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3.4 Million Reasons Why Apple Inc. (AAPL) Lagged Last Quarter — and Why It Will Bounce Back

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Investors suspected as much, and now they have proof. Institutional selling played a large role in Apple Inc. (NASDAQ:AAPL)‘s fourth quarter sell-off last year. The first three quarters of 2012 were going just swimmingly, but shortly after peaking over $705 on the day that the iPhone 5 launched, it all went downhill from there.

Metric Q1 2012 Q2 2012 Q3 2012 Q4 2012
Performance 48% (2.6%) 14.2% (20.2%)

Source: Nasdaq.

That table doesn’t include the 12.3% loss that shares have experienced so far year-to-date through yesterday’s close either.

Apple Inc. (NASDAQ:AAPL)

Sell! Sell! Sell!
Several large hedge funds have now filed 13F forms with the SEC, detailing their holdings each quarter. The predominant theme was that there was something of a mass exodus among funds looking to lock in capital gains from Apple Inc. (NASDAQ:AAPL)’s incredible performance through the first three quarters of the year. Reuters outlines some of these notable exits.

Fund Shares Sold in Q4 2012
Omega Advisors 266,000
Eton Park Capital Management 250,000
Farallon Capital 137,000
Jana Partners 143,000
Third Point 710,000
Viking Global Investors 1.1 million
Lone Pine Capital 805,000
Total 3.4 million

Sources: Reuters and SEC filings. Shares rounded.

These seven funds dumped their entire stakes in the Mac maker, flooding the market with over 3.4 million shares throughout the quarter. That’s a lot of selling pressure, but most of these funds were enjoying healthy gains and contemplating the prospect of the impending fiscal cliff that threatened to increase their tax burden on those gains.

Beyond long investors exiting their positions, outright bears shorting the stock have also grown their ranks. The total number of shares held short increased by 2.7 million shares during the fourth quarter, and also added another million in January alone.

It’s no wonder that Apple Inc. (NASDAQ:AAPL) has seen a break between its share price and fundamental valuation, since these funds were adding considerable selling pressure for reasons not entirely related to the actual business.

There are certainly some justified fears of escalating competition and iPhone growth deceleration, but that hardly warrants a pullback of 40% over the span of four months when you consider that the overall business remains remarkably robust and Apple Inc. (NASDAQ:AAPL) continues to post numerous records in metrics like revenue, net income, and both iPhone and iPad unit sales.

Buy! Buy! Buy!
While some funds may have dumped their shares, others decided to take the opportunity to buy more.

Fund Q3 2012 Shares Q4 2012 Shares Shares Added Percent Increase
Appaloosa Management 521,000 913,000 391,000 75%
Soros Fund Management 85,000 184,000 99,000 117%
Greenlight Capital 1.1 million 1.3 million 216,000 20%

Source: SEC filings. Figures may not add due to rounding.

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