The following is an excerpt from our recent research piece entitled "Where Have All the Apple Fans Gone?" The full report can be viewed at http://pathlightinvestors.com/where-have-all-apple-fans-gone
A surprising thing happened on the way to U.S. equity markets making five-year highs. During this strong market run, the cult-like believers in Apple’s stock seemed to have vanished. While we will highlight Pathlight’s investment views on Apple, we view the recent sentiment change surrounding the world’s most beloved stock as a significant lesson for investors.
The Pathlight Team would be hard pressed to find an investment that garnered as much attention as Apple over the last seven years. With the exception of the media fascination over the Facebook IPO, investors have been laser-focused on Apple, and for good reason. Apple has been the greatest corporate turnaround in modern history, and its stock price reflects this improvement, making people both fervent fans of its products and creating fortunes for its shareholders. But recently, something changed.
What Happened to Apple?
Apple could do no wrong. Products were flying off the shelf, earnings were beating expectations every quarter, and in the early part of 2012, research analysts were in a rush to raise their price targets. In fact, Baird’s research analyst raised his own Apple price target five times in 2012 alone.
Then on September 19, 2012, Apple’s stock closed at an all-time high of $702.10. At that time, prevailing wisdom was that the stock was on a path to $1,000 per share, and might become the world’s first trillion-dollar market cap company. It is during these times when prudent and thoughtful investors need to step back and re-evaluate the situation because when optimism is frothy, as it was in September 2012, and expectations high, there is no margin for error. Translation: Any misstep, no matter how small, and the stock drops.
Unfortunately for Apple investors, in the fall of 2012, a few cracks appeared in its previously impenetrable armor, thus dashing the sky-high expectations of perfection. These cracks included an earnings miss, mapping software problems, management changes, and manufacturing issues. This combination removed the shine from the stock, and investors ran for the hills. The dramatic stock price decline shaved off billions in value in only a matter of months.