Wednesday, December 05, 2012

Apple's stock drops 6.43 percent, its worst day in four years

Apple stock plummeted on Wednesday, down 6.43 percent or $37.05‎, to $538.79. It wasn't the result of an overall market drop; the DJIA was up 73.22 or 0.57 percent. It also wasn't the result of some huge negative Apple news.

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The drop has left analysts scratching their heads. The stock is off nearly $200 from its 52-week high of $705.07.

Piper Jaffray's Gene Munster has a target price of $900 for Apple’s stock, which at the rate things are going could be double the current price soon. It may also drop below a market cap of $500 billion, a sad state of affairs for the once high-flying company.

To be perfectly serious, the company is still doing well. What then, is the issue? Munster posited four possible answers.

A misinterpreted Digitimes article. Munster is referring to a Wednesday Digitimes article that seems to have good news: it suggests that iPhone 5 is selling well based on comments from wireless chipset providers.

While the article suggests Apple could beat the Street’s estimate for iPhone 5 sales in the current quarter, as Munster said:
In the same article, Digitimes is suggesting a 20% q/q decline in Apple’s demand for parts and components in March. We believe this 20% decline is to be expected coming off of a launch quarter and do not believe it is an indication of how units might trend in March.
In other words, the Digitimes article could be leading people to believe there will be a downturn in iPhone 5 shipments in calendar year Q1 2013, but Munster does not believe that will be the case.

Technicals suggest downside largely priced in. Munster said:
Based on our conversation with Piper Jaffray Technical Analyst Craig Johnson, we believe that for this technical indication, most of the damage has been done to AAPL, but there could be a worst case additional 10% move to the downside which could be the next meaningful area of support.
Margin requirements are being raised.
We also note that CNBC is reporting that COR Clearing is raising margin requirements on Apple from 30% to 60%. While we don't know what percentage of AAPL shares are on bought on margin, we do not believe the requirement change has anything to do with the fundamental health of AAPL.
China Mobile to Carry Nokia Lumia. Nokia announced on Wednesday that the Lumia 920T will launch on China Mobile before the end of the year. Munster said:
We believe some investors have speculated that China Mobile will carry the Lumia instead of the iPhone. We do not believe this is true and note that China Mobile already carries multiple smartphones from multiple vendors. We continue to expect China Mobile to add the iPhone in the back half of 2013.
Despite the drop, Munster is sticking with his price target of $900 a share for Apple.

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