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What Happened to Apple?

15 November 2012 in Trading Ideas

With its latest product refresh in the rear-view mirror, Apple (AAPL) has left something else behind – its $600 billion market cap.

It was just eight weeks ago that shares of America’s Tech Darling were sitting at $700. Since then, the slide has been strong and steady. The stock is down nearly 23%, taking its market cap to just a little above $500 billion.  In less than two months, the company has lost the equivalent of a Citigroup (C) to its shareholder value.

Part of this, of course, is the recent broad-based slide in equities, which has appeared to end – for now – the second of two rallies the market has had in 2012. After the runup in stocks from early June to the middle of September, trading has been sideways and then decidedly down. The S&P 500 has fallen 7.3% since Sept. 14.

And technology stocks have done even worse. During that same time frame, the Nasdaq is off nearly 10%. (Meanwhile, the Mobile Internet Tsunami and Tablet Takeover motifs, each of which hold Apple shares as 22% of their component weights, are off 7.3% and 8.7%, respectively, in the past month).

But Apple’s underperformance really started to kick into gear about three weeks ago, on that fateful Oct. 23 when the company held a massive event to launch the iPad mini, the latest addition to its tablet computer arsenal.

However, it wasn’t the mini that caused any investor concern. It was the disclosure that the company’s sale of its 100 millionth iPad two weeks earlier meant that its latest quarterly numbers for iPad sales, now expected to be 15 million for the period, were a huge disappointment.

But it turned out even worse – when Apple announced its earnings days later, it said it sold only 14 million iPads, meaning it missed original estimates by about 20%.

Go figure – investors become a little gun-shy when a company’s No. 1 growth product begins to underperform Wall Street expectations.

But other cracks have also possibly weighed on investors. Its cash hoard, while admittedly massive, rose in its latest quarter by the slowest pace in 30 months. You also saw the departure of the company’s retail operations, and the head of its mobile platform took the fall for the performance of Apple’s map application on the new iPhone.

The bigger-picture view, perhaps, is that each specific disappointment begins to incrementally add weight to the greater fear – that the world-beating innovation expected by Apple died with its former co-founder and CEO, Steve Jobs. Not only was their hand-wringing about how Jobs was always against the smaller-sized tablets of the sort that Apple has now built, but you now have articles and blog posts such as this one, which question whether the company has the chops to “disrupt” the tech industry again.

At some point, many investors may decide that Apple is “cheap” and will rush back into the stock (Many undoubtedly have). But, like any other stock, this is a tougher proposition when the future growth rate seems to be legitimately under pressure.

Performance data was as of 11/15/2012. Performance data and returns are based on past performance and are not representative of results an investor could expect to achieve. The 1-month and 3-month return shows how a particular benchmark motif could have performed over a stated period of time. Returns of individual motifs do not take into consideration certain fees and/or commissions, corporate actions, or other activity that can affect the return an investor could expect to incur. The performance results attempt to follow a standardized and consistent methodology for performance reporting. While we believe the performance data is gathered from reliable sources, the information that generates performance results uses historical data that we believe to be accurate but has not been validated and may contain errors in pricing or other conditions. Reference to return of index does not imply its performance is comparable to a motif, but rather serves to provide a reference point.  For detailed information on how we calculate returns, please visit www.motifinvesting.com.