Apple Takes a Dizzying Plunge on Wall Street
Things have gotten a little hairy for Apple investors over the past couple of months, with the company that could do no wrong -- or very little wrong, anyway -- mysteriously sliding in the stock market. Though the consensus seems to be that Apple is not in serious trouble, it needs to convince the market that its innovation engine is still humming, said Boston U's N. Venkat Venkatraman.
12/06/12 2:07 PM PT
In one day this week, Apple's stock dropped by almost 7 percent -- its biggest single-day loss in four years, and a highly unusual development for this rock-star device maker that not too long ago launched the new iPhone 5.
The decline moves Apple closer to the so-called death cross -- the point at which a security's long-term moving average is breaking above its short-term moving average or support level.
Or, to put in visual terms, the point at which a stock's long- and short-term trend lines start to head down.
This is not Apple's first death cross -- the company has experienced five since 2000. However, Apple stock has become a staple in many investors' portfolios in recent years, and the company has become a downright luminary of the tech industry.
If it does hit a death cross, how bad would the psychological impact be? More to point for the legions of Apple investors, what would it suggest about the company's long-term prospects?
It's important to note that there are short-term issues that might have caused the drop, said Andreas Scherer, managing partner with Salto Partners.
"First, there was speculation that Apple would declare a special dividend this year vis a vis the fiscal cliff," he told MacNewsWorld. "Second, Nokia secured a deal with China Mobile for its Lumia 920 as a high-end alternative to Android. China is a huge growth market for smartphones that seems to be at least one step removed for Apple at the moment."
That said, Apple has too much going for it for investors to be concerned about the company's long-term prospects, Scherer said. On a fundamental level, the world is morphing into a mobile-oriented communications environment -- and Apple is a towering presence in that world.
"This year, the iPhone will generate about 52 percent of Apple's revenue," Scherer noted. "While competition has slowed down the exponential growth of the years 2008 to 2011 somewhat, the company will continue to grow its world market share for years to come."
Vagaries of the Market
Investors should consider the tunnel vision the market seems to have developed about Apple, said David Cadden, a professor of management at Quinnipiac University.
"Objectively, all outward signs appear to be positive for Apple. However, some investors appear to be looking only at negative clues. They focus on the decline of Apple's market share of the tablet market, not its increase in tablet sales," he told MacNewsWorld. "They point to Apple's failure to secure an exclusive agreement with a Chinese telephone company or have a concern about the sales growth rate of the IPhone 5."
It's also possible that investors just might be taking profits before the end of the year.
"After all, Apple's stock is higher -- significantly -- than at the beginning of the year, although significantly below its high of the year," Cadden pointed out.
"Apple has hit the 'death T' several times since 2000," he added, "and one should expect it to recover and prosper."
Still, there is a case to be made about Apple's growing vulnerability to its competition.
Apple is at an inflection point. Competition is heating up in both the tablet and smartphone markets.
The patent fight with Samsung isn't helping, noted N. Venkat Venkatraman, a business professor at Boston University.
"Apple will deliver on performance, but the growth prospects are unclear," he told MacNewsWorld. "To me, Apple and Microsoft are trading at the same P/E ratio -- around 13."
Amazon's ratio is 3000, he noted.
"Apple is not in trouble if you focus on predictable performance and steady dividends just as Microsoft delivered over the last decade," Venkatraman said. "What Apple needs to deliver to the market is a strong indication that the innovation engine that created breakthrough products is very much humming and healthy."