Meet the Funds Who Think Apple Is a Sell
For some, Apple (NASDAQ:AAPL) is among the most important investments they’re making, but there are large-cap growth funds that are choosing to either make the company’s stock a very small portion of their portfolio, or are not buying it at all. Definitely a minority — more than 84 percent of large-growth funds are said to own Apple — and compromising on short-term results, these investors are nevertheless certain that their decision makes sense.
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Apple (NASDAQ:AAPL) sold 35 million iPhone units in the first quarter, making $11.6 billion in earnings, and registering a 59 percent growth in revenue. The company has consistently beaten analysts’ expectations quarter after quarter, and continues to do well despite fears that it may be a bubble about to burst.
Why then would the Loomis Sayles Growth Fund decide to keep out of the company’s shares? While Loomis’s Aziz Hamzaogullari does not discount Apple’s success, his fund has not bought any Apple stock in two years. As a result, the fund, despite its 11.7 percent return, trails 90 percent of its large-growth peers this year. Hamzaogullari is not worried.
He says that before investing in a stock, he considers its prospects over a minimum of five years, and Apple just didn’t cut it. Hamzaogullari says it’ll be hard for the company to sustain profits that rely almost 50 percent on the iPhone, especially since the device will not have the same carrier-provided subsidies overseas that it enjoys domestically. That is likely to affect sales prospects in developing countries from where Apple is expecting its next growth surge.
Hamzaogullari cites the examples of Nokia (NYSE:NOK) and Research in Motion (NASDAQ:RIMM), who both had huge market shares and looked to be great prospects for investment, but quickly sank under competition. There are dangers of Apple going down the same path eventually, according to Hamzaogullari. “In the end, we believe that its margins, market share and the business model are not sustainable,” he tells CBS News.
Tony Trzcinka, who runs the Pax World Growth Fund, agrees. Apple (NASDAQ:AAPL) stock makes up only 2.5 percent of his fund, and despite an overall 12.5 percent return, it also trails 80 percent of its peers. Apple’s products are doing phenomenally well, but Trzcinka says the company’s long-term prospects may not be as strong. “Its revenue projections assume that every new product introduction will be a hit,” he says. “This is especially worrisome given Apple’s short product cycle.”
So while there continue to be funds like the Matthew 25, 18 percent of which is Apple (NASDAQ:AAPL) stock and which delivered 23 percent return this year to be in the top 1 percent of large-cap growth funds, contrarians who believe in holding out to the biggest current name is the right decision abound.
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