Is Apple on its way down?

Gravity has taken hold of Apple, and a lot of investors have been smacked on the head.

By - November 17, 2012 Share on LinkedIn
Apple logo space

Gravity has taken hold of Apple, and a lot of investors have been smacked on the head.

Apple Inc, the largest U.S. stock by market value, was headed toward its eighth straight week of declines on Friday, as the rush to secure profits before a potential hike in capital gains taxes next year has investors dumping the market favorite.

Since hitting a record high of $705.07 a share in September, Apple has lost about a quarter of its value. The stock’s descent has vastly outpaced those of the S&P 500, which is down just under 7 percent in the same time frame.

“No individual investment can defy gravity,” said Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank, in San Francisco.

The declines have shaved about $170 billion off the company’s market capitalization — or just a bit more than the entire value of Coca-Cola. Apple is still currently worth about $493 billion, about $100 billion more than the second-most valuable U.S. company, Exxon Mobil.

Apple on Friday afternoon was little changed, up 0.2 percent at $526.59.

Taxes on capital gains and dividends are likely to rise next year as part of an expected deficit-cutting deal to avoid the so-called fiscal cliff of scheduled tax hikes and spending cuts.

With a stock like Apple, where investors may have large embedded capital gains as a result of its stellar run, selling now locks in gains and offsets the possibility of higher taxes next year. The uncertainty over the outcome of talks in Washington over the fiscal cliff has sapped the natural inclination to buy declining shares.

“Some of the selling is being driven by these tax decisions, but the flip side is there is not a lot of buyers because the buyers are procrastinating to see how the negotiations come out,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. “You probably have an inordinate effect to the downside because of these tax strategies.”

The current 15 percent tax rate on dividends and capital gains is scheduled at expire at year end, and the two items are to revert back to being taxed as ordinary income, which means the highest earners would face rates of 35 percent.

The recent plunge is a reversal of fortune for high-flying Apple, those though the shares remain up about 30 percent for the year so far. Apple shares have rise every year since 2003 with the exception of 2008, when the market was struck by the global financial crisis.

“If you’ve got all these gains – which a lot of Apple investors have because it’s done very, very well – then you’re going to see selling in the likes of Apple and other companies that have had good runs,” Davidson said.

Apple’s stock has been below both its 14-day and 50-day moving average for over a month, suggesting both the short- and mid-term momentum is negative.

Despite the declines, Thomson Reuters StarMine estimates the stock’s intrinsic value is about $833.90 a share. That figure is derived from analyst estimates for growth over the next five years and StarMine’s expected growth rates for several years after that.

Given that the stock is likely worth more than where it is trading, tax concerns are probably playing into the recent weakness, said Phil Orlando, chief equity market strategist at Federated Investors, in New York.

“I think the stock is worth $750,” said Orlando.

“If you are sitting here looking at Apple trading at $500, you say, ‘Well the stock ought to be 50 percent higher over the course of the next year or two,’ so the stock looks pretty attractive.”

Related articles

Apple 13-inch MacBook Pro with Retina display

New iMac and Mac mini

iPad Mini 7.9-inch Apple tablet PC announced

iPad 4 with global LTE support

Share your thoughts

Shutterstock is the image partner of MyBroadband – more technology images

Join the conversation

Connect with Us

androidappletwitterfacebookgoogleplusfeednewsletter

Poll

Do you think Vodacom must pay Nkosana Makate in the Please Call Me matter?

View Results

Loading ... Loading ...

More News

How to find out what Google knows about you

Google logo office

Here’s how to find out what Google knows about you, what you search for, which videos you watch, and how it decides which adverts to send your way.

E-toll 60% discount extended

E-toll e-tag Sanral

Minister of Transport Dipuo Peters has given motorists a 10-working-days extension to take advantage of the 60% e-toll discount.

Netflix mobile data controls launched so you don’t blow your cap

Netflix global domination

New controls in Netflix’s smartphone apps help subscribers control how much mobile data they use while streaming video.

SA Post Office workers gatvol of fixing own bicycles, no toilet paper

Post Office logo

SA Post Office workers marched in Cape Town on Thursday to make it clear they were “gatvol” with their working conditions.

X

Newsletter Subscription


Name
Email *
Enter the following to confirm your subscription *
Captcha image


Free MyBroadband Newsletter
Subscribe
x