Morgan Stanley: Why Apple shares fell 7% in a week

Have investors turned sour on Apple?

From a note to clients by Morgan Stanley analyst Katy Huberty that landed in my inbox Thursday evening:

Apple shares are down 7% in the last week, underperforming the S&P 500 by 680bps and the NASDAQ by 440bps. Investors are asking us whether the recent pullback represents a change in the fundamental outlook or investor sentiment.

We believe that the recent pullback in Apple shares is largely a result of overall tech weakness, primarily driven by systematic strategies that appear to have dominated most of the sector unwind, and not a change in investor sentiment towards Apple.

Importantly, over the last 10 years, Apple shares have risen an average of 18% in the 3 months prior to iPhone announcements, outperforming the S&P 500 by over 1500bps and suggesting the recent pullback presents an attractive entry point… We continue to believe that the upcoming iPhone supercycle will drive accelerated upgrades and share gains from other vendors, particularly in China.

Maintain Overweight and $177 price target. 

My take: I blame Huberty’s “sector unwind” on Goldman Sachs, which put the spotlight last week on the FAAMG (Facebook, Amazon,Apple, Microsoft, Google), five tech stocks that had gained a combined market value of $660 billion since January and accounted for 40% of the S&P 500 returns.

Here’s Goldman Sachs’ spreadsheet:

goldman sachs spreadhseet

Click to enlarge. Not seeing? Try the website.

Below: The sector unwind illustrated by two fever charts

Year to date before the Goldman Sachs FAAMG report, with Apple, Amazon and Alphabet (Google) in the lead.

year to date

Five trading days after the FAAMG report, with Apple leading the fall.

8 Comments

  1. David Drinkwater said:

    I think the YoYoYoY shows true Apple sentiment (and growth).

    The short-term action is for those who focus on short term trends, which, while “exciting”, is ill-advised.

    I would love for a company (any company) to be able to declare not just long-term capitol gains, but long-term dividends (e.g. Ex-date for dividends to be paid on the first business day of July, 2018, is the first business day of July, 2017, with a permanent proof of retention of shares required). That will probably never happen, but it would be nice.

    I hope (and suspect) that Huberty is right and that this drop off is not a reflection of anything that is really about AAPL in particular Just sound and fury.

    4
    June 16, 2017
  2. John Kirk said:

    Apple is built to be misunderstood.

    — They like secrecy. Wall Street hates that.

    — They think long-term. There’s an old saying that If you heat your company by burning the furniture, Wall Street will adore you and write glowing articles about you but you’ll be cold soon.

    — They follow a business model that no one copies. So most people assume it’s wrong-headed. Even though it’s made Apple the largest company in the free world..

    Sigh. Maybe I’m wrong. Maybe Wall Street’s attitude toward will change one day. But I see no evidence to support that view.

    7
    June 16, 2017
  3. Fred Stein said:

    Katy reiterated “buy”, target $177, and said, “attractive entry point”.
    Ignore the rest.

    4
    June 16, 2017
    • Robert Paul Leitao said:

      Fred:

      I tend to put more value on Katy Huberty’s narrative than Morgan Stanley’s price target. In this particular situation, both are compelling. In my view, the current $177 price target more fully reflects growth in Services revenue and Apple’s ability to maintain pricing control and strong gross margin on products sold than the work published by most other firms on the Street.

      0
      June 18, 2017
  4. John Blackburn said:

    Apple remains fundamentally misunderstood and, despite greater recent transparency, strategically opaque. When developments are interpreted without considered context, they move the stock with seeming disregard for larger strengths and weaknesses, sometimes in tepid reactions to deep news, sometimes in bustling response to superficial short-term detail.

    Who knows why the stock moved down, or why it moved up before last week? What seems important is that the company’s goals haven’t changed, their execution hasn’t faltered, and strong prospects look promising ahead.

    0
    June 17, 2017

Leave a Reply