According to Apple’s Guru Trades page, 28 Gurus own Apple shares, as of Sept. 30, 2012. Five Gurus increased their positions in the company, 17 kept their positions unchanged or slightly adjusted them, and 6 reduced their positions. Only three eliminated all their shares.
With 14.6% of his total assets invested in Apple, Julian Robertson of Tiger Global Management has the most riding on Apple’s performance. He is one of the lucky early investors, having begun his stake in 2008 at under $100 a share on average. On average he has earned a 125 percent gain.
Robertson continued to like Apple into 2012 and added more than 32,000 shares in the first half of the year. The position consists of slightly more than 100,000 shares at third quarter’s end.
Robertson commented on why he liked Apple in a CNBC interview on Oct. 23, 2012, when the company’s stock had been sliding for about a month: “Apple is a magnificent company and a great value at these levels, and it’s rare that you get to have a great company at a great value,” he said. “Apple is now somewhere around 14, 15 times next year’s earnings. It’s very reasonable for the growth you can get,” he added.
On the strength of groundbreaking technology from the mind of its late, relentlessly creative CEO, Steve Jobs, Apple grew revenue at the break-neck average annual rate of 48% over the past five years. EBITDA simultaneously grew at 68.5%, free cash flow at 55.3% and book value at 52%.
The question for many now is whether that type of growth can continue absent idea-generator Jobs, new products and with intensifying competition from Research In Motion (RIMM), Samsung (SSNHY), and others.
While the word “record” peppered Apple’s first quarter results, released Jan. 23, 2013, its revenue narrowly missed analysts’ estimate. Revenue was a record $54.5 billion, driven by increases in iPhone, iPad, Mac, iPod sales, to record levels.
Another dim spot was its flat year-over-year earnings. Profit inched up to $13.08 billion, or $13.81 a share, from $13.06 billion, or $13.97 the previous year.
Apple expected to report $52 billion in revenue and $11.75 in EPS. Analysts were expecting $54.7 billion in revenue and $13.41 in EPS, according to the LA Times.
Another notable Apple investor, Greenlight Capital’s David Einhorn, did not see the results as problematic and still believes in the underlying strength of the company. In his fourth quarter letter, he intimated:
“On the long side, Apple (NASDAQ:AAPL) shares fell from $667.10 to $532.17, giving back all its third quarter gains and then some. We used the lower prices as an opportunity to repurchase the shares we sold in the third quarter.”
His made the buy decision despite Apple, along with Green Mountain Coffee Roasters (GMCR), contributing significantly to his fund’s 4.9% loss in the fourth quarter. The loss quelled his overall return for the year to 7.9%.
As of the third quarter’s end, Einhorn held 1,090,890 shares, which carried a 48% gain on his average purchase price. He has 12% of his fund in Apple.
Finally, at least one Guru’s fund has commented on their loss of faith in the company’s growth prospects. An analyst from Ron Baron’s Baron Funds wrote in their third quarter letter:
“Lastly, before the end of the quarter, we finally sold Apple, Inc. (AAPL), one of the Fund's most successful investments since inception. This was a tough judgment call that has worked out well, at least on a short-term basis. Our reasons included concerns about the ultimate market cap the market would allow the company to achieve, rising competition from Android devices, the release of the iPhone 5 with a sub-par mapping application and concerns about the ability of the company to hold together its management team in the post-Steve Jobs era (a concern that was validated when the company announced management changes).”
Notable managers that lost on Apple tended to buy in more recent quarters. Appaloosa’s David Tepper, who made Apple his largest holding under the PowerShares QQQ Trust ETF (QQQ), began buying in the first quarter of 2011. His average purchase price of $448 for all his shares is at break-even currently, up just 1%.
Daniel Loeb is sitting on 20% paper losses from his average purchase price since opening a position in the first quarter of 2012 at $504 a share. He has entered an exited the stock at profitable points in the past, however.
His reason for coming back to Apple appeared in his first quarter 2012 letter:
“Following Apple's December quarter earnings, we re‐established a position in the stock at $445 per share, a level 10% up from the pre‐earnings price. While the market reacted positively to the strong results, we believed it was still not discounting adequately the strong likelihood that Apple would return capital in 2012. The prospect of capital return stood to broaden the investor base enabling the market capitalization to re‐base around an attractive dividend profile, particularly relative to the Company's growth rate. Beyond the capital return catalyst, we were focused on Apple's entry into the 4G device space in 2012, led by the latest iPad and the pending iPhone 5,” he wrote. (Read more here.)
Indeed, Apple initiated dividend payments in July 2012 and paid its third of $2.65 a share on Jan. 2013.
Though Loeb has not yet reported his fourth quarter portfolio moves, Apple fell out of his top-five positions in October. He still maintains a position of unknown size as he lists the company in his “top losers” column for the month.
Only one Guru presumably interpreted Apple slow-down as permanent or too risky and exited completely in the third quarter, Ken Heebner.
Fourth quarter portfolio updates will provide a clearer picture of how Gurus feel about Apple going forward. A lack of new in-the-wings product announcements increases the challenge for investors to determine the sustainability of the company’s historic growth.
CEO Tim Cook piqued interest about what is to come but avoided details in Apple’s first quarter conference call.
““We’re working on some incredible stuff,” he said. “The pipeline is chock full. I don’t want to talk about a specific product, but we feel great about what we’ve got in store.”