Don't Panic -- Douglas Adams
Judging from all the action in the world's most valuable company by market capitalization in the last few days, quite a few investors have not embraced the main maxim from the cult classic, The Hitchhiker's Guide to the Galaxy. Apple (AAPL) has its worst one-day selloff in four years Wednesday. The stock was down another 20 points in early trading Thursday before sanity crept back into the market and AAPL finished some 30 points above its early day lows.
Myriad reasons were given to explain the more than 35-point decline in the stock.
iPad Market Share: A research report came out stating the iPad's share of the tablet market would slip to half its current share by 2016. Okay, how is that different from what happened with the iPhone after it was introduced to define the smartphone market in 2007? Apple is not the market-share leader in this category any more. However, it still commands high prices, produces more phones than ever and maintains huge margins relative to its competitors.
Fourth-quarter iPhone sales: Some analysts mentioned AT&T's (T) smartphone numbers as a reason to be cautious about iPhone sales for the fourth quarter. Given what I have seen in other reports, I would be surprised if Apple does not come in at least in line with fourth-quarter estimates. In addition, the iPhone will be rolling out to an additional 50 countries soon, including China, and the company appears to have put its previous supply problems behind it. This bodes well for quarterly sales going forward.
New Nokia phones in China: Nokia (NOK) announced that it would roll out its new Lumia phones with China Mobile (CHL) in the Middle Kingdom. This rollout will probably give it a month or two of launch advantage over the iPhone 5, but does anyone think Nokia is going to cut into Apple's demand in China given it is charging over $700 to the carrier? Me neither, even though own I long Nokia long-term call options.
No Special Dividend – Some pundits opined that there was some disappointment that Apple has not announced a special dividend given its cash hoard and how many other companies have decided to provide their shareholders an extra dividend before taxes go up in 2013. Hey, I would love to receive extra cash via my Apple stake, but are investors investing in Apple because of its dividend?
Margin Requirements – One small broker raised its margin requirement on Apple from 30% to 60%. No major brokers followed suit, so don't look for these new margin rules to show up in your Ameritrade or E*TRADE (ETFC) account. Besides, most of the demand for the stock comes from institutions so this is one of the biggest non-reasons cited Wednesday for Apple's fall.
Death Cross – Some analysts even speculate that the possibility that Apple stock could trigger the "Death Cross" could have something to do with the stock's big fall. The "Death Cross" is when a stock's 50-day moving average drops below the stock's 200-moving day average. Although this might have relevance to some technicians, longer term this is about as relevant as Dec. 21 approaching this year for non-Mayans.
Capital Gains: Another explanation given for Apple's fall is investors decided to sell to book capital gains prior to capital gains tax rates rising in 2013. Given how much AAPL has risen over the last few years and the large capital gains investors who have had the stock for one, two or three years (see chart) have on the stock, this is only explanation that I give credence to at this point. Luckily, this is just a temporary headwind that will die a natural death at the end of the year.
The Bottom Line: Apple is a solid long-term buy and pullbacks like this should be viewed by investors as early Christmas gifts. The time to worry about Apple will be when its Apple Stores are not packed with some of the highest spending per square foot in retail or when you go to Starbucks (SBUX) and every other person is not playing on an Apple product (iPhone, iMac or iPad), not for reasons given for Wednesday's selloff. So if you gave in to the panic selling on Apple, learn from it. If you ignored all the daily movements recently and held on to your Apple shares, you will be rewarded in 2013. If you bought more shares or call options like I did when the stock gapped down Thursday, I'll raise an early glass of holiday cheer to you as you sit on nice gains by taking advantage of others panicking.