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Apple Keeps Trading Like a Penny Stock

You wouldn't believe it by the way it trades, but Apple  (NASDAQ: AAPL  ) 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  (NYSE: XOM  ) , 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  (NYSE: NOK  ) 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. 

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Apple may be selling off right now, but the company is trading at levels where its priced to do little right. If Apple were to take advantage of some key markets, it could see strong gains across the coming years. We've outlined Apple's opportunities in The Motley Fool's premium Apple research service, and it may give you the courage to be greedy when others are fearful. If you're looking for some guidance on Apple's prospects, get started by clicking here.

Read/Post Comments (16) | Recommend This Article (27)

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 March 12, 2013, at 1:19 AM, SimchaStein wrote:

    blah blah - just look at Goog, AMZN, and AAPL since 2006. Wide swings up and down. Investor don't understand 'tech', so they over-react when self appointed pundits declare victory or defeat.

    Do the homework - try to find a DCF case for Apple under $540 - Doesn't exist.

  • Report this Comment On March 12, 2013, at 3:39 AM, aeosfool wrote:

    Excellent observations. One thing is clear, Apple is being priced for gloom and doom like no other stock when just as strong of a case can be made for it being at the center of "the mother of all opportunities" due to its position in the smartphone and tablet market which have a long way to play out.

  • Report this Comment On March 12, 2013, at 3:48 AM, AboutYourCat wrote:

    my generation used to say..... "those that can do..... those that can't teach"..... in the new millenium that's changed to..... "those that can do..... those that can't teach..... and those that can't do or teach write blogs".

  • Report this Comment On March 13, 2013, at 5:18 PM, Seanickson wrote:

    I think many of you will be surprised at how fast margins can be destroyed particularly in once fast growing markets. Its naive to think that apple can maintain sellings its phone for more than $650 each, in fact they have been discounting their products a lot more over the last couple quarters. Its just as naive to think that they will be able to effectively compete with companies such as samsung without beefing up their phones capabilities and likely, their costs. Lots of pressure in the tablet market and early adoption of tablets makes a great deal of difference. I believe a 3% drop in tablet share absolutely can justify a large drop in market cap

  • Report this Comment On March 13, 2013, at 5:35 PM, biju77 wrote:

    Good reason to steer clear of Wall Street analysts!

    They seem to focus on market shares and margins,

    but can not comprehend that a market share

    starting at 100% can only decline as more companies enter the market. In a crowded market

    a 30% share of the smartphone market should be

    considered outstanding. The margins are affected by many factors, but Apple's should be the envy of

    the industry. Some declines in margins would be

    normal as marketing costs rise and cheaper models

    enter the mix.

  • Report this Comment On March 13, 2013, at 5:37 PM, eldetorre wrote:

    I find it incredible that the so called wise people @ the fool can't understand why Apple is not performing well.

    Get a clue. It doesn't matter how well Apple is doing financially. It isn't a great INVESTMENT. Investors invest to make money not to admire the strength of a companies balance sheet. They either invest speculatively because of big potential upside or because of earnings passed along to shareholders. Apple has not been a real innovator in quite some time. They are superb packagers of others tech which is why they defend their dubious packaging patents so strongly. There is no huge upside when there is no real innovation. And they don't return enough value to shareholders. That's why the stock isn't doing as well.

  • Report this Comment On March 13, 2013, at 6:23 PM, single07 wrote:

    This is a great argument for regulation of high frequency trading, even if there is no other. Any one of sound mind following Apple volume understands this is beyond reasonable explanation of events! It's all about high volumes being moved in a stock to make a few cents on the trade. We are losing our way, and should be speaking up!

  • Report this Comment On March 13, 2013, at 6:27 PM, DarrylMartin wrote:

    Apple pays a 2.5% dividend, so I think it does return value to shareholders. What we need is more disclosure of what Apple has in the innnovation pipeline. Wthout that, it is a speculative investment.

  • Report this Comment On March 13, 2013, at 8:36 PM, mathdweeb wrote:

    Sometimes you fools forget the obvious. Just like a penny stock, after a company has finished the HUGE percentage gains in price (as Apple has) then anyone who purchased it more than 3 years ago can sell after it came down 25% from the peak. So they only get a 10 bagger instead of a 12 bagger, they'll sleep well. The lucky ones who got talked into buying Apple at its peak valuation, they're the ones freaking out over how much of their investment they've lost in just a few weeks. So in this situation, just exactly who do you propose will be the noble few to jump in and buy in the face of the selling pressure? A guy can get hurt that way, unless you're planning on buying and holding.

