Shares plummet but too early to write off Apple

A LITTLE sympathy for the chief executive of Apple, Tim Cook, is in order.

A LITTLE sympathy for the chief executive of Apple, Tim Cook, is in order. Following Steve Jobs was never going to be easy, but he has hardly been helped by the hype and expectation piled on the company.

Yes, Apple exploits the mood merrily when it has a new gizmo to flog. But Wall Street as showbiz on steroids can be absurd. At Apple, the machine has been in ridiculous overdrive for the past year.

The first sign was analysts competing to be the first to predict a $US1000 share price. Topeka Capital Markets' Brian White was the winner, declaring: "Apple fever is spreading like a wildfire around the world." Others piled in.

Given the size of the company and its weight in various indices, not owning the shares suddenly became a career risk for the average US fund manager. Who would want to be the fool who stood alone against the iPhone 5?

At $US700 the stock was clearly priced for perfection. After a small slip - a wonky mapping app - the machine went into reverse. With tech stocks there is no neutral gear - they are either on their way to the moon, or they are ex-growth companies that have run out of ideas.

Last week's numbers were greeted as evidence of the latter - a confirmation Apple has peaked. It is true that quarterly profits were flat at $US13.1 billion and the annual outcome could be the first decline for a decade.

Higher manufacturing costs are a fact of life and Samsung, which has put a dent in Apple's profit margins, is a formidable competitor. The shares fell another 12 per cent to $US450. So after the ride on Wall Street's rollercoaster, Apple's shares stand where they did a year ago. For a company in transition, that is hardly humiliation. The ex-growth label may sting but it is the rate of decline that matters. Middle age comes to everybody and handing out the winnings (Apple has $US137 billion in cash) in the form of dividends or buy-backs would be no disgrace.

But can anybody really be confident Apple is ex-growth and the 48 million iPhones sold in the past quarter represent a last hurrah? It is far too early to judge. The big event is the next product - it always is. Is it television? That has been the buzz for the past year but nothing has appeared. Is that because the in-house tech geniuses have come up short? We don't know, but it is too soon to conclude that Apple's innovation pipeline is broken.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles