| NEW YORK
NEW YORK Oct 24 After long stints as darlings
of the stock market, three of Wall Street's most widely-owned
companies have hit a wall this month.
Apple Inc. lost 8 percent from the start of the
quarter through Tuesday's close; Google Inc. fell
nearly 10 percent; and upscale fast food restaurant Chipotle
Mexican Grill fell 25.6 percent to a 20-month low. The
benchmark Standard and Poor's 500 index was down 1.9 percent
over the same time.
There are reasons for the recent poor performance of each
stock, of course, from Google badly missing earnings estimates
to the lingering fallout after noted short-seller David Einhorn
panned Chipotle's stock in an Oct. 2 presentation.
But the darling-to-dud flip is often exacerbated by
something else. Fund managers and advisers say that each
company's past reputation as a can't-miss investment may now be
working against them.
"When you see a stock get hit hard after it was priced in
its upper range, you typically won't have anybody jump back in
until it's trading at a discount," said Robert Luna, a financial
adviser with SureVest Capital Management in Phoenix.
Negative momentum in a company's shares is often only
reversed by strong earnings or a significant event, he said.
It's too early to tell whether recent pullbacks in Apple,
Google and Chipotle are short-term reactions or the start of a
prolonged slowdown, but some investors aren't waiting. Here are
some of their strategies.
LOOK AT VALUATIONS
Google and Chipotle may be the most likely companies to
continue their slide, analysts and advisers said.
Luna, for instance, sold his firm's position in Google after
it missed analysts revenue projections and earnings estimates
last Thursday. The company's shares dropped 8 percent that day.
"We still like the company longer term, but we felt like its
share price had gotten ahead of itself," said Luna, who still
made a profit on the shares, having bought them in January and
February when the company traded in the high $500s. Google
closed at $680.35 Tuesday with a P/E ratio of 21.2, compared
with the S&P 500's P/E ratio of nearly 16.
The acquisition of tablet and smartphone maker Motorola
Mobility for $12.5 billion in May could continue to drag down
Google's earnings, said Rick Summer, an analyst at Morningstar.
Daniel Ernst, an analyst at Hudson Square Research, noted that
the company's "core business remains strong" but may be offset
by lower-margin hardware sales and depressed mobile ad rates.
Analysts are also more pessimistic about Chipotle's
prospects. After years of growth, expansion efforts would likely
be in smaller markets, which could drag down Chipotle's overall
profits, noted Andy Barish, an analyst at Jefferies & Co.
He cut his price target by almost 30 percent, to $215 from
$305, after the company missed earnings estimates and announced
growth would likely slow next year. Barish now rates the company
an underperform. The company's shares closed at $236.24 on
Tuesday and trade at a P/E ratio of 27.6.
Overall, analysts tracked by Thomson Reuters have a median
price target for the company of $300, compared with a $390 just
30 days ago. Eighteen of the 22 analysts who follow the company
rate it as a 'hold', meaning that it should trade roughly in
line with its competitors, according to Reuters data.
APPLE COULD STILL SHINE
Apple could still remain a stock market darling despite its
recent drops, analysts said.
"If you buy into the theory that we're still in the early
innings of the tablet adoption cycle then it has considerable
room," said Channing Smith, a portfolio manager of the $14
million TacticalShares Dynamic Allocation Fund. He
pinned the company's recent declines on momentum traders selling
after riding the share price higher. Its shares hit an all-time
high of $705.07 on Sept. 21, but have fallen 13 percent since
then, to close at $613.36 Tuesday. That's still up 51.5 percent
for the year.
Smith has a price target of $750 for Apple, in part because
he thinks it has better growth prospects than the broader S&P
500 and deserves a higher price-to-earnings multiple than its
Sandy Villere, a portfolio manager of the $242 million
Villere Balanced Fund, said that Apple "looks pretty
cheap" considering its potential for growth with the new iPad
Mini and the long-rumored Apple television sets.
The 56 analysts tracked by Thomson Reuters who rate the
stock have a median price target of $775 for Apple's shares, up
slightly from $770 30 days ago.
Thomson Reuters StarMine intrinsic value for Apple,
meanwhile, is $871 a share - using estimated growth over the
next decade along with a combination of analyst estimates for
the next five years and projected growth rates past that period.
IMPACT ON FUNDS
A slowdown in Apple shares would hurt mutual fund investors
the most, noted Tom Roseen, the head of research at Lipper, a
Thomson Reuters company.
In the 1,132 funds that hold its shares, Apple makes up an
average of nearly 5 percent of assets, according to Lipper data.
The company's 210 percent return over the last three years
accounted for nearly a fifth of the gains in large cap funds
over that same time, according to Lipper.
"If Apple gets a black eye, it's going to give a lot of
funds a black eye," Roseen said.
The most exposed funds include the Fidelity Select Computers
Portfolio, Berkshire Focus Fund, and the
Putnam Global Technology Fund. All have between 23 and
25 percent of their assets in Apple shares.