Apple Inc. is in another slump, and once again most of the commentary surrounding the decline misses the obvious big reason why this stock can't seem to muster any meaningful rally.
On Wednesday, the shares fell 15.01 (U.S.) or 3.4 per cent, to $428.85.
The decline follows what had been a pretty good, though brief, rebound for the stock. After falling to a low of $385 in April, down 45 per cent from its record high in September, the share price had rebounded more than 20 per cent by early May.
Wednesday's decline looked like a technical move to some observers, given that the share price slipped below its 50-day and 100-day moving averages and the preceding run-up came with low trading volume.
"When Apple truly broke under the 50-day moving average last October, its rally was over and the stock fell from $650 down to $525 in just about six weeks," said Jon Ogg at 24/7 Wall Street . "Maybe Apple will use this as support, but the stock has burned so many investors in the last eight months that trust is getting harder and harder to find."
Joe Weisenthal at Business Insider even tried to link Apple's rise and fall to that of gold. Both have been tightly correlated recently, given that both seemed disconnected from weak economic growth. With gold down on Wednesday, well, Apple fell too.
Not convinced? News that big hedge funds have bailed on the stock might be closer to the mark: Tiger Global Management and Appaloosa Management, the latter run by billionaire David Tepper, according to regulatory filings and reported by Bloomberg News. Tiger Global reduced its stake in Apple in the first quarter by 790,000 shares, while Appaloosa cut its stake by more than 370,000 shares.
Reuters added that hedge fund managers John Griffin and Chase Coleman also cut their positions in Apple.
No matter that the news is a tad stale, given that the sales occurred between January and March; they nonetheless showed that well-heeled investors are not sticking around as Apple's share price meanders deep into bear-market territory – and the market seems willing to follow their lead.
But there is a far bigger, longer-term issue playing out here: Apple's days of heady growth have come to an end and investors are losing faith in its ability to produce another set of blockbluster products to continue the winning streak defined by the iPod, iPhone and iPad.
Management signalled as much with its shift on its policy of returning money to shareholders. It recently boosted its quarterly dividend and announced a bold share buyback program, to be financed with debt. In other words, Apple now looks like many other companies.
That means the fast money overseen by many hedge funds have moved on to other opportunities. But it also means that other investors are likely to move in, tempted by a rising dividend yield (now at 2.8 per cent), a low valuation, a powerful brand and solid operations.
The transition isn't going to be smooth, though – and Wednesday illustrates that the bumps could be painful.
David Berman