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Managers back Apple share dip as a buying opportunity

Managers back Apple share dip as a buying opportunity

Apple fans are back out in force believing that with an end to its production and stock issues in sight, and the stock still some 15% off its all-time high, the tech giant is a buying opportunity.

It has been a roller coaster year for Apple both in corporate and stock market terms after the company proved itself able to power on after the death of Steve Jobs.

On the face of it all is well, with its share price up 38.97% year-to-date and the company having paid its first dividend since 1995 back in July.

But this has not been straight line growth, masking the fact the company has issued a profit warning and its share price has suffered two sharp drawdowns this year.

Media frenzy

The media frenzy back in April on the possibility of Apple’s share price hitting $1,000 seems somewhat fanciful.

Bullish notes from analysts Brian White of Topeka Capital Markets and Piper Jaffray’s Gene Muster saw both back the firm’s share price to reach four digits, with White predicting by the year-end and Muster by 2014.

This now seems a bit of a distant memory. After suffering a 16% correction during the second quarter, blamed variously on rumours of a cheaper version of the iPad being launched or just a ‘pause for breath’, Apple powered on to reach an all-time high of $702.10 on 19 September.

Roll on six weeks, and lower than expected fourth quarter iPad sales, an underwhelming iPad Mini launch and production problems at Taiwan-based supplier FoxConn led the stock to suffer its worst drawdown of the year. It fell 18.58% on a trailing price/earnings (P/E) basis and the stock hit its lowest point in a decade.

Apple has bounced back from its mid-month lows, up 8.73% from its 15 November bottom, but remains -15.42% down over three months, which Piper Jaffray’s seemingly ever-bullish Muster is calling a buying opportunity.

He points to a marked improvement in the company’s stock of iPhone 5s across different networks ahead of the key holiday season. Improving the availability of the iPhone was a crucial issue holding the firm’s share price back, he said, pointing out that iPhone sales accounted for 53% of Apple’s earnings in the fourth quarter last year.

‘AT&T and Verizon have shown dramatic improvements in availability, while Sprint has maintained consistent availability,’ he said.

‘Our checks indicated that Sprint phones were in stock at 92% of Apple Stores, AT&T was available at 82% of stores and Verizon at 72% of stores. Additionally, we note that wait times for online phone orders dropped to two weeks.’

iPad Mini’s prospects

Bolko Hohaus, manager of the Lombard Odier Technology fund, also believes concerns about the iPad mini are overdone and that it can go on to be a big hit, while not necessarily cannibalising its existing business lines.

‘The iPad Mini launch did little to halt the near-term pessimism around Apple shares. Nonetheless, in our view, the Mini could be part of an interesting trend in consumer tech, and be one of the hit products of 2013,’ he said.

‘At first sight, there appears little to get excited about. The Mini is largely the same package as an iPad2, in a smaller form factor with a smaller screen, which isn’t even one of the super high-definition “retina” displays you get on the newer, big iPad.

‘Similarly, the new 7” Kindle Fire from Amazon, and Google and Asustek’s Nexus 7, are just smaller versions of larger Android tablets. Compared to the other new kid on the tablet block, Microsoft’s Surface, with its distinctive and innovative keyboard cover, prima facie these tablets are distinctly “low rent”.

‘That, however, is the point. Price: Amazon and Google’s offerings start at $199, the Mini at $329. And when you look closely you can see you are getting quite a lot for your money.’

He said the Mini has excellent build quality, is thinner than even the latest iPhone, with an attractive aluminium case and a larger screen than its rivals, yet not so large it won’t fit in a pocket. It also has a large memory and could go on to be one of the best-selling versions of the iPad.

Explosive growth

Andy Zaky, a fund manager at Bullish Cross Asset Management, backs Apple to deliver three more years of ‘explosive growth’ and then another three to five years of ‘moderate growth.

A long-term backer who has traded in and out of the stock, he is backing it currently, noting: ‘If Apple merely just remained at this current price level, it would have its entire market cap in cash over the next four years,’ raising the prospect of strong dividend growth and potential special payouts.

It seems the nay-sayers about Apple are thin on the ground, but Seabreeze Capital, a US-based hedge fund, has turned negative, warning of growing competition in all of its core markets.

‘Apple’s stock is cheap on a P/E basis but arguably very expensive on price to sales at 4.4x and a total absolute market capitalisation basis at $625 billion,’ the group said.

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Bolko Hohaus
Bolko Hohaus
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