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(NECN: Peter Howe, Boston) It’s too soon to say Apple is getting crushed to cider – but a day after a slower sales forecast led the tech giant’s stock to fall 12 percent in a day, Apple kept falling Friday, down another 2.4 percent.
Since hitting a peak of $702.10 on September 19, after this week’s selloff, Apple shares have now dropped more than 37 percent in the last four months. Even if you don’t own Apple shares directly, it’s very likely you’ve felt this drop indirectly in your 401(K) or Individual Retirement Account or investment account, because at times in the past year Apple has accounted for fully 4 percent of the total value of the S&P 500, one of the most widely benchmarked market indices.
Boston money manager John W. Morris of Crestwood Advisors said some of this appears to be reality belatedly catching up with a stock that had been priced for near-perfection.
"Investor expectations have continued to be extremely high for the stock, expecting that they would continue to just blow the doors on sales of iPhones and iPads," he said. And indeed, Apple sales have jumped from $32.5 billion in 2008 to $156 billion last year, with profits jumping 8-fold to over $41 billion.
Investors seem to be finally waking up, though, to the reality that once a company is that big, it is drastically harder to keep growing sales 50 percent a year.
"The company just cannot continue to grow at the rate it was growing. It’s the law of large numbers," Morris said. "So while this remains a very attractive growth company, everybody has to reset their expectations."
There’s also ever-fiercer competition from Amazon with its low-priced Kindle tablets that maybe an iPad alternative for many, from Samsung with its Galaxy smartphones, and next month, from BlackBerry maker Research in Motion, rolling out a bet-the-company next-generation touch-screen BlackBerry.
In a shift with significant symbolic value, Apple’s stock slide meant as of Friday, it relinquished back to oil and gas giant Exxon Mobil Corp. the title it had finally wrested from XOM a year ago: The most valuable company in America, ranked by market capitalization. As of Friday’s close, Exxon Mobil was worth $418.2 billion, Apple $413.1 billion. It was hailed as a huge deal last year when Apple knocked off the global petroleum giant from its perch.
So after all this bloodletting, could Apple now be a buy? Morris notes that if you subtract $138 billion in cash on Apple’s balance sheet, the company is trading at barely seven times earnings per share, an unusually low multiple for the company.
But he and many experts caution: Just because a stock is now much cheaper than it was several months ago, that doesn’t mean it’s a buy, yet.
Morris said Crestwood holds Apple stock in its $800 million portfolios but is still trying to figure out the right price point to buy more.
"The valuation is attractive, but we also want to see some future product innovation, what's on the horizon for a new iPhone 5s, or potential Apple TV or potential some other device that would potentially bring investors back -- or create a catalyst for the stock" to erase its slide and head back towards $700 or even the $1,000 some analysts were predicting last year, he said..
With videographer Nik Saragosa.