Another iPhone launch has come and gone, and Apple Inc (NASDAQ: AAPL) is reporting another batch of record sales for the top-selling product line in history. According to Apple’s website, the company sold 13 million iPhone 6s and iPhone 6s Plus devices in the first three days they were available.
The world seems to have grown accustomed to Apple’s incredible success, perhaps so much so that it is nearly impossible for Apple to impress anymore. While earning a reputation of consistent, historically unparalleled success seems like great news for shareholders, it may have created a unique problem when it comes to looking to the future.
There is no question that Apple has been one of the all-time greatest investments over the past 15 years or so en route to becoming the world’s largest public company. If you strike up a conversation with a casual investor these days, it’s hard to find someone that doesn’t own or hasn’t traded Apple’s stock at some point over the past few years.
And according to Apple’s iPhone 6 numbers, the company’s products have never been more popular than they are today.
But could Apple’s stock actually be too popular for its own good?
Back in May, brokerage TD Ameritrade reported data on the most popular stock holdings across four different generations of investors.
It was very insightful to see how, as investors get younger, stock holdings tend to progress away from blue-chip dividend stocks such as Pfizer Inc (NYSE: PFE) and Verizon Communications Inc (NYSE: VZ) and move more toward technology and growth names such as Facebook Inc (NYSE: FB) and Tesla Motors Inc (NASDAQ: TSLA).
However, one surprising aspect of the data was the extreme popularity of Apple. AAPL was by far the top holding of investors aged 18 to 87, several times more popular than the second most popular stock in each generation.
The statistics are presumably related to retail investors only. But how much Apple do institutional investors, who make up more than two-thirds of the market, own?
According to WhaleWisdom.com, which compiles 13F statistics on institutional investors, institutions held $418 billion of Apple stock as of the end of June 2015. Not only is that the largest overall holding, it is 66.5 percent more than the second largest holding, Microsoft Corp (NYSE: MSFT).
So what’s the problem? While it might be comforting to Apple shareholders to know they are not alone in their support of the company, the stock has underperformed in recent months. Despite the fact that Apple has a lower PE, forward PE, PEG ratio and P/FCF than big-name tech stocks Google Inc (NASDAQ: GOOG)(NASDAQ: GOOGL), Amazon.com Inc (NASDAQ: AMZN), Netflix Inc (NASDAQ: NFLX) and Facebook, its stock is flat so far in 2015 while each of these other names have surged higher.
Apple also pays a larger dividend and has much larger share repurchase initiatives than these rivals.
Earnings don’t lift share prices, analysts don’t lift share prices and news stories don’t lift share prices. There is only one thing that lifts share prices: buyers. The latest iPhone numbers emphasize that it doesn’t seem to matter what Apple does—the market isn’t buying, at least for now.
Perhaps Apple’s biggest issue is simply that too many people own too much Apple stock already. It might not be a matter of the market disapproving of the company’s performance, but rather the simple fact that potential Apple buyers already bought their fill of stock long ago. The issue of being “over-owned” seems like it shouldn’t be a problem for a single stock considering the massive size of modern global equity markets, but the statistics above indicate that Apple could be the exception to the rule.
According to Morgan Stanley and Thomson Reuters, while hedge funds own more Apple than any other large-cap tech company, it turns out they currently have less exposure to Apple than they have in the past. The graph shows that the top 100 hedge funds currently have about 2.9% of their portfolios devoted to Apple, slightly below their average historical allocation and well short of the top of the historical allocation range at around 4.5%.
These statistics give concerned Apple shareholders reason to believe that there could still be plenty of Apple buyers out there under the right circumstances. If record iPhone sales don’t do the trick, it’s going to be a tall order for Tim Cook and Apple’s management to determine exactly what those magic circumstances could be.
At least for now, Apple’s stock might be dead in the water. Its downside is likely limited by its strong valuation, but Apple seems to be lacking a game-changing catalyst in the near-term. Potential Apple buyers should consider tech rival Google instead, which currently has the second-best fundamentals among the group of high-growth large cap tech names mentioned above and is not nearly as highly-owned as Apple.
Disclosure: the author holds no position in the stocks mentioned.
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