Today: Apple (AAPL) closes out the week with its third straight day of establishing new lows on Wall Street, with important earnings report ahead. Also: Google (GOOG) gains after its earnings report as Wall Street ends worst week of the year.
All eyes on Apple's earnings report as horrible week comes to an end
Apple shares dropped to their lowest price since the death of co-founder Steve Jobs on Friday, hitting fresh 52-week intraday and closing lows for the third consecutive day. The decline is a continuation of a seven-month slide that has led to a sharper focus this week as Apple has slipped below $400 ahead of its first quarterly earnings report of 2013.
Apple stock has now declined as much as 45.4 percent since reaching an all-time intraday high of $705.07 on Sept. 21, the day the iPhone 5 launched in the United States, and 9.1 percent this week, declines that The New York Times described as both vicious and brutal in a front-page story for Friday's editions.
The questions for investors still holding on to the stock and those that have jumped in during this week's weakness is if the decline is rooted in the fundamentals of the business, and whether a rebound is ahead with Apple's earnings report next week.
For the first question, most of the analysis this week does not point at actual weakness within Apple, but rather perceived weakness that analysts and investors expect to show up in Apple's upcoming earnings, whether next week or in the future. Analysts -- and Apple's own forecasts -- expect the company to report its first year-over-year profits decline in more than a decade next week. The average analyst estimate for Apple's earnings per share, according to Thomson Reuters, was $10.07 Friday, while Apple had earnings of $12.30 in the first quarter of the 2012 calendar year; however, analysts also expect Apple to announce revenues that far exceed its year-ago sales, with an average forecast of $42.49 billion vs. last year's revenues of $39.19 billion.
The expectation of falling profits and gaining revenues is the technical issue that scares many Apple analysts and investors, as it would signal a declining growth margin, always one of Apple's strongest features.
"Gross margins are likely to shape sentiment surrounding Apple's stock as they are key metric underpinning both the bull and bear cases," Bernstein analyst Toni Sacconaghi wrote this week, noting that bears say Apple cannot maintain its large margins of the past, while bulls believe last quarter's declining profit margin was a blip on Apple's radar.
While margins are an issue, price-to-earnings ratio are in Apple's favor, especially when factoring in the large amount of cash the company has on hand. As Wolfram Alpha pointed out this week, Apple has not traded at such a low P/E ratio excluding cash since its shares were trading in the single digits in 2000. Business Insider wrote a widely shared piece about why Apple was an attractive stock price, with P/E ratio at the core, and even Apple co-founder Steve Wozniak said in a speech that the company's "stock price is a little low right now."
"It's very disappointing because if you look at the amount of cash that Apples holds that cash translates to one to two hundred dollars per share of stock just in cash form. So the expectations are a little lower even than they expect," he said.
However, Federated Investors portfolio manager Lawrence Creatura says many investors are throwing that metric out the window with Apple because "investors are suspicious about the 'E' in the P/E."
"It has lost its relevance because the future earnings are so uncertain," Creatura told The Wall Street Journal.
Those doubts make Tuesday's earnings report so important for Apple investors, many of whom probably have thoughts similar to Sentinel Investments president and CEO Christian Thwaites, who believes that Apple is both cheap and scary at the same time.
"Boy, it is looking cheap," Thwaites told the Journal. "But my worry with Apple is that it's becoming like Cisco (CSCO), Oracle (ORCL) and Microsoft from 12 years ago. The earnings came through back then, but the market felt it wasn't worth paying up for those names."
"It could be dead money for a while," he added.
Shares hit a low of $385.10 Friday before closing at $390.53, a daily decline of 0.4 percent.
Google and Microsoft rise, IBM plummets after earnings reports
Investors who have already dumped Apple could be looking at Google for investments. The Mountain View search giant announced revenues Thursday that were less than a third of what even the most pessimistic analyst expects Apple to announce, but growth expectations led to a big bounce Friday on Wall Street.
"We look at Apple and say, 'Hey, where's the next round of growth coming from?' You look at Google and say, 'Hey, these are some pretty big markets they're chasing after,'" BGC Partners analyst Colin Gillis, explained to The New York Times.
Google gained 4.4 percent Friday to close just shy of the $800 mark, at $799.87, the strongest performance of the significant technology and Silicon Valley companies top announce earnings Thursday.
Microsoft mimicked Google's gains but didn't increase as much, moving higher by 3.4 percent after announcing that it had surpassed analysts' expectations for earnings despite a major drop in personal-computer sales during the first quarter. Investors obviously didn't mind that another prominent Microsoft executive, Chief Financial Officer Peter Klein, was shown the door, instead focusing on a new tablet device that will seek to rival the Amazon Kindle and iPad Mini.
IBM was not as fortunate, and it wasn't close. The New York tech giant had its worst single-day decline in more than a decade, after posting profits below analysts' average forecasts for the first time since 2005. The company will lay off employees and close some underperforming units in a n effort to right its ship.
In Silicon Valley, struggling Sunnyvale chipmaker Advanced Micro devices dropped 1.6 percent after beating diminished expectations, and neighbor Intuitive Surgical dropped 1.8 percent after posting strong profits but a light forecast.
Wall Street gains at end of bad week, Bay Area IPO gains
The rest of Wall Street posted a good day, with the three major U.S. indexes closing their worst week in 2012 with gains, led by tech stocks: The tech-heavy Nasdaq gained 1.3 percent while the SV150 index of Silicon Valley's largest technology companies moved higher by 0.7 percent.
Foster City biotechnology company Gilead and Palo Alto electric car maker Tesla hit all-time highs Friday and closed with gains of 4.5 percent and 1.8 percent respectively. Large-cap stocks were uneven, with Hewlett-Packard (HPQ) taking a spill with a 3.2 percent decline and Cisco dropping 0.6 percent, while Intel (INTC) gained 0.9 percent and Oracle moved 0.8 percent higher.
The Bay Area's newest market entry, Blackhawk Network Holdings, made a splash on Friday, gaining 13.1 percent in its market debut. The Pleasanton-based Safeway spinoff sold shares for $23 apiece in its initial public offering for a $230 million windfall, most of which will go to its parent company, which retains ownership of nearly 94 percent.
Silicon Valley tech stocks
The tech-heavy Nasdaq composite index: Up 39.70, or 1.25 percent, to 3,206.06
The blue chip Dow Jones industrial average: Up 10.37, or 0.07 percent, to 14,547.51
And the widely watched Standard & Poor's 500 index: Up 13.64, or 0.88 percent, to 1,555.25
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.