Apple Inc. (NASDAQ:AAPL), reflecting the dive in the overall market Wednesday, has been flirting with “bear market” territory on the stock, finishing a 20-percent drop in the price since mid-September. But how low can it go, even with several new devices in the market for the holiday season – which is usually its best sales season?
Would you believe $530 or less, just a short time after the Apple Inc (NASDAQ:AAPL) stock reached an all-time high of $705? For Darren Chervitz of Jacob Internet Fund, that would seem to be a good play. But for Jeff Gundlach, CEO of Doubleline Capital, that might even be overbought – he projects the stock going as low as $425 next year, as he spoke on Fast Money on CNBC.
Why such pessimism on such a large tech brand? Gundlach’s thesis is pretty simple: It has to do with innovation, or a lack of it.
“It seems to me with Apple that it’s an overbelieved stock,” Gundlach said. “Everywhere you go, there seems to be an obsession with it. The product innovator, as I’ve said over and over again (Steve Jobs), isn’t there anymore. I’m really struck with this iPad Mini thing. Once you start changing the size of your products, I really think you’red not exactly innovating.”
Gundlach went on to add that some aspects of this Apple Inc (NASDAQ:AAPL) stock selloff could be attributed to impending increases in capital-gains tax increases that are expected in January when the current tax rates expire. However, he also said, “This stock really started to go pretty powerfully vertical at about $425, and I think that when a stock goes vertical, then gets tired and peaks out, (it) usually goes back to the point where it went vertical.”
Chervitz certainly isn’t surprised by the movement, and sees the bottom coming pretty soon – a little sooner than Gerlach, perhaps.
“We’ve been through situations like this with Apple plenty of times in the past,” Chervitz said of the drop while on the “Halftime Report” on CNBC’s Fast Money program. “We’re not short-term, fast-money guys. If we were, we’d probably be … out of the name in early October. I don’t think you’ll see much support until $530 or $500. At that point, I think $500 to $530 would absolutely be a point where I would look at it.”
Might Apple Inc (NASDAQ:AAPL) consider stemming the tide of the drop by initiating a buyback? Chervitz was asked this during the segment, referring to the company’s $100 billion in cash on hand. “Clearly they have the resources,” Chervitz said. “Its is trading at less than 10 times next year’s earnings, and for a company as strongly positioned as Apple is, growing still 20 percent next year, I think it would be a good use of cash. I’m not a huge fun of buybacks, but at this level I wouldn’t be surprised to see on news on that front.”
If you’re considering investing in Apple Inc (NASDAQ:AAPL) – or if you’re already investing – how would you see the stock? What are your thoughts? Do you think investors like billionaire fund manager David Einhorn of Greenlight Capital agree with Chervitz or Gerlach? Would you expect hedge funds to seell positions, or hold them and buy more at the bottom? Give us your thoughts below.