| NEW YORK/SAN FRANCISCO, July 21
NEW YORK/SAN FRANCISCO, July 21 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
"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.
Apple's forward price-earnings ratio, which is somewhat
reflective of expectations of slowing growth, stands at below
14, compared with the nearly 82 that ultra-growth stock Netflix
Some investors on Wall Street, who point to statements by
Apple executives, are not as downbeat. Apple Chief Executive Tim
Cook has promised new "product categories" for 2014, while
Senior Vice President Eddy Cue said in May that the company's
pipeline was the best he has seen in his 25 years at the
Many investors expect Apple to make a play for the wearable
device market with a smart watch. Analysts also expect the
company to introduce two versions of its smartphone this fall,
including a 5.5-inch model that thrusts Apple into the market
for larger-sized phones that rival Samsung helped popularize.
Overall, only four actively managed funds have 9 percent or
more of their portfolios in Apple shares, according to
Morningstar data. As recently as 2012, forty-six such funds had
a similar stake.
The fact that fund managers are not overly bullish on the
company may be a counter-intuitive sign that its shares could
continue to rally, said Todd Rosenbluth, director of mutual fund
research at S&P Capital IQ. Companies that are overweighted by
fund managers tend to plateau as there are few additional
buyers, he said.
And Apple's shares typically creep northward in the months
preceding a major product launch, as anticipation builds.
"If a number of large mutual fund managers are underexposed
to companies that have a positive earnings surprise, the stock
could climb higher as those managers add to existing positions,"
(Reporting by David Randall in New York and Edwin Chan in San
Francisco; Editing by Linda Stern and Steve Orlofsky)