Apple's not been having a particularly good week on the stock exchange. The AAPL share price fell back to a 52 week low of $420.05 on Monday – hitting a low as $419 during trading that day. This is the weakest it had been since January 2012 and a 40 percent drop from its peak of $705.07 in September 2012. The decline has also seen Apple's market capitalization drop below $400 billion temporarily losing its spot as the most valuable company (it's currently at $403.44B, it's closest competitor Exxon Mobile is currently on $401.58B so you can see how close the match is).
These are troubling times for any remaining Apple investor, and there are tales below of investors who having followed the advice of bullish analysts have lost millions in AAPL investments. However, reports also suggest that Apple has been a victim of "a negative feedback vicious circle" with Apple's falling price eroding investor confidence and painting a picture of a dire future, writes Seeking Alpha.
Here we round up some of the AAPL related news in a week that's revealed just how much some investors lost when Apple's share price nose dived; Greenlight's Einhorn withdrew his lawsuit against Apple; Barclays reduced their guidance on Apple's stock; the judge in the Apple v Samsung case reduced the amount Samsung has to pay Apple; and Warren Buffett suggested Apple should ignore the investor panic.
Bad advice from Andy Zaky
This week we learned that Andy Zaky had lost $10.6 million of investors' money during Apple's crash.
Described by Fortune as an "internet-trained investment advisor who led hundreds of followers over their own personal financial cliffs last fall when Apple's stock price collapsed," Zaky, who founded the Bullish Cross investment group, had predicted that Apple was going to $750 by January and to $1,000 within a year.
Forms filed with the SEC show that investors in Zaky's Apple hedge fund had put up at least $10.6 million and lost it all, writes Fortune.
It may be even worse than that. The Fortune article claims that 36 former Bullish Cross members have reported that they lost "anywhere from $15,000 to $50 million apiece". The average loss was $2.6 million.
One of Zaky's clients fell foul of the Call Options that expired on 19 January (as we reported). A Fortune report described how an investor had converted most of his Apple common stock into high-risk Apple call options. "When those options expired in the third week of January with Apple trading below $500, they were worth exactly zero. Smith had lost roughly $400,000 and all his Apple shares."
Unfortunately, according to the Fortune's sources: "Zaky lost nearly 50% of the fund's capital in one month (March) by buying bearish put spreads just before the stock rose 10%. The fund also managed to get crushed when the stock went down. In May, when the stock fell nearly 100 points, Zaky had bet heavily on bullish calls spreads."
Unfortunately his attempt to recoup losses lead him to bet on more call spreads, gambling that the stock would rally at $630 and hit $700 by January. Eventually, his fund's liabilities were greater than the fund's capital balance. Zaky had taken under management more than $10.6 million of other people's money and lost it all, writes Fortune in its report that profiles Zaky.
Doug Kass admits AAPL mistake
Another investor has revealed his own AAPL mistake in a CNBC interview. Doug Kass bought AAPL last Friday and then sold on Tuesday. He told CNBC: "Frankly, I’m thinking I probably made a mistake."
He added that the: "Problem facing fundamental investors and Apple, is that we still have a lot of earnings reductions from Wall Street coming ahead," writes Wall Street Pit.
Barclays cuts Apple targets
There are concerns about Apple, at least in the short term. Following a meeting with Apple executives Phil Schiller and CFO Peter Oppenheimer, Barclays’s Ben Reitzes has cut his Apple target to $530 from $575 after cutting his estimates for this year and next based on his view that ‘new products are more second half loaded’ and there’s increased pressure on the iPhone, writes Barrons.
However, Reitzes emphasized that the meeting was not the reason for the lowering of the target. Reitzes is concerned about the iPhone and he thinks that things won't improve until the launch of the iPhone 5S later this year. Specifically, Reitzes expects Apple to launch a budget iPhone for the emerging markets. He also notes that he believes that Apple needs to launch a 5in Phablet (large screen iPhone) and says that Apple should address this by the beginning of next year.
Reitzes said that his meeting left him with the impression that "the company is very optimistic about the general product pipeline and its market position."
He added that: "We believe that there is an undying dedication at Apple to innovate – and its leadership is working hard to prove bears wrong."
Reitzes predicts that a budget iPhone, a 5in iPhone and a retina display iPad mini could "drive a rebound in shares."
AAPL reality distortion field
There are many reports that continue to be positive about Apple's business. One report notes that there is a "reality distortion field" on Wall Street. Ben Bajarin of Creative Strategies writes in an article for Time: "There are many wise investors who have done the analysis and come to many of the same conclusions I have: Apple is highly differentiated in the market, Apple’s products are found valuable by the mass market (meaning Apple doesn’t need to compete on price), Apple is strategically positioned for success in both major global growth markets (tablets and smartphones), and Apple continually demonstrates growth and profit."
"These wise investors who have come to these conclusions and more are being punished for their sound analysis and wise long-term outlook. Too many investors live in the reality distortion field and view Apple more from an emotional standpoint than an analytical one," he adds.
He concludes: "Apple, the company, will be fine. It has more cash than anyone," adding: "Commercializing innovation is one of the most difficult things to do and right now only a few companies can do it. Apple is one of them."
What Apple can do to fix its share price?
There are other things Apple can do to return to the good old days of 2012. Technology Insights CEO Nehal Chokshi has suggested that the AAPL would improve if the company could offer "first-rate competition to the kind of services where competitors like Google and Microsoft excel". He suggests that Apple doesn't need a new iPhone or iPad, but they do need to make improvements to what they already offer.
