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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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Fluctuations
By adiposity on 6/21/2011 12:30:46 PM , Rating: 2
quote:
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.


And today it's up 2.7%.

Like I have said about other stock "plunges," let's not forget the whole stock market has had a very bad month (or two). You can look at just about any stock and see a down trend through May and June.

MSFT, which is mentioned in the article as having a lower P/E than AAPL also had a high on 4/28/11 of 26.87, and a low of 24.0 on 6/15/11. That's a 10.5 % drop vs. Apple's 10.2 % drop from 4/25/11 to 6/20/11.

So, unless I made a mistake, Microsoft actually dropped more in the same general time frame than Apple. The Apple drop was actually over a longer time frame.

My entire stock portfolio is down these months. So, when I hear about a specific stock "plunging," I get a little suspicious the general market trends are being ignored.




RE: Fluctuations
By vision33r on 6/21/2011 2:13:54 PM , Rating: 2
Ditto, these are typical the articles that bring out all the Anti-Apple people. Apple's business is actually "expanding" and it isn't just the iPad. While we like to think that PC is 80% of all marketshare, the Mac with just a 8.6% marketshare has an absurdly 20%+ profit margin vs the single digit profit margins made by Dell and HP.

Sure, Dell and HP shipped more PCs but they barely turned out much of a profit as opposed to Apple just raking in huge profits from selling less.


RE: Fluctuations
By superstition on 6/21/11, Rating: 0
RE: Fluctuations
By MindParadox on 6/21/2011 4:52:16 PM , Rating: 2
quote:
Sure, Dell and HP shipped more PCs but they barely turned out much of a profit as opposed to Apple just raking in huge profits from selling less.


yeah, but you cant say thats from the entire market of the PC world, as people like me(and there are ALOT of us) don't buy from any company. I build my own computers, buying the parts individually, which is something you can NOT say for apple. It is also why I can honestly say that apple computers are INSANELY overpriced, even more so now that they use Intel processors and fairly standardish(i say that because its all gotta be apple certified or have an included EFI layer to run with it) hardware(Nvidia/ATI and such)

so you really can't compare the profits of two companies out of probably 50 or so who make PCs, without somehow figuring OUT of the percentage of PCs in the world, the huge amount of people who build their own PCS.

however, since Apple has only one distribution channel, it is VERY easy to track profit margins there(which you yourself even said is "Absurdly 20%+ profit margin"

honestly, the analogy of Apple to Dell/HP is similar to saying something like, Porche makes more because Auto zone has less profits :) The whole thing just doesn't work in reality :P


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