What's behind lack of appetite for Apple stock?
SAN FRANCISCO — This holiday season is shaping up to be a record-breaking period for Apple as shoppers snap up iPhones and iPads. So, why is the world's most valuable company losing its luster with investors?
Apple began selling the iPhone 5 on Sept. 21, the same day the company's stock hit an all-time peak of $705.07 per share. Since then, the stock has plunged nearly 25 percent, trimming the company's market value by more than $150 billion. On Friday, the stock fell almost 3 percent and closed at $533.25.
The sell-off has had broad impact. It has reached beyond Apple's own stockholders because the company is the largest component in the Standard & Poor's 500 and Nasdaq composite index — two benchmarks that are tracked by widely held mutual funds and exchange traded funds, or ETFs.
Apple comprises 4 percent of the S&P 500 and nearly 12 percent of the Nasdaq, according to FactSet. The Nasdaq has shed 6 percent since Apple's stock price peaked while the S&P 500 has declined 3 percent, the same as the Dow Jones industrial average, which doesn't include Apple in its basket of 30 stocks.
Apple's abrupt descent is fueling a debate among market-watchers. Is the stock now a bargain, as some would argue? Or, is the recent markdown in Apple's value justified because the company has entered a phase of less innovation and slower revenue growth?
Disagreements over the issue are contributing to unusual volatility in the stock. On Wednesday, Apple's stock fell 6.4 percent, the biggest one-day drop in more than four years. Just 2 1⁄2 weeks ago, the stock surged 7.2 percent for its biggest one-day gain in three years.
There's no consensus regarding the cause, but one thing is clear: There have been more investors eager to sell Apple's stock than buy it in recent months, despite all the evidence indicating Apple's products have never been more popular.
Here are three theories that seek to explain the recent downturn in Apple's stock:
Theory: Competition conundrum
Hypothesis: Apple's grip on the growing mobile computing market is loosening amid a wave of cheaper alternatives to the iPhone and iPad.
The iPhone's early lead in the smartphone market already has been surrendered to the more than 500 million devices running on the free Android software made by Google Inc. By comparison, as of the end of September, Apple had shipped 271 million iPhones since its 2007 debut.
Nokia phones running on the recently released Windows 8 system from Microsoft Corp. pose a new threat, especially in China, where Nokia has struck a deal with that country's largest wireless carrier. Meanwhile, struggling Research In Motion Ltd. is pinning its comeback hopes on a revamped operating system for the once-iconic BlackBerry to rekindle demand for that device.
Theory: Creativity contraction
Hypothesis: Apple is running out of fresh ideas.
Since Apple co-founder Steve Jobs died 14 months ago after a long battle with cancer, the company has mostly been fine-tuning products that were created under his visionary leadership. The former CEO's hand-picked successor, Tim Cook, is well-respected, but some investors are starting to wonder if Apple can conjure up a new revolutionary product to catapult the company on a multiyear stretch of breakneck sales growth. Can Apple innovate like a hard-charging startup while maintaining its giant company stature?
Theory: Fiscal cliff factor
Hypothesis: Many longtime Apple shareholders are selling stock to lock in gains at a lower tax rate.
Under laws set to expire Dec. 31, profits on stocks owned for at least a year are taxed at a 15 percent rate — much less than the rate earned income is taxed at.
The recent drop notwithstanding, Apple's stock has still enjoyed an incredible run. It has more than quadrupled from about $120 per share since the iPhone's release in June 2007. Even investors who bought Apple's stock a year ago are still sitting on a gain of nearly 40 percent.
But savvy investors probably wouldn't be selling their Apple stock just to save some money on taxes if they truly believed the stock is destined to soar higher and make them even richer a year from now.
“Sometimes, stocks just take a breather,” he said. “And when you get to be as big as Apple, any shift in sentiment can have a material impact on the share price.”