase without competition in the forseable future that would give Apple continued future growth?

Not sure you heard but Facebook is working on a method that threatens the profit line of the Apple App store right on the iPhone itself.
http://techcrunch.com/2011/06/15/facebook-project-...

If Facebook can do it so will others. What is Apple going to do? Not support HTML5 like they dont support Flash?


RE: Pluhleeze
By vision33r on 6/21/11, Rating: -1
RE: Pluhleeze
By darkhawk1980 on 6/21/2011 1:00:07 PM , Rating: 3
So basically you're saying that Android caters to all users, whereas IOS caters to those that have disposable incomes? More or less, yes, that's what you just said. Guess what? People don't have as much disposable income. And guess what else? Not all phones are heavily subsidized by carriers. In fact, the most popular phones are the same price as the Iphone.

100 million IOS devices, 100 million Android devices, all made by various manufacturers aimed at different demographics. Guess what? IOS is not the 'one size fits all' that Apple makes it out to be. And some of those 'dumb old e-readers' don't count towards Android devices. Have you even bothered to look at the metrics? If it can't run market apps, it's not a device that gets noticed.

You seem to misunderstand the concept of devices. Android has many manufacturer's selling devices. Apple has 1. Combine Android devices sold to IOS and you might actually be surprised. For instance, I know the Asus Transformer has been selling >100k per month right now alone. Combine it with the other various tablets, guess what? You've got your 'millions' of devices being sold a month.

The sky is receding for Apple, much like Steve Job's hair line and lifeline. Soon enough it will end, and it will be sad since he is a genius, that doesn't mean he isn't a tyrant and terrible to his peons (I mean, customers).

And btw, Honeycomb is great. Take more than 5 minutes to evaluate it (ie use it for a number of hours). You might actually find out it's nice. Or you'll just say it sucks and put it down after 5 minutes cause it doesn't have the Apple logo on the back. Guess what? It just cost you $300 more than my tablet to get it. And it's worse than my tablet. Go figure.


RE: Pluhleeze
By Alexstarfire on 6/21/11, Rating: 0
RE: Pluhleeze
By Pirks on 6/21/2011 8:46:42 PM , Rating: 2
quote:
http://techcrunch.com/2011/06/15/facebook-project-...
haha, RIM's going to benefit from that the most as they have currently the most mature and the most advanced HTML5 browser among all mobile browsers, which hence will be the best browser to run those Facebook HTML5 apps... looks like Facebook is going to do RIM a favor too


RE: Pluhleeze
By MarcLeFou on 6/21/2011 10:24:18 AM , Rating: 2
I actually agree with Mitch's evaluation of the company from a financial standpoint. I'd never buy Apple Stock myself. I think it's way overvalued because markets tend to be overly emotional and Apple is "in" right now. Same thing with Google's though. And RIM's stock was the same 3-4 years ago. Microsoft's stock would be a better option since their dividend to share value ratio is much better than it was 10 years ago and has been increasing every year but I do have some concern over their future. Windows 8 will be make or break even more than Windows 7 was. If they can't break into the tablet market in a huge way with Windows 8, I think Windows stands to slowly miss a huge percentage of future sales as I see home use computer sales declining to go to tablets and smartphones for the bulk of the "normal" users. I still think MS will always have a solid business base so the company will always be healthy but they definitely have some huge challenges ahead if they want to retain their market positioning.

The trick is to try to buy when others are selling and to sell when others are buying. I heavily invested in the market in february 2009 while everybody was buying obligations at 2-3% and still selling stocks. Good for me as those investments paid off in a big way and more than made up for my losses in 2008. That's why I don't think Google and Apple are good stocks to own mid-term.


RE: Pluhleeze
By Samus on 6/21/2011 11:36:37 AM , Rating: 1
It's about how many people Apple has killed, opposed to how many people Google has saved from being killed.

Think about it...


RE: Pluhleeze
By Tony Swash on 6/21/11, Rating: -1
RE: Pluhleeze
By insurgent on 6/21/2011 5:53:16 PM , Rating: 3
Uhh.. is brain dead legally dead? If so guess what, Apple killed you! :D


RE: Pluhleeze
By Tony Swash on 6/21/11, Rating: -1
RE: Pluhleeze
By Tony Swash on 6/21/11, Rating: -1
RE: Pluhleeze
By cjohnson2136 on 6/21/2011 11:16:18 AM , Rating: 2
Of course if anything negative is said about Apple Tony comes in and starts his preaching.


