Tuesday, April 08, 2008

Apple (NASDAQ:AAPL): Apple should be 10+ pts lower here

Morgan Keegan, one of the best research houses on the Street is downgrading Apple (NASDAQ:AAPL) to Underperform from Mkt Perform.

Notablecalls: About time! I was all over AAPL when the stock was 35 pts lower. I now feel it has gone too far too fast. Needs to be at least 10 pts lower. The problems with iPhone in Europe should be weighing on the stock. Read what uber-analyst Tero Kuittinen had to say about European iPhone demand over at Realmoney.

PS: Deets (the wording is very strong):

We are downgrading our rating on AAPL shares from Market Perform to Underperform based on mounting evidence of broad-based weakness in consumer technology spending in the U.S. and Europe.

We also expect that Apple's education vertical will be more challenged this year given state and local budget issues, which combined with what appears to be a more stable component pricing environment, we believe will lead to a deceleration in growth over the next 2-3
quarters.

We are maintaining our March estimates for Apple, but slightly lowering June, Sept., and Dec. quarter expectations for both iPods and Macs based on a difficult economic environment. We are now projecting Y/Y EPS growth to slow substantially over the next few quarters. We believe the upside potential in the shares if the Mac biz continues to outperform is outweighed by the downside risk if growth begins to slow, and are therefore downgrading to Underperform.

14 comments:

Timothy Hussar said...

Nice call. So many people were piling in, afraid to miss the bounce...I kicked my pos yesterday

notablecalls said...

well done, Tim.

roberta said...

simon, I am surprised at your comments on Morgan Keegan. Research tells me the they initiated coverage in Sept. 07 with a market perform rating. Price of Apple at that time was 140 on it's way to 200. No one is perfect.

notablecalls said...

I generally consider MK very good.

ZoomAddict said...

MK is generally hit-or-miss as far as research goes. And with Apple their calls have been downright awful. They always think the macro environment is going to have more influence on AAPL than ends up being the case. This is just more of the same unless the economy -really- goes into the tank (I mean somewhere other than in a news anchor's fantasies).

The HardHead Fund said...

Whew, so it was OK for Apple to drop 50 points from 180 to 130 in January? I agree the run up was on low volume but I believe that Apple should have never dropped to 120. The trading range between 155-165 is where it should be. Additionally, Apple should have never dropped below the 200DMA and should be at least 10 points above that level. I'm not selling here and will simply ADD to my position if Apple goes below 150... which I don't think will happen.

Enjoy your site - a daily read for me.

Jerry Cotton said...

Buying Apple is a wise move. Those who don't will regret...

apple said...

this analyst doesnt now what he's talking about.. APPLE at $200 later this year.... and $175 on April 24.

James Burger said...

Bad call! Especially after two upgrades yesterday.
If I were conspiratorially minded, I would think this is stock manipulation, but as other commentators have mentioned, MK has been wrong about Apple consistently. Shorts will make a little money on this.

Captain Wisdom said...

So AAPL was downgraded from Market Perform by Morgan Keegan's analyst Tavis McCourt. Not having heard of him, I checkout out their MK's Analyst Performance disclosure for Q4 ("Transparency of Analysts' Performance Q4:07).

He rated 16 stocks, including Apple (AAPL) at Market Perform on 10/3/07 and Research in Motion (RIMM) at Outperform on 10/2/07.

After he rated it, AAPL lost 0.2% and RIMM was up 22.6% counted from the close of the day following his report to the close of 4/7/08. They both outperformed the market over that period. The change in S&P was -10.9%.

Of the other 14 stocks, he rated 7 as Market Perform. They went down on average 28.5% after his ratings. He missed that pretty badly, but so did a lot of amateurs like me. But his 7 stocks rated "Outperform" really got to me. They were down an average of 27.3% -- pretty much the same as his Market Performers".

I can't can't put much faith in his analyses and ratings. Most of us could have done as well with a coin toss. But he sure did move the price of AAPL down this morning!

Vincent said...

Apple went from $200 to $130 in January. Isn't that too far and too fast as well?
And why didn't this downgrade come earlier?

roberta said...

LET'S NOT FORGET MK'S CALL ON DSX IN JUNE 06. GAVE IT A MARKER T PERFORM RATING AT $10 AND IT WAS ON IT'S WAY TO $40+. ANOTHER GOOD CALL.

Zeke said...

Morgan Keegan is apparently either a very ignorant group of people or very dishonest. This is from the Mark & Associates corporate web page as reported 04/01/2008:

"Mark & Associates, P.C. is representing investors who lost money investing in two Regional [Nashville, TN] Morgan Keegan open end bond mutual funds, the Morgan Keegan Select Intermediate Bond Fund (RIBCX) and the Morgan Keegan Select High Income Fund (MKHIX). Year to date, the Morgan Select Intermediate Bond Fund is down 50.5 percent and the Morgan Keegan Select High Income Fund is down 59.7 percent. Mark & Associates, P.C. is also representing investors in several Morgan Keegan closed end funds: RMK High Income Fund (RMH), RMK Strategic Income Fund (RSF), MK Multi Sector High Income Fund (RHY) and RMK Advantage Income Fund (RMA). These closed end funds have lost a tremendous amount of value, with some trading 75% below their 52 week highs.

The precipitous decline in these funds was the result of their large investments in illiquid securities known as: Collateralized Bond Obligations (CBOs), Collateralized Loan Obligations (CLOs), and Collateralized Mortgage Obligations (CMOs). These securities rarely trade and have no active quotations. However, the illiquidity of these securities did not stop the funds from continuing to purchase them. To make matters worse, the funds invested heavily in CMOs based on subprime mortgages. In the summer of 2007, the subprime mortgage crisis began as defaults and foreclosures began to reach record numbers. As as result, many of the securities that held these types of mortgages lost a tremendous amount of their value or became completely worthless

The Morgan Keegan Select Intermediate Bond Fund and the Morgan Keegan Select High Income Fund were the only two intermediate term or high-yield bond funds that invested so heavily in these types of securities. In making these investments, Morgan Keegan violated the terms stated in the prospectuses for both of these funds, and mislead investors. For example, sales material dated June 30, 2007 states "Opportunity for High Current Income - The relatively conservative credit posture of the Fund reflects our goal of higher yields without excessive credit risk.” Investors in these Morgan Keegan funds were lead to believe they were making safe and conservative investments, but in reality this couldn't be further from the truth."

I wonder what their motives are for this downgrade of Apple.

cferry said...

There are very few analysts who follow Apple closely and have any idea what the company is about. Most just flail in the dark, criticizing Apple for being different from other PC companies or consumer electronics companies and missing the point that the differences are the source of Apple's growth and value. Many purported "analysts" are bandwagon jumpers who try to see where the mob is heading and then get there ahead of them. Most of them have no more relevance or accuracy than a tea leaf reader. As others have pointed out, this guy's advice has ill served his clients over the past few years. Let's look at this again in a year and see how he did.