Print 54 comment(s) - last by karimtemple.. on Jul 20 at 10:55 AM

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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RE: Pluhleeze
By Iaiken on 6/21/2011 10:04:58 AM , Rating: 2
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
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
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
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
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.

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