AAPL Market Cap Dives: Is Apple In Trouble?

Headlines today that Apple (AAPL) crossed through $600 billion in market cap, unfortunately it was the wrong way.

After making new all-time highs 9/21 at $705.07, AAPL has now given back nearly 10% with its close today in the neighborhood of $638.00.

What gives? It is always really difficult to say with AAPL as some of its moves over the past few years are completely baffling, in both directions. So it will have to suffice here to capture some of the theories going around the past few days.

• First, today’s reports that Apple suppliers, specifically at Foxconn, are undergoing further labor disputes and work stoppages, and some unconfirmed reports that the iPhone screen is turning out to be very susceptible to “scratching” (this story is still developing)
  
• Just a “technical” stock argument, with a “head and shoulders pattern” being traced out which some observers say will/should resolve in the $600-620 area (around the area of the 100 day moving avg.)
  
• The first sign of weakness was underperformance of initial iPhone5 sales in the first week/weekend versus the most bullish of forecasts which had hyped the stock over $700
  
• The “Map Flap” or “MappleGate”, with AAPL-haters arguing that Steve Jobs: a) never would have allowed this to happen b) would have had some sort of fast fix or reversed the decision to dump GOOG Maps or c) never would have “apologized” the way Tim Cook did (there is now also some blogging about dissatisfaction with the iPhone photo quality).
  
• An argument that funds wishing to lock in overall market gains for the year off the nice run up have looked to sell one of their bigger winners, namely AAPL (and if they did so in the $690-700 area, not looking so bad here in the short-term)
  
• Continued reports of Samsung strength in global smartphone sales, where Samsung has more than double iPhone market share…and some new threats in the iPad area as well from Samsung… also tied to this is some question as to whether the AAPL patent court U.S. win will hold up over the long haul and around the world. Others have also written that Samsung may have “work-arounds” which help alleviate the effects of AAPL’s court victory

One quote:

“Samsung is taking another edge on Apple Inc. (NASDAQ:AAPL) through its aggressive market strategy which is a part of its campaign against Apple Inc. (AAPL) which was started a day before the launch of iPhone 5 on 21st September which is supposed to show customers that features of a faster 4G network with a bigger screen is available on Samsung electronics’ Galaxy S III smartphone, which was launched world-wide in June.”

And lastly, while we won’t give one hedge fund manager the leverage to move a stock the size of Apple, Doug Kass has been receiving a lot of press since 9/24 on his “Bearish Case for Apple”. A lot of his arguments are tied into macro global slowing growth concerns, but also the Steve Jobs factor and the increased will of competitors, partners and suppliers. His biggest concern, however, is that Apple’s price/value proposition vs. competition has severely declined, i.e., there are now very reasonable high quality alternatives to many Apple products at lower prices. He summarized at the time with the thought: “Valuation: Apple's stock is cheap on a P/E basis but arguably very expensive on price/sales (4.4x) and total absolute market capitalization basis ($625 billion).

OK, we will wrap it there although there may be yet further arguments. But let’s not forget several things: 1) AAPL has had severe corrections before only to snap back to new all-time highs and the Holiday season is fast approaching 2) Kass is in it for a trade and can change his mind quickly....he admits to being a big Apple fan in general 3) AAPL earnings coming out within weeks on what is now set for 10/25.

Personally, my major concerns would be twofold: a) echoing Kass on the global macro outlook and b) a more gut level and anecdotal feeling that this Holiday might not be the gangbuster everyone seems to expect-with household budgets tight, is there really room for another iPhone, iPad or laptop purchase, if one’s current Apple product is working just fine, thank you?

Good Trading!
David Wismer

David W’s Daily Decision PLUS. service is designed to be an “add on” to the Daily Decision service and produce income via a proprietary trading strategy. Check it out today!

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