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Analysts to Apple: Bend your knee to Wall Street

Apple products continue to be in high demand, according to CEO Tim Cook, but the company’s stock is not seeing the same success. Numbers released Wednesday suggested that the company’s growth spurt is slowing drastically.

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Apple products continue to be in high demand, according to CEO Tim Cook, but the company’s stock is not seeing the same success. Numbers released Wednesday suggested that the company’s growth spurt is slowing drastically.

NEW YORK — Apple needs to come down off its perch and start making nice with Wall Street, analysts said Thursday as investors hammered the company's stock.

The selloff threatens Apple's status as the world's most valuable company. At Thursday's close, it was worth $423 billion, just 1.6 percent more than No. 2 Exxon Mobil Corp.

The plunge was set off by Apple's quarterly earnings report late Wednesday, which suggested the company's nearly decade-long growth spurt is slowing drastically.

The stock ended down $63.51 or 12 percent, at $450.50. It last traded that low a year ago.

What can Apple do to boost its stock? Analysts say it may not be able to win back the investors who bought the stock on the way up. They'll be chasing the next hot stock. But the company can make itself appealing to a new crop of investors who have never considered the stock, by doing what Wall Street wants and doling out more of its massive cash pile in the form of more generous dividends and stock buybacks.

As it reported earnings Wednesday that were flat from a year earlier, Apple forecast sales growth for the current quarter is around 7 percent compared with a year ago — far from the 50-percent-plus rate it's often hit in recent years.

To be sure, Apple products haven't lost their appeal: CEO Tim Cook said the company couldn't make enough iPhones, iPads and iMacs in the holiday quarter to satisfy demand. The problem is that Apple hasn't launched a revolutionary new product since the iPad in 2010.

It may be too much to ask that a company reinvent consumer electronics every few years, but Apple did it three times in a decade with the launch of the iPod, iPhone and iPad. In doing so, the company left investors with the expectation of perpetually zooming growth.

Now, Apple looks quite different. It's still massively profitable, but its growth is moderate, making it similar to companies like IBM and Microsoft.

Analyst Brian White at Topeka Capital Market said the lack of interest from value-oriented investors, who look for bargain stocks, means Apple lacks a safety net when there's bad news, like Wednesday's earnings report. When other companies' stocks fall, value investors tend to swoop in, putting a floor under the stock and dampening volatility.

"No one wants to pay anything for (Apple) because you can't get the value investor to back it up," White said.

Apple sits on a cash pile of $137 billion, a hoard that frustrates many company watchers, and analysts are virtually unanimous in their opinion that Apple should be putting it to better use. Nomura Securities analyst Stuart Jeffrey calculates that Apple will generate about $103 billion more over three years, but has committed to returning only $45 billion of this $240 billion in cash to shareholders.

"The company needs to change strategically in a number of ways … including in looking after shareholders," Jeffrey said.

n

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m

Sept. 19, 2012

High close:

$702. 10

Wednesday

Close: $514.01

Thursday

Close:

$450.50*

* Apple's stock closed Thursday down $63.51 — 12 percent — from the previous day and down $251.60, or 36 percent, from its high close last year.

Analysts to Apple: Bend your knee to Wall Street 01/24/13 [Last modified: Thursday, January 24, 2013 9:36pm]
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