About two weeks ago, upon releasing out latest refresh of Apple research (Apple Margin & Valuation Note [9]) to subscribers, I gave free readers an example of the evidence we uncovered showing Apple already experiencing margin compression and a loss of market share in one of its flagship products (Apple's iPad Is Losing Market Share And … [10]).
If the biz class 101 rules ring true, this could very ugly very fast... The Company had a slam bang quarter last, but much of that is essentially unrepeatable in the near term, reference Anecdotal Observations On Apple's Recent Quarter [11].
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Magin compression combined combined with dwindling market share usually results in lower profits. Of course, in this case, the entire market is growing like bananas, thus the market share/margin compression is hidden behind spectacular growth - for now. True fundamental investors now easily see the writing on the wall that I identified two years ago, but there are now other threats to looming that exacerbate the fundamental picture.
Enter Macro Mode with a Quantitative Bent - In other words, let's use some common sense!
Apple is held, literally, by a near majjority of US institutional investors. As a retailer, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500), as per Zerohedge: It's Official - Apple Is Now Bigger Than The Entire US Retail Sector [14]
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Is Apple truly worth more than the entire (S&P defined) retail industry? Just sit back and let that settle right next to the margin compression theory.
Such concentration allows Apple - a single stock - to be responsible for massive swings in the entite NASDAQ (from ZH): Apple Responsible For 90% Of Intraday NASDAPPLE Gain [16]
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So, this begs the question...
What happens if (no,not if but when) these investors (large and small alike) take out their calcuators/spreadsheets and realized thier really is no free lunch (even if there is an Apple in it)? Well, if one were to pontificate and surmise, it may be happening soon...
This interesting observation was brought up up in my Twitter feed, to wit:
# of funds in this order (%) since 12/2010: +1.4%, -4.0%, +8.7%, +4.3%, +5.4%, +3.2%, -25.8% (1st big drop)
@PierreLeroux28 [18] @ReggieMiddleton [19] I just find it interesting (if the data is accurate) that more than 1,000 funds sold out during rise
PierreLeroux28 Pierre Leroux [20] So if institutions dump some $AAPL on strenght after that THEY ALSO BUY THE DIPS Like i will rebuy my 10 calls
Of course the lovefest with Apple dictates the BTD will reign, but suppose the dips are accompanied - better yet caused - by widespread use of technologies known as calculators, spreadsheets or BoomBustBlog subscriptions?
Food for thought as markets correct and the buy the dip phenomenon takes hold this morning in the US equity futures market.