Yesterday’s huge spread between the NASDAQ and S&P was big news on the Street. The tech heavy index was weighed down by a rare under performance from Apple, Inc. (AAPL), falling more than 4% on the day and pulling the NASDAQ into the red.
All in, that was Apple’s worst performance in 5 months. It was also the stocks fifth consecutive losing session. Those are both rarity’s for Apple, a deviation from the mean.
So What’s the Story?
Big picture, there is a lot of hot money in Apple. I am talking about multi-billion dollar hedge funds with $300 million positions. Apple is the #1 owned stock by the group. They are all sitting on huge gains over the last three months. With shares of Apple hanging out between $625-$650 for more than a week, these guys had all the time, space and liquidity they needed to get out within 5% of the top. But once some of that momentum selling hit the Street, the masses followed and took Apple all the way down to $580.
That ‘s rare move for Apple. This is a stock that has consistently traded strong in different markets and recently ripped higher into a new all-time high off another great quarter. Apple isn’t a stock that gives the Street many chances to “buy the dip.” So are the fundamentals eroding?
Earnings are Insane
According to the analysts, no. In fact, just the opposite. Apple’s strong Q1 results pushed the 2013 full-year estimate from $39 to $50. That is a big-time revision. That has Apple trading at 11.8X 2013 full-year, and depending how you factor cash, 10X. That’s a discount to both its peers and the S&P500, with an incredibly successful company to boot.
The Take Away
Apple is a stock that stirs a lot of emotion on the Street. Everyone has a strong opinion about Apple. And if you ask me, that’s exactly the kind of stock you want to own, because it means the company is emotionally affecting people. And that speaks volumes about its strength and power. That’s an emotional take, but on the fundamental side, the recent dip didn’t come on some monumental shift in the company’s business. It’s just the normal ebb and flow of the market, with capital flowing in and out of different assets. But with earnings and estimates on the rise, it created an opportunity to buy at a discounted valuation.
3-Month Chart/Rare Pullback
*i own shares of Apple*
Author
Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment Advisor (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of Trade before spending five years managing equity portfolios for a private investment research company.
Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).
