Apple seems to be at a watershed period in its history.
More than a year after the death of founder Steve Jobs, the visionary and marketing genius behind revolutionary products such as the iPod, iPhone and iPad, it is a legitimate question to ask whether the consumer technology giant will ever regain its glamour and buzz.
And for hedge funds, a lot is at stake, since Apple has been one of the must-have stocks for several years, with many of them counting it as their top or second-largest holding. Apple’s stock has regularly been cited by many managers as their top performer in quarterly letters.
Yet, at its most recent close of $525.62, the stock now trades at its six-month low and is down 24 percent from its September 19 all-time high of $702.10 and down more than 21 percent since the September 12 introduction of the iPhone 5.
So far it looks like most hedge fund managers are hanging on to their big positions, especially the Tiger Cubs, Seeds and Grandcubs — the hedge funds with previous ties to Papa Tiger Julian Robertson of Tiger Management. At the end of the third quarter — or nine days after the iPhone 5 introduction — no hedge fund with a sizable stake unloaded its entire holding. Sure, several high profile funds did do some serious selling, although they did retain some shares.
For example, Stephen Mandel’s Lone Pine Capital unloaded nearly 618,000 shares, or about 43 percent of its total position. But it still retained about 805,000 shares. Renaissance Technologies — not a Tiger Cub — also sold nearly 600,000 shares, which represented more than 61 percent of its stake.
Even so, several hedge funds that did sell shares still held on to virtually all of their shares, especially some of the Tiger Cubs. Perhaps more significantly, Apple remained their number one holding at the end of the third quarter.
They include Philippe Laffont’s Coatue Management, which still owns more than 1.4 million shares after trimming its position by nearly 6 percent; Chase Colman’s Tiger Global, which still owns 1.3 million shares of Apple after selling 7 percent of its holdings; John Griffin’s Blue Ridge Capital, which still owns 348,000 shares; and even Tiger Management.
Several high-profile funds without ties to Tiger also counted Apple as their number one holding despite selling some shares in the third quarter. They include the multistrategy hedge fund firm D.E. Shaw, which sold 15 percent of its stake, leaving it with more than 1.5 million shares; and David Einhorn’s Greenlight Capital, which unloaded one-quarter of its stake but still owns more than one million shares.
Meanwhile, Apple remains the second largest stock holding of Ken Griffin’s Chicago-based firm Citadel and the third largest holding of Lee Ainslie’s Maverick Capital, which sold less than 1 percent of its stake in the third quarter.
What’s more, a number of hedge funds actually added to their stakes in the third quarter. They include Tiger Cubs Robert Citrone of Discovery Capital Management — which now owns more than two million shares — and Andreas Halvorsen’s Viking Capital, which owns nearly 1.1 million shares after boosting its stake by more than 11 percent. Other Tiger Cubs who added to their positions include Chris Hansen, founder of Valiant Capital Management, and Patrick McCormack's Tiger Consumer Management.
Dan Loeb’s Third Point was even more aggressive, expanding his stake by two-thirds to 710,000 shares. Highbridge Capital Management, which previously had a puny stake in Apple, added more than 115,000 shares in the quarter. David Tepper’s Appaloosa Management added a handful of shares, bringing his total position to 521,000 shares or so.
Other high profile managers who slightly increased their stakes in Apple in the third quarter include Omega Advisors, Kingdon Capital Management, Pennant Capital Management and Peak6 Investments LP.
Hedge funds that chose to hang on their Apple shares may be heartened by the fact that so far Wall Street’s sell-side analysts also think retaining the stock is a good strategy for now. In fact, Credit Suisse Securities called the stock a compelling valuation in a recent note to clients. “Shares remain inexpensive given the growth profile and $128 of net cash per share,” it stated in the note, with a price target of $750. It added that the next set of earnings results slated for around January 22 should serve as catalyst for upward earnings revisions and share appreciation.
Barclays is more bullish. It recently told clients it expects Apple to continue to gain share and be one of the main beneficiaries of the market move toward mobile devices. “Even with near-term margin pressures, Apple should still generate a disproportionate share of profit in computing over the long-term,” it stated in a note dated November 12, adding it believes the recent sell-off is overdone. Its price target: $800.