Apple continues to slide from all time high and doubts begin to linger for some

After moving to an all time high of $705 in mid-September, Apple shares have suffered in recent weeks, hitting $555 at the low yesterday on the big US sell off after Obama’s re-election, that’s a fall of 27%! In August, Apple became the world’s most valuable company and even after the sell off it is valued at $548 billion.

The drop has been precipitated by a number of factors. Though the company’s valuation remains reasonable compared with the rest of the S&P 500, some institutional investors and hedge funds have been dumping stock in the belief that the company’s best days may be behind it. 

There have been reports that Apple is struggling to meet demand for iPhone 5 sales with its manufacturing capacity currently constrained and the recent departures of Scott Forstall and John Browett have heightened concerns that the management team is struggling to maintain the ethos of innovation left by Steve Jobs. Anaylsts were surprised by the botched maps App, the replacement for Google maps which proved a PR disaster and the aggressive pricing of the Ipad Mini versus other mini tablets such as Amazon Kindle. 

As Dan Crow wrote in the Guardian last week, “It’s baffling. Apple has a winning formula – perhaps the most successful business formula ever – yet it seems intent on changing it. The company has shifted away from Jobs’s laser-like focus on building the best and most complete user experience, and started putting its interests way ahead of those of its users. It hasn’t introduced a truly new product since the launch of the iPad nearly three years ago; instead it’s making incremental and overhyped improvements to its current lines. In reality, these signs and portents are relatively small. Apple is still producing excellent products and for every Maps app, there’s a great new iPad Mini or iPod Touch to brighten up the outlook. But, doesn’t it all feel a little… flat?…..

The story of Apple Inc. is far from over. The company is full of brilliant people, who believe in Steve’s vision of Apple. It has almost unimaginable piles of cash and generates insanely great profits.  It produces outstanding computers, tablets and phones that people queue up to buy. Apple is not about to go the way of Nokia or RIM. It has also shown that it can turn around in the most dramatic of fashions. In 1996, Apple was two, maybe three years from being sold for a pittance and becoming yet another footnote in the history of personal computing. By 2002 it was well on its way to becoming the most dominant company in the world. What was done once, can be done again.

But Apple has serious structural faults. The loss of Steve was devastating – the entire company was built around him and the mistakes we have seen since he left are entirely consistent with a very hierarchical organisation trying to find its way without its leader. I think in hindsight, we will see that Apple’s peak of creativity, innovation and leadership was early 2012. After that, though the company will continue to see great success, will create amazing new products and will continue to make bucket loads of money, the pace will slacken, more mistakes will happen and it will not return to the levels of execution and brilliance we saw in the first decade of this millennium. I may be wrong. I hope I’m wrong. But something tells me I’m not.” http://www.guardian.co.uk/technology/2012/nov/07/peak-apple

But with $121 billion of cash and short term investments and a lowly 2013 p/e of 9-10, the recent sell off may be a great contrarian buying opportunity. With the US market outlook looking a little hazy with the “fiscal cliff” beckoning there may be a chance to bag some Apple at levels below $550, particularly if the Iphone manufacturing issues persist but purely on valuation grounds Apple’s looking remarkably attractive at the current $561. One to watch carefully for a scaled entry for those interested in the tech space.

Contrarian Investor UK