Apple Inc. (AAPL) shocked investors when the company pre-released its fiscal first quarter revenue, noting it would come in lower than previous guidance. The news sent shares sharply lower, plunging 10% on January 3. Through January 4, Apple’s stock has now fallen 36% from its October highs.
Not all investors were caught off guard by the recent declines though, as hedge funds were actively selling the phone maker in the third quarter. Investors’ worries have centered around the trade war’s potential impact on Apple and fears of declining iPhone sales. In September, Apple hosted an annual event revealing its latest iPhone models.
During the third quarter, hedge funds started selling Apple, with the number of 13F shares held falling 5.7% to 107.6 million shares. Also, during the quarter, 31 funds created new positions, while 92 added to existing ones. Meanwhile, 19 funds exited the stock while 109 funds reduced their holdings.
It would seem to some extent that some investors got ahead of the stock’s steep decline. Apple released its newest iPhones in September. iPhone sales represented about 63% of Apple’s total revenue in 2018 and make the phone a critical piece of Apple’s business.
When Apple revealed its newest iPhones in September, before the end of the third quarter, the stock was trading at its all-time high around $230. Perhaps these investors were unimpressed by the newest phones or the price points. The three new iPhone models were Apples most expensive yet, with the cheapest starting at $750.
Investors Get Spooked
With the stock trading at its all-time high, investors were spooked when the company told them during its fiscal fourth quarter conference call in November that it would no longer break out its iPhone unit sales. The fear among investors quickly shifted to the potential for declining iPhone revenue, sparking the stock’s steep decline.
Apple reduced its revenue on January 2 to $84 billion for the first quarter, which came in below the company’s prior guidance and 8% below analysts’ estimates. The company noted much of the weakness was a result of an economic slowdown in China. This weakness further fed into investors’ fears that the trade war between the U.S. and China was having a significant impact on the company.
it is not clear at what point during the third quarter hedge funds started reducing their holdings in the stock, however, it is likely a trend that continued throughout the fourth quarter. It is clear now why they started to reduce their holdings. It will be important to note when the tide turns, and these hedge funds start buying the stock once again.