Apple stock has been quietly underperforming its key benchmarks in 2021. The problem does not seem to be with business fundamentals, but with market sentiment instead.
Quietly, Apple continues to underperform in 2021.
Over the past four trading days (last Monday was President’s Day and the stock market was closed), shares of the Cupertino company declined about 4%. None of the main peer groups, including the consumer discretionary and tech sectors, performed this poorly.
See chart below – Apple is the blue line.
The full-year picture has not looked much more promising, at least so far. Apple shares rallied ahead of its fiscal first quarter earnings day, which was covered in detailed by the Apple Maven a few weeks ago. Towards the end of January, Apple had gained more than its key benchmarks year-to-date. See graph below.
However,the “sell the news” pullback that I warned about on January 28 took place. From last month’s peak, Apple has already dipped 9%. Shares are on the verge of entering correction territory once again.
Not about the fundamentals
I find it hard to believe that any of the recent weakness in Apple stock has anything to do with fundamentals.Think of the company’s earnings results, for example.
The iPhone staged an impressive comeback, with revenues climbing 17% during the holiday period after a disappointing fiscal fourth quarter. China also showed signs of life at last, as sales increased a whopping 57% in the region. Margins expanded on the back of gains of scale and a more favorable product mix. The company’s balance sheet is flush with cash.
What’s not to like about Apple’s business?
A sentiment problem
The problem with Apple shares so far this year, in my view, are two.
First, the stock seems to have caught too strong of a tailwind in the past couple of months:once from the Apple Car buzz, in late December, and again as investors anticipated a blowout holiday quarter in 2020. Therefore, it was reasonable to see shares adjust to what may be a more reasonable price below the $130 mark.
Second, 2021 has been a year to bet on recovery stocks, not high-quality growth names like Apple. Notice below how small cap and high-beta stocks (tickers IWM and SPHB) have lavishly outperformed the high-quality ETF and the Nasdaq (tickers QUAL and QQQ) so far this year.
The Buffett effect
The most recent event that helped to push Apple shares lower was Berkshire Hathaway’s disclosure of its portfolio holdings, as of the end of 2020. Warren Buffett’s company sold about $7.4 billion worth of Apple shares in the last quarter.
As I explained, the move seemed to be a position trim rather than a bearish statement. I do not believe that investors should be concerned about Apple losing the Buffett seal of approval, especially considering the still massive 43% allocation of Berkshire’s portfolio to the Cupertino company.
Yet, the market is the market, and it chose to punish Apple stock even further, following the release of Berkshire’s most recent 13-F filing.