is anything “wrong” with Apple?

APPL’s extraordinary recent performance

I was talking about the stock with my brother-in-law, a big AAPL booster, a month or so ago.  I’d been fooling around with one-year performance charts, an obvious indication that I somehow had too much time on my hands.  But doing so made me realize that, as I pointed out to my brother-in-law (who probably already knew), APPL had had an extraordinary impact on the S&P 500’s near-term performance.  Over the prior 12 months, AAPL was up around 80%.  Over the same time span, the S&P was up a bit less than 4%.   But AAPL alone was responsible for most of the 4%!!

Some rough arithmetic:  AAPL probably represented 3% of the index at the beginning of the period.  3% up 80% is the same as 80% up 3%, which is also the same as 100% up 2.4%.  In other words, AAPL’s gains represented 2.4 percentage points out of the 4 percentage point advance the index made during that year.  The other 97% of the index chipped in only 1.6 percentage points.  Those stocks were basically flat.

Index dominance by one stock never happens in the US.  In emerging markets, where a single issue can be 10%-15% of the overall market, yes. the US, no.  Nevertheless, that’s what AAPL did over the past year.

Then it fell by 10%.

more numbers

Let’s take a quick look at how AAPL has performed, even after that fall.  And let’s include some of the “AAPL eco-system” stocks as well, to see how they’ve made out.

one year (through yesterday)

AAPL          +77.2%

INTC           +43.8%

QCOM          +24.7%

NASDAQ index          +8.1%

S&P 500          +3.8%

ARMH          -4.8%


six months

AAPL          +37.5%

INTC          +20.9%

QCOM          +20.1%

S&P 500          +11.8%

NASDAQ          +8.1%

ARMH          -1.9%


year to date

AAPL          +43.1%

QCOM          +21.1%

INTC          +17.1%

NASDAQ          +14.7%

S&P          +8.9%

ARMH          +0.8%

what I make of this

1.   Even after the drop of the past few days, the overall situation of AAPL outperformance hasn’t changed very much.  What has happened over the past six months, though, is that the rest of the market has begun to revive.  So AAPL’s gains aren’t as dominant as they had been when the rest of the market was drooping.

2.  The performance of “eco-system” stocks has been spotty.

Qualcomm, whose chips are in virtually every high-end mobile device, has done well.  But its performance over each of the periods above is a pale imitation of AAPL’s.

ARM Holdings, whose low power chip designs are in just about every mobile device, high-end and low-, has been left behind in the dust.  Of course, it was trading at close to 100x earnings a year ago.

Intel, the “anti-APPL,’ the “dinosaur” that ARMH was going to put out of its misery, has been second on the one-year list.  Or course, it was trading at 9x earnings a year ago and yielding close to 4%.

3.  A counter-trend movement, where AAPL goes down and the rest of the world catches up a bit, wouldn’t be the least bit unusual after a year+ like APPL has had.

the rumors

Over the past few days, perhaps only in response to the AAPL decline, I’ve seen three worries circulating about the company, namely:

–Phone companies in the US want to reduce iPhone subsidies.  (Who wouldn’t.  The carriers pay AAPL $600 or so for phones that they resell for $200.)  There’s talk that ATT and Verizon want to charge $230 instead.  It’s not clear that the carriers will be successful.  But if they are, higher prices might clip a couple of percentage points off the growth of AAPL’s most important business (half the company’s profits).  But if that means 22% growth instead of 25%, that’s not such a big deal.

–Mac sales may be slowing.  One analyst is reportedly suggesting that AAPL computer sales may have been down year on year in the March quarter.  That wouldn’t be good, either.  But, realistically, Macs are too small to matter that much to AAPL’s business.  And although tere are good industry data for slow-growth markets like the US and the EU, I don’t think there’s any good way to gauge Asian sales.

–iPad sales may be slowing.  This would be a more serious issue, since tablets are 20% of AAPL’s sales–and thought of as the company’s next hot product after smartphones.  I’m not sure what evidence there is, however.

my take

I’m reading the downward AAPL price move over the past week or so as a natural reaction by market participants with short time horizons–taking profits in a stock that has performed so well in both relative an absolute terms.  The really noteworthy thing is that the reaction took this long.

It’s possible that the worries I’ve seen surface in the past couple of days are justified, but my initial reaction is that the declines prompted the rumors–not the other way around. We’ll know for sure when AAPL reports earnings in a couple of weeks.

What impresses me most about AAPL is its valuation.  On consensus estimates, the stock is trading at under 14x fiscal 2012 earnings and yielding around 2.5%.  If those are anywhere near correct, there’s nothing “wrong” with AAPL other than that no stock goes up each and every day.

Current weakness may well be the trigger for AAPL holders to give their position sizes a sanity check.  That alone may prompt further selling as long-time holders give more thought to exactly how much AAPL they hold.


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