An interesting aspect of the most recent market rally that’s help propel the Dow to its all-time high is that Wall Street’s super-star stock, Apple (NASDAQ:AAPL), has been left in the dust. Since peaking at $705 in September, shares of the iPod/Pad/Phone maker have fallen as low as $419. That’s a staggering loss of nearly $270 billion in market value.
Many of you have asked me my opinion on Apple so I’ll cover it now and say that the shares are a very good buy (however note that AAPL is not on our 2013 Buy List). Let me explain what’s been happening. In the world of investing, money managers are under a great deal of pressure to seek out “non-correlated assets.” In simpler terms, when everybody else zigs, they want stocks that zag.
If the stock market rises, say, 3% in a given month, then we have a pretty good idea of where stocks like DuPont (NYSE:DD), Procter & Gamble (NYSE:PG) or Merck (NYSE:MRK) will be. But a money manager can’t rely on doing what every else does. If they’re charging top-dollar fees, they need to zero in on the assets that are, in essence, doing their own thing.
For a long time, Apple was certainly doing its own thing and doing it very well. Apple wasn’t only weakly correlated with the rest of the market, but there was hardly a major stock out there that behaved like Apple. The closest I could find was Qualcomm (NASDAQ:QCOM) and even that correlation was pretty weak.
At the risk of metaphorical excess, Apple became the golden goose. Money managers just gobbled up shares of AAPL and watched the profits roll in. In Fortune this week, Philip Elmer-DeWitt wrote about the harrowing tale of Andy Zaky who bankrupted a hedge fund and paid newsletter service solely dedicated to investing in Apple. Things were getting crazy, but now we’re seeing the flip side of non-correlation: A rising tide can send a non-correlated boat right to the bottom.
At Business Insider, Joe Weisenthal and Matthew Boesler pointed out that Apple’s recent collapse has been mirrored by the fall in gold miners. This makes sense because all those non-correlated sectors that provided so many good times last year are being abandoned all at once.
I had considered adding Apple to this year’s Buy List but I didn’t think the selling was over just yet. Now, however, the shares are quite inexpensive and most of the momentum guys have been cleared out. The numbers at Apple are simply phenomenal.
Apple is sitting on $137 billion in cash, or $145 per share. Going by Thursday’s closing price of just over $430 per share, Apple is trading for less than 10 times this fiscal year’s earnings, and the dividend yields 2.5%. I’m still not adding Apple to our Buy List (I can’t make any changes until the end of the year), but I rate AAPL a very good buy if you can get it below $435 per share.