Jeffrey Gundlach, CEO and CIO at Double Line Capital, shocked the financial world yesterday by recommending investors short Apple Inc. (NASDAQ:AAPL). Gundlach is known as the Bond King, and has built his firm from zero to $35 billion in just a few years due to his solid returns.
The recommendation has added to the downward trend the company has been seeing in it’s stock price since just after its announcement of great earnings for the company’s second quarter. In the immediate wake of the earnings announcement the shares shot up to above 600. At time of this article the company is trading at 530.
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Gundlach has relied on precedent in Google’s stock price, as shown in the price of the company’s stock, to predict a drop in the company’s price. He believes the company is valued far too high and lays the blame for that at analysts guessing higher and higher price target for the company in recent months. Many of those targets put Apple at above $1000 in the Spring or Summer of next year.
“The genius isn’t there anymore” was one of the comments Gundlach made referring to the outlook for the Cupertino firm. As Apple’s share price has become harder and harder to predict shorting the company seems as risky as investing in it at current prices but Gundlach makes a compelling argument.
Gundlach believes analysts have led investors right to a high in Apple’s stock as they did with Google Inc (NADAQ:GOOG) in 2007. Google is still trading far below what it did in that year and the simple comparison might be enough to shift many attitudes on the stock.
Apple was down yesterday. The drop may be to do with European instability or it may be the growing disillusionment with the massive price on the world’s largest company. Apple may have solid fundamentals but it operates in a risky environment where one wrong move could result in a big downward spiral.
Apple’s record high came in April when the company broke $636 today it’s more than $100, or almost 16%, below that price. A short may be on the cards if the investment world is captivated by the argument. A move by the company to realign media interest in the company would be appreciated by current holders of the stock.
The Wall Street Journal is reporting today that the short “has legs”. If Apple really wants to prevent people talking about shorting the company they should leak details of the iPhone 5, or Apple TV, or iPad mini.
If the company does nothing to shift media attention away from the short we may be in for a volatile time on Apple’s stock.