Fund managers unconvinced by Apple rebound

Tue Jul 22, 2014 7:06am EDT
 
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By David Randall and Edwin Chan

NEW YORK/SAN FRANCISCO (Reuters) - Apple, once a can't-miss stock, is finding it tough to persuade portfolio managers to come back into the fold.

The company's shares are up 17 percent for the year, nearly three times the performance of the benchmark Standard & Poor's 500 stock index over the same time. Yet the company remains one of the most significantly underweighted stocks among large cap fund managers, according to a Goldman Sachs report.

Part of the reason for a lack of portfolio manager enthusiasm is that Apple Inc no longer seems to be the hot growth company of old, fund managers say. It has not introduced a truly new device since the iPad in 2010. In 2012, it began paying a dividend, typically a sign of a company whose days of rapid growth are behind it.

Apple reports results for its fiscal third quarter on Tuesday, July 22. Wall Street is expecting revenue of $38 billion in the June quarter, up about 7.5 percent from a year earlier. The company will also provide a forecast for the current quarter: on average, analysts are estimating revenue in the quarter will grow 8 percent to $40.4 billion.

The company's profits come mainly from its line of iPhones, which faces more competition from Samsung and a coterie of up-and-coming Chinese companies such as Huawei and Xiaomi, smartphone makers that are grabbing market share - particularly in Asia - with reasonably priced yet capable devices.

"The company has been in a new-product slump for a while here, and although it's still growing, it's becoming more of a value play than a growth play at this point," said Skip Aylesworth, a co-manager of the Hennessy Technology fund.

Aylesworth has owned Apple shares for 12 of the past 15 years but does not hold any now because the company does not have any new products that can bring about sustainable high growth rates, he said.

"(Apple's) growth doesn't look that exciting when we can buy into a company that is growing 15 to 25 percent," he said. Aylesworth noted he has positions in companies such as SanDisk and Netflix, both of whose revenue has grow by 10 percent or more in their most recent quarters.   Continued...

 
The leaf on the Apple symbol is tinted green at the Apple flagship store on 5th Ave in New York April 22, 2014. REUTERS/Brendan McDermid/Files