Apple Stock Hit by Panic Selling: ‘Someone Yelled Fire’

Posted on November 16th, 2012 by David Greenberg

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Reposted.  This original article was posted on CNBC’s website yesterday.

Forget the “fiscal cliff.” The real panic on Wall Street is over Apple’s stock. Nearly every mutual and hedge fund has piled into Apple [AAPL  525.62    -11.26  (-2.1%)   ]during its spectacular rise over the past few years. Now, these same funds are scrambling for the exits as the stock goes through an equally spectacular decline.

Apple plunged to a six-month low Thursday as funds rushed to take profits on the stock before it’s too late. Shares are now off 25 percent since late September—shortly after the iPhone 5 launch and a month before the iPad Mini introduction.

The stock, once up 74 percent on the year, is still up 30 percent for 2012. That’s why Wall Street is getting out while it can.

“Someone yelled fire in the theater where the hedge funds were safely booking their year-end profits—and as traders do, they will trample you trying to be first to get to the exit,” said David Greenberg of Greenberg Capital.

More than 800 hedge funds and mutual funds counted Apple among their top ten holdings at the end of the third quarter, according to data from Insiderscore.com. That means the once unstoppable electronics innovator has likely been responsible for the bulk of investors’ returns this year.

Exxon Mobil [XOM  86.14   0.07  (+0.08%)   ] is a distant second among top holdings, according to Insider Score, with 20 percent fewer funds counting the oil company among its top holdings. Microsoft is a distant third with nearly half the funds counting the software maker in its top ten as Apple.

Apple was the classic case of no more incremental buyers of the stock,” said Enis Taner of RiskReversal.com. “No matter how bullish a story, you need new buyers of the stock each and every day, or it will go down. Simply put: Apple has run out of them.”

Besides panic selling, the world’s most valuable company faces the daunting fundamental task of growing a colossal revenue base at a fast enough rate to keep growth-oriented managers satisfied. The company booked $156 billion in revenue at the end of its fiscal year in September on higher sales of Macs, iPods, iPhones and iPads.

“The new product aspect has faded recently as the newer versions of their products provide less of a reason to upgrade,” said Stephen Weiss of Short Hills Capital. “While Tim Cook is a capable executive apparently, his background is in procurement and engineering, not innovation.  So who is driving this?”

Some investors and analysts suggest that Apple is going through the rough transition from a growth story to a value story. With a 2 percent dividend yield and a forward price-earnings ratio nearing 10, the stock could have this new class of investors salivating at these levels.

“We believe that Apple is transitioning from a hyper-growth story to a more traditional, high quality branded company story,” said Toni Sacconaghi of Bernstein Research. The analyst, who has an $800 price target on the stock, believes Apple’s next big announcements will be an increase in the dividend and share repurchase.

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