Apple (AAPL) pushed above $440 a share last week on strong iPhone sales and a decent earnings beat. AAPL stock is now up more than 11% in about a month, and that could portend continued profits for investors in this one-time growth darling.
Apple earnings showed mixed numbers, as profits dipped year-over-year and revenue were flat. However Apple topped forecasts and showed strong iPhone sales in what is normally a weak period, so investors are largely on the fence.
There’s no shortage of optimism out there for Apple stock, some of it Pollyanna musings and other commentary a reasoned analysis of a tech behemoth. But today, I want to offer a list of the headwinds AAPL is facing right now — and the items it has to overcome to hit $500 per share.
Apple Needs to Lead Again in Tech: A big reason for Apple’s struggles has been the narrowing of the gap between it and other tech companies like Google (GOOG) and Samsung (SSNLF), among others. Consider that Google just launched its new Nexus 7 tablet with more RAM, a faster processor and a price tag $100 lower than the iPad Mini — just $229. Consider that Amazon (AMZN) is lowballing even that with its Kindle HD, and has a whole ecosystem of media via Amazon Prime and its Kindle e-book store to compete with Apple. It’s hard to believe in Apple when it now seems to be at best on equal footing with its peers.
Major Holders Need to Hold, Not Sell: During the run-up for Apple stock, the company became a huge hit with institutional traders. Unfortunately, that means many of these folks have been overweight Apple for the entire crash and burn — and every mild uptick in the stock results in big sales. Consider that the Fidelity Contrafund (FCNTX) mutual fund has dumped millions of Apple shares in the past 12 months. To start 2012, the fund owned 14.5 million Apple shares … and as of May 31 of this year, it owned less than 9 million. Big sellers like this make it hard for the stock to find footing.
Management Issues: Bob Mansfield — the senior vice president of technologies for Apple who once headed all Mac hardware and has been closely involved with the iPhone — has mysteriously disappeared from Apple’s website, despite being cajoled into staying instead of retiring last year. This comes after a number of high-profile management issues in the past year spanning its retail biz, iOS software and other areas. If Apple CEO Tim Cook wants to project the idea of a company with its act together, he has to get his management team on the same page.
Worker Troubles: After a Foxconn strike last October, Apple now faces new allegations of Chinese worker abuses. Part of the reason Apple is so profitable is because it has been able to produce millions of slick gadgets on the cheap using Chinese laborers. If that quality becomes an issue or if the costs rise, that could severely affect the balance sheet. And let’s not forget that consumers sometimes can take matters into their own hands by choosing to forgo Apple products if the company’s business practices are suspect.
A New iPhone and iPad by Thanksgiving: Bottom line: Apple needs to hit the ground running this holiday season with revamped iPad and iPhone lines. Not just a cheap iPhone to juice revenue, mind you, but the rumored iPhone 5S or 6 and a next-generation tablet that is markedly different than the last generation. It starts with the product line, and Apple is overdue for a launch that wows customers. The mythic iWatch or TV would create buzz, but the smartphone and tablet lines are what really move the bottom line.
- Google, on the other hand, is launching some amazing stuff and looking great. (The Slant)
- More on big funds selling Apple. (ETF Daily News)
- A look at Apple’s Dickensian earnings. (The Slant)
- Buy Apple, sell Microsoft. (MarketWatch)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.