Apple was knocked off its lofty perch this week, as the market’s most beloved stock fell almost 10 percent over five trading days.
But it didn’t stay there long. As typically happens with this stock, on the sixth day of getting roughed up, investors rushed to lift it back onto its pedestal.
On Tuesday, that meant the stock closed up 5 percent, at $609. It was certainly not the peak price of $644 that it reached April 10, but after a meteoric rise since June no one could argue that it’s been dethroned. Even as investors fretted Monday, it remained the most valuable company in the world. And Tuesday, investors showed they still trust the stock to remain the Apple of their eye.
What is Apple really worth? Until it reports earnings on Tuesday, analysts will probably continue to debate whether the stock has become too pricey.
Those who adore Apple will talk about its dominant position in the market it created, the loyalty of its customers and the ability to innovate that the company has repeatedly shown. Strategists such as JPMorgan’s Thomas Lee have argued that the company is so unusual and so powerful it can be considered an asset class of its own, a stock all must own. And analysts such as Piper Jaffray’s Gene Munster are estimating that the stock price will reach $1,000 in 2014, making it the first $1 trillion company in market capitalization.
Others are growing nervous, a reason why Apple stock plunged lately despite little negative news. Analysts are trained to look for unfettered optimism, because it typically is a precursor to a downfall. And history shows that no company has reached Apple’s pinnacle without being toppled.
“The insanity regarding Apple is really starting to build, as analysts now seem to be tripping over one another to place a $1,000 price target on the shares,” Leuthold Group analysts Kristen Hendrickson and Andy Engel said in a report. “As Apple hysteria ensues, we are reminded that history has a tricky way of repeating itself.”
The analysts note that Apple stock has become so popular it now makes up about 4.5 percent of the Standard & Poor’s 500, a huge chunk for a single stock in an index that includes 500 companies. It is only the fifth stock to make up such a gigantic piece of the market, and no other company has been able to stay there.
The others were Cisco Systems, Microsoft, General Electric and Exxon Mobil. Cisco’s days on the throne were short after it was propelled to the peak during the mania surrounding technology stocks in early 2000. It was booted off after a month.
Microsoft and General Electric, which also surged in the tech craze, were able to hold on for about a year. Exxon Mobil, which soared along with oil prices in 2008, also lasted about a year.
Each time, analysts have lost perspective as the stocks have soared, the Leuthold analysts noted. After becoming a publicly traded company in 1990, Cisco saw its stock price rise 1,039 percent over a 10-year period.
“Had an investor held Cisco over this 10-year period, it probably became difficult for that investor to objectively assess the future prospects for this company,” said Hendrickson. “Much like investors/analysts and Apple today.”
Microsoft, which has been viewed as a solid but not exciting company for much of the last decade, was “an institutional darling like Apple” in August 2002, she noted.
Leuthold has repeatedly looked at darlings that eventually faded, going back to 1979. Titles of reports include: “Is IBM forever?” “Is Microsoft Forever?” and “Are Google and Cisco Forever?”
Now, Leuthold analysts are asking “Is Apple Forever?” Based on past reports, they have concluded “the odds are against it.”
That doesn’t mean the firm has dumped the stock; in fact, it bought some for client portfolios in February. But it will be watching not only whether the stock price gets carried away from profits, but also the company’s ability to adapt.
Eastman Kodak, for example, was considered an innovator and a stock everyone needed to own in the 1960s. It was the sixth-largest stock in 1966, but ended up looking like a relic. Research in Motion, the company that makes the BlackBerry, has gone from being a darling in 2008 to a potential has-been.
Likewise, investors can lose their way with a company like Netflix, which reached $298 in July. On Tuesday, it stood at $107.
