Why Institutional Investors Are Dumping Apple Stock?

Apple Inc. AAPL seems to have lost favor with institutional investors who have reduced their holdings in the Cupertino-based company by almost 153 million in the first three months of 2018.

According to regulatory filings, as of Mar 31, T. Rowe Price sold 35.6 million shares, or roughly half of its stake in Apple. Fidelity Investments, Wellington Management and JPMorgan Chase & Co. sold 21 million shares, 9.8 million shares and 8.7 million shares, respectively.

This is exactly opposite to what the "Oracle of Omaha" Warren Buffett is doing with the stock. Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) recently bought an additional 75 million shares of the iPhone-maker worth between $11 billion and $14 billion, making it the third largest shareholder.

Buffett told CNBC that "Apple is an unbelievable company" and he thinks that "it earns almost twice as much as the second most profitable company in the United States."

Notably, Apple shares have returned 11.2% on a year-to-date basis, significantly outperforming S&P 500's increase of 1.8%.

Institutional Investors Vs. Buffett

Institutional investors' skepticism around Apple can primarily be attributed to growing concern over iPhone demand. However, Buffett seems to be less concerned about the short-term weakness in iPhone sales.

Notably, iPhone unit sales of 52.2 million in the recently concluded second-quarter fiscal 2018 were less than disappointing and it increased 3% on a year-over-year basis. Double-digit growth in several markets including Japan, Canada, Switzerland, Turkey, Central and Eastern Europe, Mexico and Vietnam was a tailwind.

Moreover, revenues from iPhone (62.2% of sales) grew 14% from the year-ago quarter to $38.03 billion. The upside can be attributed to higher iPhone average selling price, which increased to $728 from $655 a year ago.

More importantly the stickiness of iPhone is playing a significant role in expanding Apple's services business. Services — including revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services — increased 31% year over year and 8% sequentially.

Moreover, Apple currently has a Value Style Score of B, which reflects the stock is undervalued.

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