Apple Inc. popped into positive territory on Tuesday afternoon, recovering about $15 (U.S.) a share from its selloff earlier in the day and providing investors with a tentative answer to one of the top questions of the day: How far can this stock fall?
The share price hit an intraday record high of $705.07 on Sept. 21, and then retreated a total of 11.5 per cent by mid-morning on Tuesday – conforming to the popular definition of a correction, which is a drop of 10 per cent or more. Given that the selloff coincided with a red-hot response to Apple’s latest iPhone, it was only natural that investors should see the stock’s slide as less fundamental than technical.
After all, there have been corrections before, and they have always ended well. In April and May this year, the share price slid 16.7 per cent after hitting a record high. In November 2011, it fell 13.9 per cent following a record high. Between February and June of 2011, it fell 13.2 per cent. And between June and August of 2010, it fell 12.3 per cent.
Each time, the share price rebounded to a new record high soon after, making the selloffs look like little more than buying opportunities for anyone who had missed out on Apple’s previous run-up.
Sterne Agee analyst Shaw Wu said as much in a note to clients, suggesting that any concern about the new iPhone relates to production issues (given that many retailers have sold out and there is a waiting period for new shipments) rather than demand issues. The analyst has a forecast of 27 million iPhnes in the September quarter, and 46.5 million in the December quarter.
According to Bloomberg News, he said that the pullback “appears to be typical consolidation after a big run.” He has a price target of $840 on the stock.
Most analysts would appear to agree: The average target price is nearly $780, implying a 22 per cent potential return over the next year.
But this isn’t to say that there aren’t concerns about Apple that go beyond its terrific gains. Nomura analyst Stuart Jeffrey, who has initiated coverage of the stock with a “neutral” rating and a lukewarm price target of $710, believes that the near-term looks good but the longer-term is troubling.
He thinks gross margins on the iPhone could fall by 10 percentage points by fiscal 2015 as Apple launches a cheaper iPhone to expand into emerging markets and confront lower subsidies from telecom carriers. And get this: He even thinks Apple could become more of a “defensive company” after 2014. If he’s right, that is going to require a big shift in the approach of investors.
Apple shares ended trading on Tuesday nearly flat, down $2.32, or 0.3 per cent, at $635.85.