It seems that investors are losing confidence in Apple (NASDAQ:AAPL). The stock has underperformed the NASDAQ Composite index this year and is down over 4% year-to-date. Also, despite an increase in the institutional ownership of large-cap stocks, institutional ownership in Apple shares is down to a five-year low.
While the likes of Google, Amazon, Hewlett-Packard, and Microsoft are witnessing all-time high institutional ownership, Apple has dropped to its lowest point since 2009. Morgan Stanley analyst Katy Huberty recently said: "[Institutional investors] hold less concentrated positions in Apple than in the past with the top 30 holders allocating 2.2% of their fund to AAPL, compared to a high of 4.1% in the last five years and Apple's current 2.9% weighting in the S&P 500."
This points to the fact that institutional investors aren't confident about Apple. Although Apple's stock has been range-bound in the $490-$550 range for quite some time now, it's not the right time for investors to turn bearish on the stock.
Apple is due to launch the new iPhone 6, and it could be a game-changer for the Cupertino-based tech giant. Let's take a look at the reasons why the iPhone 6 could be a massive leap forward from its predecessor.
Driven by replacement sales
In fiscal 2013, Apple derived roughly 53% of its revenue from the iPhone. Thus, it's obvious that the success of Apple largely depends on how the iPhone 6 is received in the market. Over reliance on one product can be risky for many companies, but Apple is an exception. It's a well-known fact that Apple has a very loyal fan base, and a lot of people will buy the new iPhone just to replace their older Apple phones. In fact, according to Statista, nearly 70% of Apple's iPhone sales may come from users looking to swap older iPhones with the iPhone 6. This figure can rise to about 80% in 2015.
The increasing magnitude of replacement sales should ensure that Apple's next iPhone should begin with a bang. If the company brings new technology and arms the iPhone with a bigger screen, then it can bring users from other platforms into its fold as well.
The Galaxy S5 does not look good enough
Every year, tech fans eagerly wait for flagship devices from Apple and Samsung (NASDAQOTH:SSNLF) to hit the market. However, the specifications of Samsung's Galaxy S5 aren't great, so it might not be a huge hit. This certainly bodes well for Apple, as the Galaxy S5's lack of new features will push more customers toward the iPhone 6.
Several factors indicate that the Galaxy S5 will not be a hit. First, the phone is unattractive. Samsung may have gone too far to give the S5 a unique look (or maybe to avoid another lawsuit). The stippled backside of the phone hasn't helped Samsung gain any fans, as people across Twitter and Facebook have compared the Galaxy S5 to a band-aid. This clearly proves that the phone's design hasn't impressed tech enthusiasts.
The phone's lack of features include exclusion of optical image stabilization from the camera and no significant improvement in the TouchWiz software. This has set up the iPhone 6 for a blockbuster launch, and it won't be surprising if its sales smash all estimates.
Bigger and better screen
In November 2013, Apple signed a deal with GT Advanced Technologies (NASDAQOTH:GTATQ). Under this deal, Apple loaned GT Advanced Technologies $578 million to install and operate the world's largest sapphire-crystal manufacturing plant. Although Apple didn't promise to buy any of the sapphire that GT Advanced Technologies produced, reputed sources like Forbes and Canaccord are confident that the iPhone 6 will come with a sapphire display that will make the screen scratch-proof.
In addition, rumors suggest that the iPhone 6 will have a 4.7-inch screen. A larger-screen iPhone is just what Apple needs to gain market share from high-end Android smartphones. As noted by Fool analyst Bill Shamblin, bigger screens can increase iPhone sales by 16%, or 24 million units.
Apple hasn't had a great time this year and it looks like Wall Street is also not very confident about its prospects, as the five-year-low institutional ownership stats suggest. However, it would be a bad idea to exit the stock at a time when Apple is probably going to launch revolutionary, rather than evolutionary, products such as a bigger iPhone and an iWatch.