Gravity has taken hold of Apple , and a lot of investors have been smacked on the head.
Apple
Inc, the largest U.S. stock by market value, was headed toward its
eighth straight week of declines on Friday, as the rush to secure
profits before a potential hike in capital gains taxes next year has
investors dumping the market favorite.
Since hitting a record high
of $705.07 a share in September, Apple has lost about a quarter of its
value. The stock's descent has vastly outpaced those of the S&P 500,
which is down just under 7 percent in the same time frame.
"No
individual investment can defy gravity," said Erik Davidson, deputy
chief investment officer for Wells Fargo Private Bank, in San Francisco.
The
declines have shaved about $170 billion off the company's market
capitalization -- or just a bit more than the entire value of Coca-Cola .
Apple is still currently worth about $493 billion, about $100 billion
more than the second-most valuable U.S. company, Exxon Mobil .
Apple on Friday afternoon was little changed, up 0.2 percent at $526.59.
Taxes
on capital gains and dividends are likely to rise next year as part of
an expected deficit-cutting deal to avoid the so-called fiscal cliff of
scheduled tax hikes and spending cuts.
With a stock like Apple,
where investors may have large embedded capital gains as a result of its
stellar run, selling now locks in gains and offsets the possibility of
higher taxes next year. The uncertainty over the outcome of talks in
Washington over the fiscal cliff has sapped the natural inclination to
buy declining shares.
"Some of the selling is being driven by
these tax decisions, but the flip side is there is not a lot of buyers
because the buyers are procrastinating to see how the negotiations come
out," said Bucky Hellwig, senior vice president at BB&T Wealth
Management in Birmingham, Alabama. "You probably have an inordinate
effect to the downside because of these tax strategies."
The
current 15 percent tax rate on dividends and capital gains is scheduled
at expire at year end, and the two items are to revert back to being
taxed as ordinary income, which means the highest earners would face
rates of 35 percent.
The recent plunge is a reversal of fortune
for high-flying Apple, those though the shares remain up about 30
percent for the year so far. Apple shares have rise every year since
2003 with the exception of 2008, when the market was struck by the
global financial crisis.
"If you've got all these gains - which a
lot of Apple investors have because it's done very, very well - then
you're going to see selling in the likes of Apple and other companies
that have had good runs," Davidson said.
Apple's stock has been
below both its 14-day and 50-day moving average for over a month,
suggesting both the short- and mid-term momentum is negative.
Despite
the declines, Thomson Reuters StarMine estimates the stock's intrinsic
value is about $833.90 a share. That figure is derived from analyst
estimates for growth over the next five years and StarMine's expected
growth rates for several years after that.
Given that the stock is
likely worth more than where it is trading, tax concerns are probably
playing into the recent weakness, said Phil Orlando, chief equity market
strategist at Federated Investors, in New York.
"I think the stock is worth $750," said Orlando.
"If
you are sitting here looking at Apple trading at $500, you say, 'Well
the stock ought to be 50 percent higher over the course of the next year
or two,' so the stock looks pretty attractive."
© Thomson Reuters 2012