You wouldn't believe it by the way it trades, but Apple (AAPL 0.64%) actually closed today as the most valuable company in the world. Typically, big blue-chip companies track the market closely, seeing gains that rarely deviate much from the market aside from the occasional big industrywide moves, company announcements, or earnings. Even then, big moves are few and far between.
Apple trading like a penny stock, worth $400 billion
Just take a look at ExxonMobil (XOM 0.39%), the company that's been battling Apple for the crown of world's largest company. Since Sept. 21, the day Apple hit its peak on the back of the iPhone 5's release, Exxon has moved up or down by more than 2% just four times in 114 trading days.
Compare that to Apple, which traded up or down by more than 2% during the first three trading days of March. In total, Apple has traded up or down by more than 2% in 38 of the last 114 trading days since its Sept. 21 peak. That's incredible volatility more common of thinly traded penny stocks.
A look at largest movements in both company's share prices over that time period illustrates how much wilder Apple's swings have been:
Source: Yahoo! Finance
It's fair to point out that Apple is a technology stock, which can be a more volatile industry. Also, Apple has had a number of analyst downgrades, which can put pressure on a stock. Yet, a fair number of these large moves have been on days with little news aside from rumors.
Big moves, little news
Take for example Dec. 5, when Apple fell 6.4%, at the time its worst one-day drop in four years. Two reasons cited for Apple's stumble that day: worries that it was losing smartphone market share to Nokia (NOK -0.27%) in China and IDC's projection that Apple's tablet market share would slide from 56% in 2011 to 53% in 2012.
While I applaud the journalists who rushed out to dig up the news sending Apple down that day, neither made sense. Nokia ended up capturing less than 4% of the Chinese smartphone market last year; Apple's real threat in the country remains Android and its dominant 80%-plus share of smartphones in China. Likewise, while the iPad is a tremendously important product for Apple, it contributed 21% of the company's sales last fiscal year. Given that it has lower margins than the iPhone, its earnings impact was even less. To attribute a 6.4% one-day share plunge to the iPad losing 3 percentage points of market share across a year doesn't make much sense.
On other days of major moves -- mostly declines -- news has been even sparser, often falling back to the same rumors out of the supply chain, which are either repeats of earlier rumors or coming from questionable sources.
A bizarre market move
Then we have today's trading. Apple began the day in a familiar recent position: underperforming the market. Yet, shortly after 2:30 the company rocketed from being down 0.8% to up 1.2% in mere minutes amid massive volume while the general market barely moved. Such moves are common for thinly traded smaller stocks, but absent major news are uncommon for major stocks such as Apple. At the peak of Apple's move at 2:47 p.m., more than $137 million worth of the stock changed hands in a minute as massive buying pushed its shares forward.
Below is a chart from Yahoo! Finance displaying the sudden move in Apple's share price.
Source: Yahoo! Finance.
After the move, several websites offered explanations as to what had caused Apple's sudden volume spike, the most common being a rumor that Apple was readying a special, one-time $30 dividend. However, most of those explanations relied on such ironclad backing as random tweets. It's difficult for me to fathom that hundreds of thousands of Apple shares are moving per minute on tweets.
Explaining the arbitrariness
Apple's erratic trading is all too often blamed by investors on some sort of market manipulation. I think that's counterproductive. Within the last quarter, hedge funds with vast sums of assets under management were dumping Apple. Whatever the reason -- whether the funds were trimming an outsized position or selling on fears of Apple being unable to maintain its sky-high margins amid Android pressure -- those funds dumping their positions put a lot of downward pressure on a stock.
Once sell-offs start, they can build upon themselves for reasons not entirely rational over the long term. For example, analysts have been tripping over one another to trim estimates of how much Apple will earn over the next couple quarters. That's probably a smart move, as recent estimates have looked too high. However, Apple's value isn't predicated on what it'll earn this quarter or next but over the next decade.
From that perspective, Apple could face some easier year-over-year quarter comparables at the tail-end of the year when it doesn't need to be judged against exceedingly high margins from the year before. Challenges in the next quarter or two may or may not reflect how challenging longer-term issues are. Yet, with Wall Street research firms frequently getting the juiciest press and attention for "supply chain checks" and other news that's supposed to gauge short-term sentiment, few want to be stuck recommending a company that "the herd" is moving against.
In the end, there's money to be made in the stock market not by arguing over unknown reasons companies are behaving in the short run but instead by buying great companies when they're cheap. Apple bear Jeff Gundlach recently took a victory lap, proclaiming Apple's recent plunge debunks the efficient market hypothesis, which holds that markets are "informationally efficient" and outperforming is random chance.
I suppose you could look at it that way. Or you could look at it another way: Apple moving down 6.4% on a day with little news, or moving dramatically upward today with such little news that market commentators are pulling out tweets to explain its relevance, strikes me as more of a condemnation of markets that are informationally efficient and rational.
Apple can be as "inefficient" on the way down as it was up. Judging by its wild recent trading, I doubt a purely rational view of Apple's fundamentals is driving its share price at today's levels.