RE: Pluhleeze
By Tony Swash on 6/21/11, Rating: -1
RE: Pluhleeze
By croc on 6/21/2011 7:33:54 PM , Rating: 3
Steve Jobs is a piker. And, with a net worth of ~6 Bn US, I guess he feels he has to be. Poor little rich kid...

The Bill and Melinda Gates foundation itself is worth ~6 times Steve Jobs net worth.

So, WHEN Steve Jobs dies, how will history view him? As the creator of toys for rich people? Certainly not as the great philanthropist. And who will replace Jobs at apple? what happened the last time he 'left'?


RE: Pluhleeze
By Iaiken on 6/21/2011 10:04:58 AM , Rating: 2
quote:
Don't stocks fluctuate like this all the time?


Yes, but Apple is not just nonfluctuating, they are trending downward for legitimate reasons. Primarily because of overvaluation due to speculation on how high it would jump during the recovery.

Now with many companies this wouldn't be much of a worry as long term investors could count on dividends or distributions to give them year over year earnings via compounding. For example, every quarter, Microsoft would yield you one additional unit of stock through dividend reinvestment for every 150 units of stock you owned. This not only adds up very quickly, but dividends is taxed at a MUCH more favorable rate than capital gains.

No, Apple is always a gamble and any long term investors that get tied up in it now are fools. Companies like this are best left to speculators and day traders.


RE: Pluhleeze
By vision33r on 6/21/11, Rating: -1
RE: Pluhleeze
By Iaiken on 6/21/2011 11:35:43 AM , Rating: 3
quote:
AAPL is up again today which proves you wrong about the fundamentals of the stock


A single incremental increase does not a trend make. Apple has been trending down at 16% for the last 6 months including the recent spike. While past performance is no indication of future performance, it doesn't take a genius to look at the direction that the tablet/phone markets are headed and realize that Apple has reached an impasse.

The fact that you got so PO'd about someone having a different opinion of Apple stock than you is interesting. There are numerous other better performers on the market than Apple that offer much more sustainable growth year over year.

With Apple's most important business segments either in decline or plateauing in the face of stiff competition, any stock increases are purely speculative ones. Apple has essentially been caught in a trap of it's own making. To make any more headway, they need to move more and more product, but the competition is steadily hedging them out of the market.


RE: Pluhleeze
By Solandri on 6/21/2011 11:18:18 AM , Rating: 3
quote:
Now with many companies this wouldn't be much of a worry as long term investors could count on dividends or distributions to give them year over year earnings via compounding.

In case Iaiken's point isn't clear, Apple (and Google) don't pay dividends. In that respect, they're not like regular stocks where you "own" a piece of the company and part of their profit goes into your pocket via dividends.

Apple and Google stocks are just pieces of paper certified as a genuine piece of Apple or Google paper, only worth as much as someone else is willing to pay for them when you sell them. Them posting a big profit may make their stockholders feel warm and fuzzy on the inside. But none of that profit goes to the stockholders, so there is no direct link between the company's profit and the value of the stock. Any rise in their stock price due to big profits is based entirely on market speculation.


RE: Pluhleeze
By MrBlastman on 6/21/2011 12:51:33 PM , Rating: 2
quote:
This not only adds up very quickly, but dividends is taxed at a MUCH more favorable rate than capital gains.


Wrong. Completely wrong.

I realize you are Canadian (I believe), but in the United States, how you are taxed on dividends and capital gains is a direct result of two things:

a. The type of capital gain (long term [12 months or more] or short term [less than 12 months])

b. Qualified or non-Qualified dividend.

If a capital gain is long-term, it is taxed at 15%. If it is short-term, it is taxed at your ordinary income tax bracket.

If a dividend is qualified, it is taxed at 15% (unless you are in the 10-15% bracket it is 0%), if it is non-qualified, then it is taxed at your ordinary income tax bracket.


RE: Pluhleeze
By Iaiken on 6/21/2011 1:22:54 PM , Rating: 2
quote:
I realize you are Canadian (I believe)


My apologies, Canadians not only do we get a preferable rate on dividends, but there is an additional Dividend Tax Credit (DTC) that prevents double taxation of Canadians invested in Canadian companies.

For example, my last year I only payed 4.91% on almost $44,000 in qualified dividends. Had this been interest income it would have been around 24%, or regular dividends would have been around 16% and capital gains would just be taxed at 50% of your income tax rate.

I forgot how much tax investors pay in the US.


"It seems as though my state-funded math degree has failed me. Let the lashings commence." -- DailyTech Editor-in-Chief Kristopher Kubicki














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