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Reuters tells us that Portfolio manager Will Danoff of the $92 billion Fidelity Contrafund -- the largest active shareholder in Apple (NASDAQ:AAPL) -- cut the fund's stake in the company by 10% during the first two months of 2013. Danoff actually begun trimming last year, but the latest monthly report reviled that he intensified lowering his stake. In fact Apple is now the number two holding of the Contrafund behind Google (NASDAQ:GOOG).

So you are probably saying to yourself, big deal, one big fund is not the end of the world, even if it is the biggest fund in the world.

Well get ready for this, just today Goldman Sachs (NYSE:GS) crossed Apple off its coveted Americas conviction buy list. Goldman originally added Apple to that list back in Dec. 12, 2010. The stock has gained 33.8%, versus a 25.9% gain for the S&P 500 since then as marketwatch tells us.

Even though Goldman Sachs still has a buy rating on Apple, some of its worries are:

  • Introduction of a low-cost iPhone in the third quarter: Lots of unknowns so difficult to give Apple "the benefit of the doubt" on "any success or future impact."

  • A larger-screen version of the iPhone: still little evidence Apple is planning such a product in the near term and a delay until 2014 may result in pressure in the high-end segment of the smartphone market in the second half of this year.

  • Refresh of traditional iPad product: the problem here is that iPad mini has been more successful and the smaller product will compress Goldman's medium-term margin expectations.

  • Capital allocation plan: Despite Goldman's own optimism about a big rise in dividend and/or share repurchase authorization, the stock's outperformance over the next 12 months will still hinge on timing and success of its next products.

The question is, if Apple is so cheap and everyone still has a buy rating on the stock, why is everyone selling it at the same time? One answer might be relative performance.

There are many mutual funds and very big institutional investors that use relative performance analysis to pick stocks to buy, but also to make up their mind whether to hold their positions or not. If a stock or an index underperforms compared to some other stock or index, then you have an indication of weakness. Weakness means underperformance and that means investors are leaving money on the table.

So as a stock or an index underperforms, on the one have those who have it sell it, and on the other it does not flash on traders desks as a possible buy opportunity. And the longer a stock or an index underperforms, the more it means something is wrong with that stock, even if we can't really tell what that might be and even if every firm has a buy rating on the stock, as is the case with Apple.

So let's compare Apple to several direct competitors and indices, and you will understand why institutional investors continue to sell the stock, even if they all have a buy rating on it.

First of all let's start with Apple's pure-play competition in the smartphone space. I am using September 7th as the start date to chart relative performance, because that's the date I told you to take the money and run in Apple, but also told you several days later to buy BlackBerry (NASDAQ:BBRY).


(Click to enlarge)

As you can see from the chart above, BlackBerry has so far outperformed Apple to the tune of 140%. Even Nokia (NYSE:NOK) has done better than Apple by over 50%.

Let's also look at some other stocks that are not so pure-play competitors in the space.


(Click to enlarge)

As you can also see from the above chart, since September 7, Google has outperformed Apple on a relative basis by about 50% and Microsoft (NASDAQ:MSFT) by bout 30%.


(Click to enlarge)

And taking a look at major indices, if you bought Apple on the 7th of September instead of an S&P 500 EFT (NYSEARCA:SPY) or the Nasdaq 100 (NASDAQ:QQEW) ETF, then you would have relatively underperformed by over 40%.

These charts are not good news. It's one thing if a stock goes up and down and it's another if it underperforms the entire universe. Chronic underperformance means there is something wrong, even though we don't know what that might be. The only think I can say is that these charts are not good news for Apple bulls.

The million dollar question

So the million dollar question is, will Apple continue to underperform stocks like Blackberry, Nokia, Google and Microsoft in the future? The answer is no one knows. However, by tracking the relative performance of Apple to other stocks, at least you can get a better picture of when Apple might start to perform better and make the decision to buy it or not.

Two things I can say for sure from experience:

  • Many stocks can underperform longer than you can remain solvent.
  • Hope is the worst investment advisor in the world.

As for when will Apple stop underperforming and perform relatively better than the stocks listed above, the answer is we will see it when see it.

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.

Source: Charting Apple's Relative Underperformance