He told TechNewsWorld: "They need a stronger maps offering, stronger email offering and stronger cloud-based services. Without those, they're going to have a very difficult time competing in the growth markets. Even when users say they want a bigger phone, we believe they subconsciously also want best of breed services."
Timothy Phillips writing for Seeking Alpha suggests: "The good news is that Apple doesn't have to unlock any background secrets to get its stock back to $700. It has the two most powerful tools it needs in this fight - piles and piles of cash with the world's best free cash flow."
Phillips recommendation is for Apple to "simultaneously announce they are increasing their share buy-back program by an additional $90 billion to $100 billion in total (shock) while doubling their dividend (awe) to $5.30 per share per quarter (4.93% yield at $430)"
"It took $147 billion of cash inflow to move the stock up nearly $272 last year, and the combination of these two actions/announcements will certainly have a similar impact," he predicts.
This is in contrast to Greenlight Capital's David Einhorn's suggestion that Apple should offer a $50 preferred stock that would yield 4%. He says Apple could afford the payouts as it has the cash in the bank to fund this.
Einhorn has now dropped the lawsuit. He told AllThingsD he had been successful in forcing Apple to "remove the bundled proposal from the shareholder meeting, therefore resolving the issue."
The Greenlight Capital $8.8 billion hedge fund appeared to gain little from his battle with Apple in terms of performance, notes Reuters.
Can Apple actually do anything with its cash?
The solutions put forward by Phillips and Einhorn may not be so simple. There is an argument that Apple can't return the cash to investors because it is held offshore and therefore will cost Apple a fortune in taxes to bring it back to the US. However, an analyst suggests that this may not be the case.
According to Toni Sacconaghi of Bernstein Research, Apple has already been accruing taxes for much of its offshore cash, which would theoretically allow it to bring back about $42 billion worth of those funds without incurring any hit to its reported earnings, writes MarketWatch.
Sacconaghi claims that while Apple has a "uniquely low offshore tax rate" compared to other tech firms, it keeps an overall tax rate that is "relatively high," in part because the company has been accruing taxes on part of the overseas funds even though it is not yet paying that tax. "Apple can access about half of its offshore cash and return it to shareholders without incurring an incremental hit to its income statement," Sacconaghi claimed.
"About $75 billion in total cash could be returned to shareholders with no impact to Apple’s reported tax rate or EPS," he said, according to the MarketWatch report.
How much does Apple really have in the bank?
Even if Apple can return money to shareholders, the company doesn't actually have $137 billion.
According to Jarrod W. Jacinth on Seeking Alpha, Apple doesn't actually have $137 billion in cash. "AAPL has $137 billion in assets, not cash," he explains.
Cash and Cash Equivalents - $16,154,000,000: "This is the actual amount of cash AAPL has," he claims.
Short-Term Marketable Securities - $23,666,000,000: "This is not cash… Essentially, these are investment tools that allow for a higher rate of return than a savings account and have a 3 to 5 year maturity horizon," Jacinth explains.
Long-Term Marketable securities - $97,292,000,000: "This is where AAPL has long-term Bonds, both corporate and government... This is just as it says: Long-Term. The time horizon on these instruments is 5 to 10 years, at least," he adds.
So rather than a total of $137,112,000,000, AAPL has $16.154 billion in cash.
Warren Buffett offers advice
Despite Apple's share price falling to its lowest point in a year, Warren Buffett has said the company should ignore its critics like David Einhorn and stick to running its business.
Speaking on CNBC Buffett said: "I would ignore him. I would run the business in such a manner as to create the most value over the next five or ten years. You can't run a business to try and run the stock up every day."
"The best thing you can do with a business is run it well, and the shares will respond," he said.
"They may have too much cash. Now one reason they have so much cash is two thirds of it has not yet been taxed," he added, according to Fortune.
Comparisons with Google
While Apple has been on the down swing, Google has been soaring. This has lead to comparisons being made between the two rivals. iDownloadblog has produced a chart to illustrate this.
Google shares are up about 30 percent since a mid-November 2012 low. With a market cap of $275.03B Google is now in third place among US companies in terms of market value after Apple and Exxon Mobil.
Google reached an all time high of $844 today as Jefferies set a $1,000 price target on the company. Sound familiar? Last year a number of analysts were making similar predictions about Apple.
Google's current success is leading some analysts to call the Internet giant "the next Apple". It may well be the case that the same hedge funds who loaded up on Apple and then sold of 796,000 shares in fourth quarter of 2012, wiping billions of dollars of the stock will do the same thing to Google.
Apple v Samsung: not good news
The other reason why the AAPL stock has taken a hit is that on Friday the judge in the Apple v Samsung case almost halved last summer's patent damage award to the company.
Judge Lucy Koh claimed that the jurors in the case had applied an "impermissible legal theory" when calculating the damages Apple should receive for Samsung's infringement of its patents.
Samsung still has to pay Apple nearly $600 billion in damages.
In slightly more positive news, Nokia is supporting Apple in its bid to block sales of some Samsung products.
Wheeling out Tim Cook
The only tactic Apple has actually used in an attempt to pull back its share price is to roll out CEO Tim Cook. Unfortunately, as Huffington Post points out, Cook gas been wheeled out six times in the past five months, and each time the stock has closed down after Cook appeared.