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June 30 (Bloomberg) -- Apple Inc. shares dropped 3.5 percent this month, capping their worst first-half performance in three years, as investors await new products and fret that rivalry from Google Inc. will slow growth.
The shares, down 7.6 percent from a record $363.13 on Feb. 16, haven’t performed this poorly in the first six months of a year since 2008, when the worst recession since the Great Depression swamped the stock market.
Investors, already grappling with Chief Executive Officer Steve Jobs’s medical leave, say they are wary of the stock amid evidence that Google is gaining ground in smartphones. It’s also been more than a year since Apple entered the tablet market with the iPad, and the next iteration of the iPhone isn’t due until September. That’s left shareholders hankering for new products to propel the stock, even though profit has risen more than 75 percent in the past two reported quarters.
“They are so successful in their execution that they need the next huge thing to make the stock actually rally,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors, which manages $1 billion in Walnut Creek, California. “You’ve got to know what the next goldmine is going to be.”
Apple, based in Cupertino, California, rose $1.63 to $335.67 in Nasdaq Stock Market trading today. The shares have declined 3.7 percent since Jan. 14, the last trading day before Jobs, who’s battling a rare form of cancer, said he was taking his third medical leave since 2004.
‘Only One Jobs’
“There is only one Steve Jobs; there’s nobody that can replace him,” said Walter Price, managing director of RCM Capital Management, which owned 2.96 million Apple shares as of March 31, after selling more than 820,000 shares.
Apple, the second-largest company in the S&P 500 behind Exxon Mobil Corp., has been one of the surest bets for investors over the past several years. It nearly quadrupled through the end of last year from Jan. 8, 2007, the day before Jobs introduced the iPhone. It’s up from a split-adjusted $5.48 on Sept. 16, 1997, the day Jobs returned to Apple after his ouster in 1985.
Large investors that have reduced their stakes in Apple this year include Goldman Sachs Group Inc., Janus Capital Group Inc. and Wellington Management Co.
Given the gains in Apple’s share price so far, it’s inevitable that the pace of increase will slacken, said Giri Cherukuri, the head trader for OakBrook Investments, which manages $2.5 billion, including Apple shares.
Hard to Move
“It’s hard for a stock of that size to move a lot at this point,” Cherukuri said. “For it go up 50 percent or double would be hard to imagine.”
Steve Dowling, a spokesman for Apple, declined to comment.
Apple’s ascent will undoubtedly resume, according to analysts, who on average predict that the shares will climb to $457.08 in the coming months. At least 50 analysts have “buy” ratings on the stock, and none of those tracked by Bloomberg recommends selling.
The gap between Apple’s stock price and analysts’ predictions reached a record $141.92 on June 20, according to Bloomberg data.
So far this year, Apple has underperformed the broader market. The Dow Jones Industrial Average has risen 7.2 percent, while the S&P 500 is up 5 percent. The Nasdaq Composite Index has climbed 4.6 percent this year.
Apple, which introduced the iPad 2 in March, may get a boost from the next version of the iPhone, due for release by the end of September, as well as demand for electronics in the year-end shopping season. Recent stock declines have created an investment opportunity, said Michael Binger, a fund manager at Thrivent Asset Management.
“We’ve been buying,” said Binger, whose firm has about $73 billion in assets under management, pointing to the iPad’s dominant position in the market. “All the competing products coming out don’t hold a candle to it.”
Even as investors fret about handsets running the Android operating system, some analysts predict it will be Google that may be in trouble.
Android will see market-share declines in the U.S. as customers move to a new model iPhone, especially subscribers of Verizon Wireless, which added Apple’s handset earlier this year, according to Needham & Co. analyst Charlie Wolf. In March, the iPhone accounted for 29.5 percent of the U.S. market, up from 17.2 percent in December, he said in a report this month. Android accounted for 49.5 percent, down from 52.4 percent in December.
Still, Android is expected to maintain its leadership position globally. It’s projected to account for 38.9 percent of the worldwide market this year, compared with 18.2 percent for Apple, according a report from research firm IDC.
The company’s financial results also will provide a boost, said Ryan Jacob, chairman of Jacob Asset Management. Apple’s profit is projected to jump 66 percent to $5.4 billion in the third quarter, which ended June 25, according to the average estimate of analysts surveyed by Bloomberg. Sales are predicted to grow 57 percent to $24.7 billion.
Given that rate of growth, Apple’s stock price is “perplexing,” Jacob said. “There are a lot of minor concerns with Apple, but to me they are all extremely minor.”
Apple also has outperformed other big technology companies, whose stocks have sputtered even amid profit and sales growth. Google, whose profit rose 30 percent last year, has slipped 15 percent this year, and Microsoft Corp., whose profit jumped 29 percent last year, is down 6.8 percent.
“I can’t remember valuations ever being as low as they are now for major large-cap technology,” Jacob said.
That’s not enough for some investors, who say the best days for Apple investors may have passed.
“It was easy until recently,” RCM Capital’s Price said of investing in Apple. “Now I think it’s hard to know if the stock is going to outperform the market.”
--Editors: Lisa Rapaport, Nick Turner
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