Apple takes investors on a wild ride

SAN FRANCISCO — With only modest expectations, Robert Leitao of Santa Clarita made a decision in 1994 that would change his life. He bought Apple stock.

This was several years before Steve Jobs returned to resurrect Apple, long before the iPod, the iPhone or the iPads that would make Apple the most valuable company in the world. A $1 investment in Apple at the start of 1994 is now worth about $70.

“Even with the recent sell-off, I’m still doing very well with the stock,” said Leitao, who works as director of operations at a Catholic church in Burbank. “Apple provided for a down payment on our home for our blended family of four kids.”

Leitao is one of the countless people whose lives have been touched by Apple’s stock, which has become a global economic force. It is now one of the most widely held stocks, and the most valuable. Even as Apple Inc.’s market value fell to $480 billion on Friday, it was still larger than the gross domestic product of Norway or Argentina, and more than the combined value of Google Inc. and Microsoft Corp.

Yet that astonishing size and economic influence is also what, many analysts believe, contributes to the extraordinary volatility that can make owning Apple’s stock a hair-raising experience.

It was inevitable, analysts say, that after Apple’s stock rose 74% in the first nine months of this year, a huge wave of selling would occur as fund managers locked in their profits. And yet, in recent years, these huge dips have been followed by even bigger run-ups that led to new record highs, a dynamic that one trader refers to as the “Apple slingshot.”

That pattern has some analysts betting Apple will soar above $1,000 a share in 2013, a scenario almost guaranteed to drive the global obsession with the company’s stock into an even greater frenzy.

“The impact on shareholders and on the economy is incredible,” said Howard Silverblatt, senior index analyst for S&P; Dow Jones Indices. “We’ve not seen anything like this in the modern trading era. Ever.”

Even after the remarkable decade of Apple’s revival, the company’s stock managed to reach new milestones this year. Early in 2012, Apple became the sixth company ever to surpass $500 billion in market value. In August, it became the only company in history with a market value topping $622 billion.

That performance affects just about anyone who has a 401(k) account or a pension. According to FactSet, a research firm that tracks investment funds, 2,555 institutional investors — mutual funds, hedge funds and pension funds, among others — owned stock in Apple, just behind the 2,590 that held Microsoft stock, as of Sept. 30, the most recent date funds had to disclose their holdings. However, the value of that Apple stock held by institutional investors on that day was $427 billion, compared with $172 billion for Microsoft, according to FactSet.

Silverblatt said the only company that has come close to having such a strong influence on the broader stock markets since World War II is IBM in the early 1980s, when the PC revolution was just getting started. But not only is the value of Apple’s stock remarkable, so is its volatility. Such large stocks rarely have such big, quick swings.

Apple shares peaked at $702.10 on Sept. 19, up from $401.44 at the start of the year, a run that astonished analysts. But just as remarkable has been its collapse, falling as low as $505.75 in intra-day trading Nov. 16.

“It’s just amazing because it’s such a large company,” said Brian Colello, a senior research analyst at Morningstar. “The company lost about $35 billion in market cap in one day. That’s the size of some large-cap stocks.”

Yet such swings have become commonplace for Apple stock. Before its latest swoon of 23.4% since its September high, Apple had experienced three previous corrections of more than 10% over the last two years.

The value of Apple’s stock and its extreme swings have made researching it and trading it almost a full-time job for some people. Jason Schwarz of Marina del Rey edits EconomicTiming.com, which sends out up to five newsletters each week to its 1,000 clients that focus in large measure on Apple. He also helps run Lone Peak Asset Management, which has about $500 million in assets.

Schwarz says that what he calls the “Apple slingshot” is actually a virtue of the shares.

“The extraordinary volatility is the result of Apple’s strength,” Schwarz said. “People try to blame the volatility on Apple’s weaknesses.”

Schwarz and many other Apple believers argue that people are making a big mistake when they try to understand the stock’s behavior by focusing on various bits of bad news such as an executive shake-up, the Maps controversy or questions about market share or competition. They have almost nothing to do with the regular hits taken by Apple shares, the argument goes.

Instead, folks like Schwarz say more technical factors are at work, such as the fact that the fiscal year for many stock funds ends Oct. 31. When the stock peaked in September, many fund managers rushed to sell to lock in profits for the year. Apple stock makes so much money for so many people, then plummets when shareholders pause to reap their profits, Schwarz says.

The volatility has continued in recent weeks, the argument goes, because fears of higher taxes next year have many fund managers trying to take advantage of short-term swings to make bigger profits. That volatility offers tantalizing windows for huge, short-term profits for investors willing to take the risk.

To hold Apple stock as an individual investor, then, requires steady nerves and a strong stomach. It also can involve a level of obsessiveness and dedication. Just ask Leitao.

Although his Apple investment has made him financially comfortable, it also consumes most of Leitao’s free time. He runs a discussion forum called the Braeburn Group where each day he and 23 other armchair analysts provide analysis of Apple stock whose level of detail rivals that of reports written by professional investment bank analysts.

“This started as a sideline,” Leitao said. “But most evenings this is what I’m doing. It precludes having other hobbies. You won’t find me on a golf course.”

No data point is too obscure for Apple stock followers to dissect and fret over. The stock can be hyper-sensitive to even a hint that the Apple juggernaut has stumbled. Witness the carnage Friday, when UBS analyst Steven Milunovich lowered his iPhone and iPad sales projections for 2013 and his target stock price to $700 from $780.

The stock plunged on cue, and the usual soul searching began. Apple shares fell 3.8%, or $19.90, on Friday to close at $509.79.

Is Apple’s run finally over? Will this be the time the stock doesn’t bounce back?

Such moments test the faith of Apple bulls. But Brian White, an analyst at Topeka Capital Markets, said he has weathered such moments before. In the fall of last year, as Apple’s stock tumbled to $360.37 from $418.52, he stuck by his call that Apple shares would top $666 within the next year. For the same reasons he was right then, he’s confident in his projection that Apple stock will hit $1,100 in the next 12 months.

Simply put, White and many other Apple believers argue that the company today is tiny compared with the size it will achieve in the coming years. Worldwide, the number of smartphone and tablet users is relatively small. There are still huge markets out there, and he expects Apple will conquer a large share of them.

“Right now, the stock is dirt cheap,” White said. “If I didn’t know the story and get where the company is going, then yes, I might feel some pressure. But I’m a big believer in what Apple can become.”

Silverblatt seems a bit awed when he points out that reaching $1,100 a share would make Apple worth $1 trillion.

“One trillion dollars,” he said. “Think of that.”

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