Five Reasons to Begin Selling Apple
Written by: Ryan Bouchey
Many clients of ours hold Apple, and with its success over the years the position has grown to be a rather large allocation in some portfolios. The question now becomes -how do we treat the upcoming Apple announcement next week and what are the long term prospects for Apple’s share price? This has been a major discussion topic during our weekly investment committee meetings and we feel there are many reasons why now is the right time to begin selling. While there is still potential for the stock to continue to appreciate, we know it would be prudent to at least begin selling some shares in Apple while it’s sitting at its current price for the following reasons:
1. Apple’s share price has generally risen on anticipation of a new product only to tumble after said announcement. The markets are anticipating Apple to unveil a new version of the iPhone with a larger screen, as well as the potential for the iWatch and some version of an Apple wallet. We feel Apple’s current price is a reflection of this anticipation and neither the iWatch or wallet will have the long term ability to dramatically increase its market share.
2. Where Apple used to create new markets (touch screen phones & tablets) through their innovative technology, an upgrade in screen size for an iPhone does not invoke the same excitement as in years past. Apple has continued to lose market share in both the smartphone and tablet sectors through the years. Factor in the slowdown in the overall tablet market and it leaves us worried about the future growth prospects for Apple.
3. What also concerns us is the amount of institutional money going into Apple over the course of the past two years, particularly in the last five months. Apples shares took a beating from September of 2012 through July of 2013, dropping more than 40% during this period. Fortunately it was still a strong company with solid fundamentals and institutional buyers saw the value and started purchasing in large quantities. This buying has led to the current price of around $100/share. As was the case the last time Apple hit its peak price in 2012, with so much institutional money invested in Apple, it has the potential to drop at an alarming rate yet again. We’d prefer to take our gains now and invest the proceeds into our current portfolio allocations rather than watch the stock price slide yet again and be stuck waiting for it to rebound.
4. We always preach that one of the fundamental tenets of investing is to buy low and sell high. We were fortunate to buy Apple at great prices through the years and now we feel is the right time to not get greedy and take some of our gains. You can hedge the upside potential of Apple by replacing it with a NASDAQ tracking Index Fund like QQQ. This fund will give you an allocation to Apple indirectly since Apple has a weighting of approximately 15% in this fund. If Apple were to continue to appreciate you will benefit from holding QQQ in your portfolio which hedges the risk of selling too early.
5. Finally, with a total company value of over $600 billion, Apple is currently the largest company in the world. The next largest company is Exxon Mobil with a market cap of just over $400 billion. As a company continues to grow as large as Apple has the potential for upside growth begins to diminish.