By Justin Fritz of Wall Street Daily
We all know that Apple’s (Nasdaq: AAPL) stock has been blasting off like a rocket. Since it reported insane profits last quarter at $13.06 billion, shares jumped over 50% in less than three months’ time.
Even with this explosion in share prices, however, many analysts argue that Apple’s stock is actually undervalued.
In fact, earlier this month, Brian White of Topeka Capital Markets claimed that shares are actually worth over $1,000, which would represent a 60% leap over today’s prices.
His estimate is already being put to the test, however, with shares taking their sharpest plunge this year – down 9% in just a week.
Let’s take a look at three factors that are likely contributing to the downward momentum, and, more importantly, why you shouldn’t consider the recent dip a buying opportunity.
~ AAPL Downtrend Factor #1: iBooks Attracts a Lawsuit
According to Bloomberg, “Revenue from e-books doubled last year to $1.9 billion.” And Apple’s a growing player in the space with 10% of U.S. marketshare.
The U.S. Department of Justice has filed a lawsuit against five publishers, as well as Apple, for allegedly conspiring to fix e-book prices, ultimately leading to higher prices for consumers. Three publishers have already settled, but Apple and two publishers are willing to duke it out in court.
Apple claims that it negotiated with each publisher on terms and e-book pricing separately. But any evidence to the contrary could compromise the company’s future revenue in the space.
~ AAPL Downtrend Factor #2: Apple Security Comes Under Fire
Malicious software called “Flashback,” which disguises itself as an update for Adobe Flash Player, has recently been spotted on upwards of 600,000 Macs. And new malware known as “SabPub” has been detected over the weekend.
The company’s been catching heat for the security threats, mostly because there’ve been virtually zero threats to its computers, unlike Microsoft (Nasdaq: MSFT) Windows PCs. Like Computerworld says, “The only reason this story got the attention it did is because for more than a decade Mac OS X has not been hit hard with any major malware threat.”
Still, since this essentially proves that Apple devices aren’t as bulletproof as some consumers like to believe, investors are realizing that this could take a bite out of Apple’s computer sales.
~ AAPL Downtrend Factor #3: Subsidies Going Out the Window?
With the actual cost of the iPhone around $600, we have carrier subsidies to thank for the much more affordable $199 price tag. As you likely know, carriers like Verizon (NYSE: VZ) and AT&T (NYSE: T) foot the majority of the bill for these high-priced gadgets, and make up for that cost by charging you more for their services month to month.
That’s part of the reason why Apple has been able to snatch 29.6% of the smartphone marketshare in the United States. In other parts of the world, however – where carriers refuse to subsidize the iPhone – Apple’s marketshare is lagging behind. In Portugal, for instance, consumers must pay full price for the phone and Apple claims just 9% of the market.
U.S. mobile networks might be joining them, though, considering it could boost short-term profits and result in more attractive monthly plans for consumers. Such a shift in subsidy priority would certainly put a strain on Apple’s mobile business. As Casey Research analyst, Robert Ross, says, “Seeing as Danish telecom Telenor ASA (OTC: TELNY) stopped subsidizing phones in lieu of offering lower monthly rates last year, other European – and maybe even American – carriers may soon follow suit.”
Think Twice Before Buying Apple Stock
Now, even if the developments above only cause short-term, kneejerk reactions among investors, that doesn’t mean you should consider the recent pullback in Apple’s share price as a buying opportunity.
Undervalued or not, there are better ways to invest that could churn out faster gains in the months ahead.
As Wall Street Daily’s Chief Investment Strategist, Louis Basenese, pointed out to me this morning…
“If Apple’s ascent continues unchecked, it will be worth more than the market cap of all the publicly traded companies in Spain, Portugal and Greece combined! That alone should be a reason to pause when considering putting new money to work in the stock.
“If I had $50,000 to invest today, I’d rather bet on the thousands of companies in those down-trodden European nations (via ETFs) over putting all that money into Apple. No one can argue my downside would be much more limited, while my upside would be almost unlimited.”
Courtesy Justin Fritz of Wall Street Daily (EconMatters author archive here)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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