To Bite or Not to Bite - We're Watching You Week


By Mark Falanga

Apple CEO Tim Cook. Photo courtesy of Mike Deerkoski.

On September 17, 2012, it must have felt quite good to have stock in Apple Inc. Just five days earlier, Apple announced the release of the long anticipated iPhone 5 and consumers couldn’t be happier. This caused the stock to raise to $700.09 a share over the next few months, setting a record high for the company. Apple’s winning streak appeared limitless, as the stock climbed ever higher.

But something happened that the company had not been used to seeing in a long time – the stock started to slide. Just eight months after the record high, the stock went to $390.53 on April 15, 2013. It’s not unusual for stocks to swing wildly like this, especially on the New York Stock Exchange, but this was Apple, the media darling and the largest electronics company on the planet. How could their stock lose almost half of its value so swiftly?

Well, for starters, the iPhone 5 was the last truly innovative product the company made that the public was waiting for. Many were hoping that at this year’s WWDC, Apple CEO Tim Cook would announce a fifth generation iPad, but the event came and went and no such announcement was made. There’s speculation that the announcement will happen in the next week or so, but still, it’s just a rumor.

There was also a problem with the iPhone 5, not in technical terms, but in sales. The phone sold 5 million units over its opening weekend. Five million would be a staggering sales figure for any other phone in the world, but not so stellar for Apple. Many analysts predicted the phone would sell anywhere between 6-10 million. One analyst, Gene Munster, said in an interview with Business Insider, that if the phone sold 6 million units, it would be a “worst case scenario.” Once this announcement was made, the stock immediately dropped 2 percent.

Another problem related to the iPhone 5 is that more Americans are using smartphones than those who aren’t. At this time last year, market penetration of smartphone users was tallied at 50.4 percent. This means that smart phone growth across the board will slow as the market has peaked. To make matters worse, Google’s Android OS had 48 percent of the market versus Apple iOS’s 32 percent.

The last, and certainly not least, important reason that caused Apple’s stock to plummet is that many fear the company is simply out of ideas. In the company’s most recent ad campaign, Apple is showcasing people of varying ages using all of Apple’s products that have been released, and proudly proclaiming that the devices hold Apple’s “signature.” While the message is heartwarming, but is a pivot towards promoting generational brand loyalty.  It doesn’t offer any new ideas on the horizon, but rather focuses on their past, which causes uncertainty with investors who are less likely to hold on to their stock.

So should the average investor buy stock in Apple? On the bullish front, Apple appears a good buy at the moment. Many analysts have put the stock’s value in the $600 to $800 range. At its current price of $431.77, the stock seems like a great bargain. Also, if you analyze the stock’s trend, it has built a reverse “head and shoulders” pattern which is preferred by investors.

On the bearish front, the negative side of owning this stock might outweigh the good. The fact that a slight downturn in Apple’s popularity led to a loss of almost 50 percent still makes some investors shiver. With a lack of big ticket products like a new iPad or iPhone, the buyers of this stock will more than likely be professional investors, who just want the stock to rise slightly before cashing out.

So from this advice, either stay away from this stock or just buy in such small quantities that won’t greatly affect your portfolio. It’s nice to take a bite from Apple’s profits, but in this case, the apple might bite you back.