Despite the overall market putting in its strongest day since January, Apple (AAPL -0.31%) shares were off during Wednesday's session by nearly 1%. Fool senior technology analyst Eric Bleeker explained why the sell-off was expected -- largely as an unnecessarily negative reaction to an unrealistic expectation not being met at the shareholder meeting. While I agree that the investors were being unduly optimistic in believing that the company would disclose a plan to return some of its $137 billion in cash to investors at the meeting, the company is still facing two very real investor concerns: that it is not competing on innovation and that it has the situation under control. The long-term prospects for the company remain strong, but if Apple wishes to return to its "market darling" status, it needs to wow us all, one way or the other.
As of this writing, the stock remains just above its 52-week low, somewhat at the mercy of the overall market, but still not looking as strong as one would hope. I wrote several weeks ago that I believe that Apple will touch $400 before $500, meaning I remain of the belief that the sideline is the place to be.
Shareholder shuffle
Much attention this week has been focused on Apple's cash position. Thanks to David Einhorn, anyone even vaguely aware of the stock market knows Einhorn's Greenlight Capital sued the company under an antibundling provision in an attempt to push the tech giant to return more cash to shareholders. On the grounds chosen, the lawsuit was successful and the provision that would have made shareholder approval a requirement of issuing preferred stock was removed from voting.
The misconception that came out of the victory was that Apple would immediately announce its plans to start returning capital. Unfortunately, that was not what the case or the judge said regarding Einhorn's challenge. By winning the case, the issue was only removed from consideration and certainly not turned into an affirmative duty by Apple to write checks. The perception suddenly became that as a result of the loss, Apple would announce a new cash policy -- a mea culpa to investors.
Even if such an announcement had originally been the company's intention for the shareholder meeting -- and there is no evidence that it was -- the loss all but ensured that no such announcement would occur. CEO Tim Cook may be struggling to walk in Steve Jobs' shadow but he is not so naive as to believe that he could so openly show that he and the company can be pushed around. Shareholder lawsuits are not particularly common, but if Apple could be so easily manipulated, imagine how quickly litigious claims would appear.
Apple has promised to address the cash situation and it is likely to do so in the near term, but it will occur in its own way, on its own schedule. Cook needs to demonstrate that he has the situation under control, a task at which he has not shined at to date. While it is only my opinion, Apple still feels like it is coasting on the momentum of the past, not charging boldly into the future as it once did. I know Apple shareholders are tired of the "bring back Jobs" cries, but being realistic about the situation is a sound investment approach.
Why do shares go lower?
In the absence of a very near-term announcement of a bold new product that gives investors and consumers something to get excited about, the shares are running out of steam, even after the big sell-off. Perhaps the announcement of an actual iWatch would be the type of catalyst that pops the stock back into performance mode, but rumors suggest that such a device is still in the early development stage. The design patents that were recently filed for are a positive, but the company needs a big win to get us believing again.
In the meantime, the weight of the overall market is likely to weigh on Apple shares just like other names that cannot easily differentiate themselves. With the sequestration cuts looming, continued quantitative easing, the resurfacing of the European debt crisis and other global macroeconomic factors looking less promising than hoped, I see a correction in stocks on the horizon. In the absence of a clear reason for Apple to buck this trend, shares are likely to trade lower. As such, while I might stick with shares that are already in your portfolio, I would not be adding to them here.
