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Why Short-Sellers Are Suddenly Targeting the Dow’s Crown Jewel

Last Updated September 23, 2020 1:25 PM
Mark Emem
Last Updated September 23, 2020 1:25 PM
  • Short-sellers in Apple ramped up activity in December compared to January.
  • Apple’s dividend yield is now below other big stocks.
  • The tech giant’s P/E ratio is also higher than its average over the last five years, making the stock relatively pricey.

iPhone-maker Apple (NASDAQ:AAPL) may have closed the year as the Dow’s biggest gainer but this hasn’t stopped short-sellers from upping their interest in the stock in December. Compared to January, short interest in Apple’s stock  has risen by about 9%.

This comes at a time when AAPL continues to probe new heights with the most recent peak being Dec. 27. But some analysts have refused to follow the herd and issued sell ratings.

Sell sell sell!

Per CNBC, the number of sell ratings on Apple have grown significantly based on a FactSet survey. The tech giant now has the highest percentage increase in sell ratings  among the 40 largest U.S. stocks.

Wall Street firms to have issued sell ratings on Apple  in 2019 include Rosenblatt Securities, Maxim Group and HSBC. Rosenblatt has set a price target of $150, which would require the stock to plunge by around 48% from current levels. HSBC and Maxim Group have both set a price target of $190.

What else is behind Apple’s rising short interest?

Additionally, short interest could have been spurred on by a drop in sales of Apple’s best-selling product in China. According to Rosenblatt analyst Jun Zhang, the total sales of Apple in China  fell 30% annually in November. The analyst also expects production of Apple’s latest iPhone to drop by 60% in March compared to the December quarter.

There have also been concerns that the stock has is overvalued compared to its historical performance. Apple’s trailing price-to-earnings ratio  currently stands at 19.2, the highest level in over a decade. The trailing P/E ratio also exceeds the five-year average of 15.4.

Apple’s other valuation metrics such as the dividend yield might also have given short-sellers confidence. Currently, the tech giant’s dividend yield  stands at 1.04%, which is below the median for the past 13 years (1.63%). It’s also below the dividend yield of the S&P 500  which is currently 1.78%.

Apple’s dividend yield is lower than the S&P 500 average | Source: Multpl.com

Short interest in Apple

On Jan. 15, short interest in Apple was 46,579,709 shares. Eleven months later on Dec. 13, short interest rose 9% to 50,745,596 shares. Short interest peaked in February.

This year Apple has gone up by over 84%. The stock currently sits above $290. This has made the iPhone maker the Dow’s biggest gainer in 2019. The average appreciation among the Dow index stocks in 2019 is about 22%.

Apple’s 84% growth in 2019 handily beats the Dow average. | Source: CNN