Apple vs Facebook: The Power of Sentiment

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When hedge funds and other investors decide to sell, it can have big implications for a stock. However, the selling eventually subsides when bullish fundamentals come back into focus. Apple, the most widely held stock among hedge funds, has seen this occur several times. Over the past ten years, Apple’s current decline is the tenth time that the stock has moved 20 percent or more to the downside, according to Bespoke Investment Group. The previous three times occurred in 2008, with pullbacks of 53 percent, 28 percent and 22 percent. Excluding the current slide, the average decline equals about 30 percent and lasts for 81 calendar days.

Starting from Apple’s recent peak of $705 about two months ago, the historical data implies a bottom around $495 a share in the first half of December. This is simply an average from past performance, which is no guarantee of future results, but it should raise a key question. Is this time really different? If not, than the current decline should be nearing an end.

In terms of sentiment and stock price, the tide may already be turning for Apple. Doug Kass, who was bearish on Apple in late September, has recently changed his tune. The Seabreeze Partners analyst wrote in a research note last week, “A discounted dividend model implies that the future growth rate in profits at Apple will be only about 5 percent. This is too low — Apple’s share price decline has likely now overly discounted most (if not all) of my concerns.” On Friday, Kass also appeared on CNBC and said he purchased more Apple shares earlier in the day.

Shares of Apple hit as low as $505 on Friday, marking a 28 percent decline from its September peak. However, shares snapped back to close the day higher at $527.

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