Apple (AAPL) Sell-Off; It's the 'Fiscal Cliff' Stupid
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There have been a million reasons investors and analysts have used in an attempt to explain Apple's (NASDAQ: AAPL) 23 percent free-fall from the September highs: slowing sales/EPS growth, weakness in China, a loss of its "cool factor," market share losses to Samsung, production delays, broker margin hikes, to name a few. However, it appears one reason is standing out among the smart money as the reason, and if true it means Apple's stock could soon be set to explode.
With gains of 34% YTD, ~200% over 5-years and ~7000% over 10 years, long term investors in Apple may simply want to cash out this year before the looming tax hikes on long term capital gains. Capital gains, currently at 15% could go as high as 25%. Another factor is the press coverage of the "fiscal cliff" and the confusion it has caused for equity holders. Instead of sitting on the gains, some investors are simply selling now.
Sterne Agee analyst Shaw Wu put it this way: "From our conversations with a broad set of investors over the past few weeks, we believe AAPL shares will likely continue to be volatile until year end due to non-fundamental factors including profit taking as AAPL as been an outstanding performer in 2012 where many are opting to lock in gains and fears of higher "fiscal cliff" tax rates next year."
Today's move by a massive Berkshire Hathaway shareholder backs this up. In what could be a perfect illustration of the thinking of some investors, today it was announced that the estate of a long-term Berkshire Hathaway holder sold 9,200 Class A shares back to the company for $1.2 billion. Why now? While the exact reason wasn't disclosed, it is pretty obvious that this was a strategic move by the estate to lower the tax burden on the sale. The estate would rather sell now, pay the taxes at the lower rate versus holding, avoiding immediate taxes, and selling later.
So there you have it - Apple's price action is related to fiscal cliff fears and profit taking. Now what?
Well the good news for Apple shareholders is that the selling is almost done. Wu said as we enter 2013 investor sentiment will likely shift back to fundamentals. That's a good thing since Apple is at the beginning of two big product cycles that will likely last 3-5 quarters and see margins poised to improve with greater scale and improving yields, he said. Apple is worth $840 per share, according to Wu.
Shares of Apple closed at $539 Wednesday, down 0.44 percent.
With gains of 34% YTD, ~200% over 5-years and ~7000% over 10 years, long term investors in Apple may simply want to cash out this year before the looming tax hikes on long term capital gains. Capital gains, currently at 15% could go as high as 25%. Another factor is the press coverage of the "fiscal cliff" and the confusion it has caused for equity holders. Instead of sitting on the gains, some investors are simply selling now.
Sterne Agee analyst Shaw Wu put it this way: "From our conversations with a broad set of investors over the past few weeks, we believe AAPL shares will likely continue to be volatile until year end due to non-fundamental factors including profit taking as AAPL as been an outstanding performer in 2012 where many are opting to lock in gains and fears of higher "fiscal cliff" tax rates next year."
Today's move by a massive Berkshire Hathaway shareholder backs this up. In what could be a perfect illustration of the thinking of some investors, today it was announced that the estate of a long-term Berkshire Hathaway holder sold 9,200 Class A shares back to the company for $1.2 billion. Why now? While the exact reason wasn't disclosed, it is pretty obvious that this was a strategic move by the estate to lower the tax burden on the sale. The estate would rather sell now, pay the taxes at the lower rate versus holding, avoiding immediate taxes, and selling later.
So there you have it - Apple's price action is related to fiscal cliff fears and profit taking. Now what?
Well the good news for Apple shareholders is that the selling is almost done. Wu said as we enter 2013 investor sentiment will likely shift back to fundamentals. That's a good thing since Apple is at the beginning of two big product cycles that will likely last 3-5 quarters and see margins poised to improve with greater scale and improving yields, he said. Apple is worth $840 per share, according to Wu.
Shares of Apple closed at $539 Wednesday, down 0.44 percent.
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