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By ELAINE KURTENBACH,AP Business Writer AP - Wednesday, March 18SHANGHAI - Asia's stock market rally seemed to be running out of steam Wednesday, despite an
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A man looks at his Apple iPad in front an Apple logo outside an Apple store in downtown Shanghai March 16, 2012.
Credit: Reuters/Aly Song
By Poornima Gupta
SAN FRANCISCO |
Tue Apr 17, 2012 9:59pm EDT
SAN FRANCISCO (Reuters) - Apple Inc's results will be dissected more closely than ever next week, after a share swoon raised concerns on Wall Street that the stock's gravity-defying rally may be losing steam.
Five straight days of stock losses for the world's most valuable company sparked fears it had ventured into dreaded bubble territory and was overdue for a strong pullback. Shares reversed course on Tuesday, gaining 5 percent.
Between major legal challenges across several continents, increasing competition from Google Inc's Android -- now the world's most-used mobile software -- and confusion over what its next groundbreaking product will look like, more cautious investors are re-evaluating their positions and cashing in some holdings ahead of Apple's second-quarter earnings next Tuesday.
There's reason for caution: Apple's shares surged nearly 60 percent to a high of $644 this year. The slightest sign of trouble in the earnings report may prompt further profit-taking.
"Any disappointment in Apple could lead to a significant selloff in the short term," said Channing Smith, co-manager at Capital Advisors Growth Fund. "Are we long term believers in Apple? Absolutely, but as we move forward...you get up here to over $600 and you say, ‘Hmm, this is getting pretty frothy, expectations may be getting out of line.'"
Apple shares fell 7 percent when the company missed Wall Street expectations for the first time in years last October.
Should investors choose to park their cash elsewhere, many believe they will eventually return.
Most investors remain bullish on the longer-term -- 45 out of 53 Wall Street investment banking analysts still have "Buy" or "Strong Buy" ratings on the stock, citing robust iPhone and iPad sales and new products from a TV to a 4G iPhone coming down the pike.
They argue that Apple will again reveal a bumper quarter, attributing the nearly 9 percent slump in the stock since last Tuesday to a combination of pre-earnings caution and profit-taking, and successive strings of sell orders triggered as the lofty shares retreated.
In the days leading up to the selloff, at least two analysts predicted the stock will vault over $1000. Wall Street analysts on average expect it to touch $675 in the next 12 months.
IPHONE SALES SEEN STRONG
Apple, riding on strong iPhone and iPad sales, has smashed consensus estimates in recent quarters. But any dissatisfaction with the numbers could weigh heavily on its shares, which have quadrupled over the past two and a half years.
Major challenges for the California firm this year include the lawsuit against it by the U.S. Justice Department for alleged collusion on ebook prices and a potential hit on gross margins if key contract manufacturer Foxconn is able to pass on increased labor costs.
The world's most valuable company is expected to present a positive short-term picture when it reports earnings. Apple is estimated to have sold between 30 million and 35 million iPhones and around 13 million iPads on average last quarter, according to Wall Street analysts.
Monstrous sales of the iPhone -- 37.04 million -- accounted for more than half of Apple's first quarter revenue and assuaged investors' worries about the company's size slowing it down.
"It's going to be a blowout quarter, just like the last one, but there's been a big move in the stock and to trim back on your position a little bit makes imminent sense," said David Rolfe, chief investment officer at St. Louis-based Wedgewood Partners Inc, who manages $1.6 billion.
MORE PRODUCTS IN SECOND HALF?
Over the past week Apple's stock found itself in relatively unknown territory, declining 9 percent to $580 before bouncing back over 5 percent to nearly $610 on Tuesday. It had touched an all-time high of $644 on April 10.
"There was some nervousness probably that perhaps everyone that wanted an Apple product already bought one," said Jack Ablin, chief investment officer for Harris Private Bank in Chicago.
"The downdraft in the stock and updraft is significantly driven" by machine trading, which had an amplifying impact that was "much more than profit taking," Rolfe said.
Despite the stock's steep run-up and with earlier catalysts such as dividend and a new iPad already priced in, many investors are looking to a new iPhone later this year to fuel more growth.
Rumors that Apple may produce an actual television to go along with all the media content it sells are also gaining steam, along with a potential iPad with a smaller screen size to rival Amazon.com's Kindle Fire, which has cornered the lower end of the tablet market.
Apple is famously conservative with its forecasts, but may be more cautious this time around as anticipation of a new iPhone caused a slowdown in sales during the quarter prior to the release of the iPhone 4S, investors said.
The California company typically introduces new iPhones during the summer but broke the trend last year when it launched the iPhone 4S in October.
Apple is expected to report earnings of $9.94 a share on revenue of $36.48 billion, according to Thomson Reuters I/B/E/S.
It could beat these numbers "due to a possible build in iPhone channel inventory and stronger gross margins due to falling component costs," Bernstein Research analyst Toni Sacconaghi said in a note.
(Additional reporting by Noel Randewich; Editing by Jonathan Hopfner)
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