    Volatility begets volatility, it ain't rocket science. In Apple's case there's long timers who are newly motivated to lock in the profits from their best stock pick of their life, and there's folks freaking out that they've trapped themselves in the WORST stock pick of their life. That's a lot of downward pressure that frankly has nothing to do with Apple's performance.

    Disclaimer: I'm proud to say I purchased APPLE at $5 per share when Jobs came back. Sold it a few months later at $15 and was proud I tripled my money. So I'm an idiot and you might not want to listen to me.

  • Report this Comment On March 13, 2013, at 8:50 PM, Grahdodd wrote:

    The fundamentals have changed suddenly and extraordinarily for Apple. It's gone from fast growing to slow to no growth with the snap of a finger.

    Exxon is a well documented story over a generation.

    I do not get the point of this story.

  • Report this Comment On March 14, 2013, at 5:32 AM, AlwaysKnowBetter wrote:

    You need to let go of that growth story. Apple won't see 600 in the next 10-15 years. It will widely range out like a MSFT after its hype. The Galaxy S4 is on the roll today and its quite obvious that the Iphone Hype is already over. But the hardest part is to accept that Apple has no "real" innovations down the pipeline. This stock will go below 300 this year.

  • Report this Comment On March 14, 2013, at 8:24 AM, richmacmf wrote:

    I know 5 people who have purchased new phones in the last 30 days. 3 got IPHONES and 2 got DROIDS. I just see IPHONES continuing to be the purchase of choice as folks buy new phones. I still see plenty of people with Blackberry's or old Nokia phones who will catch on eventually and IPHONE is going to get its share of that. China market is HUGE and IPHONE will get its share of that. IPHONE does more than me or any of my friends and family need already and has so much more capability. I have not used a DROID but the few I know who do just bought it because it was cheaper and I hear nothing about its advantages and I still see users having issues weeks after adopting a DROID. I am long APPLE.

  • Report this Comment On March 14, 2013, at 10:35 PM, pacificsales wrote:

    The iPhone is my Mom's phone...

  • Report this Comment On March 15, 2013, at 9:57 PM, WineHouse wrote:

    Could the author please explain to me what, precisely, is meant by the following: "but the company is trading at levels where its priced to do little right" ?

    Never mind the lack of apostrophe in "its" -- I can understand a typo (I'm being generous here). What about the rest of the sentence?

    I'm not stupid -- I have a BA, magna cum laude, from an Ivy League university and a PhD from an even more prestigious institution; and I used those degrees in my successful scientific and administrative career of 34 years. Not only has writing been an integral part of my professional career, but it is also an integral part of my various avocations (both prose and poetry) and I've been complemented on the clarity of my written words. In addition to being able to write, I am able to read. I've been reading since I was 4 years old (maybe since I was three).

    But -- I do NOT understand what is meant by that phrase!

    If the author meant to say that the share price reflects a lack of confidence in the company's ability to perform adequately in the future, I would think that the author would have stated that clearly. However, I can't believe that the author meant to say that the market-investing public expects the company to not do very much in the future (.e., "do little") but to do whatever it does in a correct manner (i.e., "right") ??

  • Report this Comment On March 17, 2013, at 10:20 PM, snapperreef wrote:

    I'll agree with you Winehouse that the sentence in question could have multiple meanings, but I'm (note apostrophes) just a MS physicist from, sadly, an institution more concerned with BCS championships than with Nobel laureates who thinks it's quite obvious from the information in the preceding article that your first choice of meanings in your last paragraph is the author's meaning.

    The whole paragraph in question is telling me that Apple can be a good investment today since it is probably underpriced. Maybe I misinterpreted it, but I think I do understand it.

  • Report this Comment On April 10, 2013, at 4:50 AM, thidmark wrote:

    Sorry, I did not go to an Ivy League institution, and I probably quaffed too much Budweiser, but what does "(.e., "do little")" mean. Is that supposed to be i.e.? I can understand a typo, but it's so much more fun to be a smug know-it-all.

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