I have to admit, the announcements at the Apple (NASDAQ:AAPL) World Wide Developer conference the other day were impressive. I am not sure what the market expected to hear or wanted to see, but I was impressed.
Without going into the announcement particulars, more or less Apple is upgrading and expanding its entire product mix. I for one think there are very few companies in the world that will be able to compete with Apple, in quality and customer satisfaction. However, what investors are willing to pay for a stock has nothing to do with quality or customer satisfaction, but earnings. Long are the days when Steve Jobs didn't really care what Wall Street thought of Apple. Today Apple needs Wall Street's stamp of approval, if shareholders are ever going to see shares climb to $700 again.
The question is, If Apple is so great, why is the market still not buying the stock, even after a very big correction? Here are some thoughts (again).
The recent U.S. International Trade Commission ruling, stating Apple violated a Samsung (OTC:SSNLF) patent covering technology used to send information over wireless networks, sent a shiver down my spine. Unless vetoed by President Barack Obama or blocked by an appeals court, the ruling would bar the import of several iPhones and iPads made to work on AT&T's (NYSE:T) network. Among them are the iPhone 4, the iPhone 3GS, the iPad 3G, the iPad 2 3G and the iPad 3.
Now I know that many have not thought much on this ruling, especially since the ruling covers Apple hardware that is depleted. However the items in question are not the issue here. I am not a patent expert and I have no idea what court ruling will come out next and prevent Apple from the import of products into the U.S.. I mean, can you imagine what would have happened if the ruling had to do with the newer iPhone 5? So in my book, this ruling is a first class excuse to put a discount on the Apple's stock, because we do not know for sure that there won't be a similar ruling in the future.
Another red flag is the recent e-book scandal that Apple is also involved in. As a reminder, Apple is accused of price-fixing with regards to e-books. Eddy Cue, a senior vice president of Apple admitted in federal court that he had discussed a possible bid with late founder Steve Jobs to carve up the Internet books and music market with Amazon. Cue on the other hand said that was only in reference to certain books! I mean is that a admission of guilt or what? And if this is the case, might Apple in the future be found guilty of other price-fixing schemes? I mean they sell a lot of stuff, not just e-books and they sell a lot of expensive stuff. Is the fact that they have expensive stuff a case of mass price-fixing? I doubt it, but then again no one expected Apple to be fixing prices on e-books either.
I don't know if you noticed, but about two weeks ago Samsung's stock got a beating. In fact it has been going down ever since. The reason is that the company was hit with several brokerage downgrades, because of concerns of slowing sales of its flagship S4 smartphone. The concern is not just slowing sales, but also of lower margins. Samsung has also introduced two striped down (cheaper) versions of theS4 and another sign of worry for Samsung is the fact that Apple will introduce a trade-in program later on in the year. But what's bad for Samsung is also bad for Apple, because what applies to Samsung also applies to Apple, in the sense that they both make good money from the high-end smartphone space, and that space is saturated to the bone.
Because according to Peter Misek from Jefferies, everyone who can afford a $600-700 smartphone on the planet has one. The growth is actually only in the sub $400 price range. And guess what, while Apple has announced a lower priced iPhone, nothing is out yet.
Maybe one of the reasons Nokia (NYSE:NOK) might be a compelling buy at the moment is because they offer many different devices for every price range. Even BlackBerry (NASDAQ:BBRY) has a lower priced device - - the Q5 - - and will probably offer two more lower priced devices by the end of the year. But Apple still has not offered a solution on how it is going to get this slice of the market. And it is this slice of the market that offers most of the growth at the moment.
Or maybe Apple's stock behavior has nothing to do with the company itself. As I have noted over the past several articles, I think the this market might be in for a correction and maybe a big one at that (10%). As such, it will be very hard for Apple to make an upward move if this is confirmed. One of the reasons is that Apple is the most owned stock in the world, and if we get a good sized correction, the stock will be sold no matter what.
According to Bofa Merril Lynch,
Hedge funds-who had previously been the only group exhibiting faith in the market rally with seven consecutive weeks of net buying-had the largest net sales last week. Institutional clients were also net sellers, while private clients were the sole net buyers in their second week of inflows. By size segment, small caps and mid caps saw outflows while large caps saw inflows. Year-to-date, cumulative outflows from US stocks total $10.8bn-nearly matching the $10.9bn of outflows for the full-year 2012 (see Table 1 inside), primarily due to net sales by institutional clients.
Hmm so individuals were the only buyers? Why do I feel that the small guy will be holding the bag again?
Finally, if you are superstitious, I would recommend taking into consideration that a Hindenburg Omen event triggered several days ago (please consider: Should You Ignore The Hindenburg Omen?). And judging from the behavior of the market lately, I think taking some money off the table -- Apple or something else -- is not a bad idea at the moment.
While I think Apple is a great company, there are issues that the market might be taking into consideration into at the moment that might not be so obvious to all of us. The issues I raise in this article are only the few, and there are probably many others that I could probably not even imagine.
In any case, while I think Apple's stock is a buy at these levels, these issues seem to be having have a drag on the stock at the moment. To what extent these issues will prove to weigh on Apple's stock longer term, is not easy to compute at the moment.
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.