3.4 Million Reasons Why Apple Lagged Last Quarter -- and Why It Will Bounce Back

Investors suspected as much, and now they have proof. Institutional selling played a large role in Apple's (NASDAQ: AAPL  ) fourth quarter sell-off last year. The first three quarters of 2012 were going just swimmingly, but shortly after peaking over $705 on the day that the iPhone 5 launched, it all went downhill from there.

Metric

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Performance

48%

(2.6%)

14.2%

(20.2%)

Source: Nasdaq.

That table doesn't include the 12.3% loss that shares have experienced so far year-to-date through yesterday's close either.

Sell! Sell! Sell!
Several large hedge funds have now filed 13F forms with the SEC, detailing their holdings each quarter. The predominant theme was that there was something of a mass exodus among funds looking to lock in capital gains from Apple's incredible performance through the first three quarters of the year. Reuters outlines some of these notable exits.

Fund

Shares Sold in Q4 2012

Omega Advisors

266,000

Eton Park Capital Management 

250,000

Farallon Capital 

137,000

Jana Partners 

143,000

Third Point 

710,000

Viking Global Investors 

1.1 million

Lone Pine Capital 

805,000

Total

3.4 million

Sources: Reuters and SEC filings. Shares rounded.

These seven funds dumped their entire stakes in the Mac maker, flooding the market with over 3.4 million shares throughout the quarter. That's a lot of selling pressure, but most of these funds were enjoying healthy gains and contemplating the prospect of the impending fiscal cliff that threatened to increase their tax burden on those gains.

Beyond long investors exiting their positions, outright bears shorting the stock have also grown their ranks. The total number of shares held short increased by 2.7 million shares during the fourth quarter, and also added another million in January alone.

It's no wonder that Apple has seen a break between its share price and fundamental valuation, since these funds were adding considerable selling pressure for reasons not entirely related to the actual business.

There are certainly some justified fears of escalating competition and iPhone growth deceleration, but that hardly warrants a pullback of 40% over the span of four months when you consider that the overall business remains remarkably robust and Apple continues to post numerous records in metrics like revenue, net income, and both iPhone and iPad unit sales.

Buy! Buy! Buy!
While some funds may have dumped their shares, others decided to take the opportunity to buy more.

Fund

Q3 2012 Shares

Q4 2012 Shares

Shares Added

Percent Increase

Appaloosa Management

521,000 

913,000 

391,000

75%

Soros Fund Management

85,000 

184,000 

99,000

117%

Greenlight Capital

1.1 million 

1.3 million 

216,000

20%

Source: SEC filings. Figures may not add due to rounding.

Greenlight also loaded up on call options representing another 275,000 shares. While the expiration and strike prices of those contracts aren't disclosed, Greenlight will get a nice pop if Apple shares recover due to the inherent leveraged nature of options. Of course, Greenlight is also the fund managed by David Einhorn, who very publicly called for Apple to return additional cash to shareholders a week ago through the issuance of a new share class of perpetual preferreds.

Einhorn is trying to rally other shareholders into voting against a proposal from Apple that would eliminate the company's ability to issue preferred shares solely by the board's discretion. Apple is trying to change its corporate charter to require shareholder approval for any such move, and responded to Einhorn's lawsuit this week by saying the fund manager is effectively trying to take shareholders "hostage." In a court filing, Apple CFO Peter Oppenheimer disclosed that Einhorn viewed shareholder approval for his idea as a "roadblock that was not needed" and wanted to remove the risk that shareholders would vote against his proposed plan.

The good news is that while many funds were dumping their shares, it's highly likely that they will buy back in and establish new positions after closing out previous positions and envious gains. Bespoke Investment Group founder Justin Walters thinks this activity will pick up within the next three months.

Apple's investor base is in transition as the stock moves from a growth story to a value one. Once Apple inevitably boosts its dividend, investors can expect an influx of value-oriented funds interested in a yield they can count on.

There's a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (8) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 15, 2013, at 9:30 PM, 504Capital wrote:

    No doubt 3.4 million shares of Apple is a lot, but here is what really made the dent-

    http://www.nasdaq.com/symbol/aapl/institutional-holdings?pag...

    Look at FMR LLC. I believe that is Fidelity, and they unloaded over 43 million shares!!! To put that in perspective, under 14 million shares traded all of today.

  • Report this Comment On February 15, 2013, at 10:09 PM, Ostrowsr wrote:

    But isn't it true that Apple trades over 20 Million shares per day? The 4 Million shares discussed above is about 2 hours worth of daily trades. Am I missing something or is this article discussing a minuscule percentage that has no real effect on the share price?

  • Report this Comment On February 15, 2013, at 10:12 PM, 504Capital wrote:

    Nvm, maybe the NASDAQ website is wrong, but I looked at the recent filings and looks like they still have 43+ million shares?

  • Report this Comment On February 15, 2013, at 10:17 PM, 504Capital wrote:

    Or around 40+ million shares, a drop in about 5 million from yahoo finance numbers.

    http://www.sec.gov/Archives/edgar/data/315066/00003150661300...

  • Report this Comment On February 15, 2013, at 10:47 PM, TimKnows wrote:

    Apple is dead, they because everything else looks better this year.

  • Report this Comment On February 16, 2013, at 1:10 AM, dwilh51183 wrote:

    ON ANY BIT OF GOOD NEWS, THESE FUNDS CAN PILE BACK IN ...JUST AS WELL. Honestly, no other company makes this kind of cash, so is AAPL really that bad of an investment ? Seriously...selling 102 BILLION DOLLARS WORTH OF PRODUCTS THE PAST 6 MONTH'S AND YOU INVESTOR'S ARE NOT HAPPY. I think you guys have all lost your marbles! Or you have rocks for brains. What AAPL has done the past 5 years and what they will CONTINUE TO DO THE NEXT 5 YEARS WILL BE AWESOME AS WELL. Maybe they won't increase earnings by 76% every quarter , but they still are making a ton of money which will eventually be given back to shareholders. It's far better than a company losing millions of dollars every quarter

  • Report this Comment On February 16, 2013, at 1:52 AM, deasystems wrote:

    TimKnows that everything from Apple looks better this year than anything from its competitors, and I agree.

  • Report this Comment On February 16, 2013, at 3:32 AM, lrd555 wrote:

    Apple's doing fine. $13.1 Billion reasons it did great last quarter. Let's compare:

    Almost $13.1 Billion more in profits than Amazon last quarter. Right? Right.

    Almost $2 Billion more in profits than Google's revenues. Right? Right.

    $137 Billion in cash! Can run the company for eight years without making a dime. In 5 years 1/2 the competitors would be around. Never mind eight.

    Apple's doing great. Great investment.

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