The news that Apple CEO Steve Jobs is taking yet another medical leave of absence could trigger a massive sell-off by shareholders when the market opens on Tuesday. That, in turn, could create a great investment opportunity for advisers and their clients.
Apple Inc. Ticker:(APPL) shares are off 7% on the German stock exchange, following the announcement that co-founder and chief executive Steve Jobs is planning his third medical leave of absence.
Mr. Jobs, 55, has been battling a unique form of pancreatic cancer since 2004.
The announcement, which was e-mailed to Apple employees today, identified chief operating officer Tim Cook as the executive who will run the company in Mr. Jobs' absence.
While U.S. markets are closed today for the Martin Luther King holiday, trading of Apple shares Tuesday is expected to be volatile.
The timing of the announcement comes the day before Apple is scheduled to report its fiscal first quarter earnings after the market's close Tuesday.
“I think, certainly, the stock will get beat up,” said David Rolfe, chief investment officer at Wedgewood Partners Inc., a $900 million asset management firm.
Even though Mr. Rolfe remains bullish on Apple and is anticipating a “blowout earnings report,” he believes that the stock could open Wednesday morning as much as 15% below where it closed Friday at $348 per share.
“We're in for some rough trading tomorrow,” he said. “Even predicated on my belief of blowout first-quarter earnings, I think the stock could be at $300 by the time we wake up Wednesday morning.”
One indication of initial market sentiment is the 30-point drop by futures contracts for the Nasdaq 100 Index, of which Apple makes up 20%.
Apple shares, which gained 8% from the start of the year, were up 53% last year.
The S&P 500 has gained 2.8% so far this year and was up 12.7% last year.
Mr. Rolfe, who is holding Apple as the largest holding in his separate-account portfolios, believes that the market will overreact to the real possibility that Mr. Jobs might not return to work at Apple.
“Reading through the tea leaves and based on previous e-mails, my sense is that he is probably not going to come back to work,” Mr. Rolfe said. “I hope he's back in the saddle next week, but his health is very serious, and as a shareholder, I have to be realistic.”
While Mr. Rolfe said, “Somebody like Steve Jobs cannot be replaced,” he also acknowledged: “Apple is not a one-man shop.”
If the market sells off Apple shares in Tuesday trading, there could be a short buying opportunity Wednesday.
By most measures, the company is attractively valued, with no debt and about $65 per share worth of cash and short-term investments on its balance sheet.
The Wall Street consensus estimate is that Apple will report first-quarter earnings of $5.70 per share, with a full fiscal year estimate of $20 per share.
The estimate adds up to a forward price-to-earnings ratio of 17.5.
But by factoring in the cash, that P/E drops to around 15.
