Are Investors Losing Confidence In Apple Stock?

| About: Apple Inc. (AAPL)

Technology bellwether Apple's (NASDAQ:AAPL) market value dropped below the psychological $500 billion mark on Friday for the first time in the more than three months. This raises a question of whether investors are losing confidence in Apple stock. There are various indicators, which are not providing any encouraging signs for the stock.

For instance, the stock is not trading anywhere nearer the 200-day or the 50-day moving averages of $610.30 and $607.50, respectively. The average volume during the last ten days increased nearly 46% to 28.4 million shares from the 3-month average volume of 19.5 million shares. The stock had lost more than 6% for the week ended November 16, when it traded around $510 on Friday, before narrowing the loss to 3.5% at the close. Similarly, for the month of November, the most valued company's shares dropped 11.4%.

After the company's stock had hit an all time high of $705.07 on September 21, the stock is struggling to hold on to the growth it could sustain until then. Shares of Apple closed Friday trading at $527.68 indicating a drop of over 25% compared to its peak price. However, the stock has gained more than 30% for the year 2012.

On the other hand, the S&P 500 witnessed a downside of 1.5% this week and lost 3.7% in November. Similarly, compared to the peak of 1,474.51, the index shed 7.8% at the close of Friday trading. For the year-to-date, the S&P 500 index gained 8.1%.

The stock is getting hammered despite numerous analysts maintaining a buy rating on Apple shares, though most of them have reduced their price target after the company's fourth quarter results, and the outlook for Q1.

Apple earned $8.2 billion profit or $8.67 EPS on revenues of $36.0 billion for the fourth quarter. The company guided for first quarter EPS of $11.75 and revenues of $52 billion. This fell short of analysts' EPS estimation of $15.42 and revenues of $55.11 billion at the time of announcement. Currently, analysts model EPS of $13.38 and revenue of $54.52 billion. Significantly, the iPhone maker's EPS outlook is lower than the previous year's EPS of $13.87. The company also guided lower margin compared to the last year to reflect iPad mini pricing.

There are at least three brokerages that have reduced their price target on Apple shares immediately after its Q4 results and Q1 outlook announcement. S&P Capital IQ has cut its price target to $700 from $800. Evercore Partners has reduced its price target to $775 from $800, whereas Nomura slashed its price target on Apple shares to $660 from $710 citing reduced production efficiencies in view of the complexity involve in manufacturing the products that are redesigned.

The above chart indicates the continuous fall of Apple shares of late, and if the pattern continues, it might go below the psychological $500 mark. The stock's market value was predicted to reach $1 trillion mark next year when it reached its peak in September, but it is now struggling to hold on.

Meanwhile, S&P Capital IQ analyst Scott Kessler said:

"We now believe it is a compelling value, especially as the holiday shopping season is about to begin. We think AAPL will benefit from a number of recent product refreshes, including its key iPhone and iPad offerings. We also think the new iPad Mini will contribute to share gains. We acknowledge some slip-ups and management changes of late, but see the fundamental story as intact."

He has recently upgraded Apple shares to Strong Buy from Buy rating.

Fundamentally, shares of Apple seem solid, given its track record and the product offerings. However, the current sell-off seems to be to take advantage of tax benefits in the current year, since the threat of higher taxes for the next year looms large. The fund managers are also looking to lock in profits ahead of the year-end closure. The stock will likely come back to limelight once the sales number starts trickling in from the upcoming holiday season.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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