More bad news about Apple Inc. (NASDAQ:AAPL) appears to be emerging as The Wall Street Journal is reporting that Apple Watch sales may have been weak in the second quarter, a report that comes as the iPhone maker’s stock dipped to $113.25 per share in intra-day trading today, down over 4% from yesterday and the lowest price the stock has had in over six months. According to the report, Bernstein Research analyst Mark Li has revealed that a subsidiary of Taiwanese company Advanced Semiconductor Engineering Inc. (ASE) which makes the system-in-package, the core chips and sensors component also called the SiP, of the Apple Watch did not reach its “break-even volume” of two million SiP units a month throughout the second quarter.
What is more, the subsidiary doesn’t see reaching the level in the third quarter and the fourth quarter. This is especially important since the third quarter is when production should ramp up in preparation for the holiday season in the fourth quarter. The analyst tells The Wall Street Journal that not reaching the said level is atypical for the third quarter and that he expects ASE to not ship the 18 million SiP units he previously forecast the firm would.
Over the last five trading days, Apple Inc. (NASDAQ:AAPL)’s share price has declined by over 8%, the majority of the drop happening yesterday, when it fell 2.36%, and today. Year-to-date, the stock has risen marginally by less than 1%. Its low today of $113.25 per share is below the share’s 200-day moving average. The shares of the iPhone maker also sank on July 22 when the market reacted negatively to the firm not reaching expected iPhone sales volume despite posting healthy better-than-expected earnings and revenues. This negative development about the Apple Watch, if it proves to be true, adds to the woes of the firm faces in addition to iPhone volume figures falling below estimates. This could pose as a problem for the stock, as it relies a lot on iPhone sales which make up a very considerable chunk of its overall sales, and is the reason why Dr. Ian Dogan, Insider Monkey co-founder and research director, has sustained a bearish view on the technology behemoth for more than a year now. The development is also interesting since Fitbit Inc (NYSE:FIT), a rival in the wearables space the Apple Watch competes in, is expected to post stronger-than-expected results for the second quarter.
Hedge funds also appear to be becoming wary of investing in Apple Inc. (NASDAQ:AAPL). Heading into the second quarter, a total of 150 of the hedge funds tracked by Insider Monkey were bullish in this stock, up by just one from a quarter earlier. However, the total value of hedge funds holdings by March 31 increased only 3.06% quarter-over-quarter to $21.52 billion, considerably lower than the 12.73% share price growth of the stock in the first quarter. The stock only grew by a marginal 0.8% in the second quarter.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 123.1% over the ensuing 35 months, outperforming the S&P500 Index by 66.5 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
We also track insider holdings comprised of share sales or share purchases. This gives us an idea about the sentiment of insiders in their companies. The most recent purchase of shares by an Apple insider is by Director Susan Wagner who acquired 2,000 shares in the iPhone maker on July 27. On the other hand, Senior Vice President Daniel Riccio sold 24,085 shares on July 24, wiping out all of his holdings in Apple Inc. Keeping these in mind, we’re going to take a look at the new hedge fund activity surrounding Apple.
