Friday, January 11, 2013

Apple- Great Company/Bad Stock

Yes, I am an Apple bear. It is not because I see the company imploding or that I think earnings are set to decline precipitously, or they have an inferior product. In fact, I think Apple is a great company. That said, my bearish bias towards the stock is two fold.

First, my bearishness on the stock has everything to do with the law of large numbers. It is just that the company has grown so large that to push the growth needle more and more will take an ever increasing herculean effort. (and trends like this do not help the growth cause either) This is in conjunction with investors driving Apple to be the most highly valued company on the market, as measured by market capitalization. This is not necessarily negative, but trees do not grow to the sky and stocks will not beat the market /increase in value forever. In fact, a study I completed a few months ago shows that when a company reaches the vaulted level of an ultra-megacap, the stock subsequently underperforms the broader market.

Second, just look at the stock...


The stock is off $180 per share from high or about 26%. This has been on increased downside volume followed by a deceleration in turnover as the stock 'stabilizes'. This is while the MACD, money flow, accumulation/distribution are weak. To me, this suggests distribution in the stock and a lack of institutional support. Besides, what fund does not already own Apple' shares? Who is the marginally buyer at this point?


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