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Apple stock bounces back a bit

Matt Krantz, USA TODAY
Apple stock has fallen below $500 a share.
  • Shares of Apple punished 28%25 from their high
  • Some say it%27s following the playbook of a fallen bubble stock
  • Supporters say it%27s a bargain but are unclear on how it will do without momentum

The value of the world's most-valuable company, Apple, bounced back a bit Wednesday after sinking for weeks as investors scrambled out of what was last year's "must own" stock.

Shares of the electronic gadget maker ended up 4.15% for the day, or $20.17 to $506.09 after falling Tuesday to $485.92.

The collapse has been fast and breathtaking, in that the nation's most-popular stock is now down 28% from its 52-week high. Apple shares, which soared more than 30% last year, are now down nearly 9% this year, well behind the Standard & Poor's 500 3.2% gain.

Analysts say the deflation of Apple-stock mania is following the classic playbook of other bubble stocks that got too popular then collapsed. "This is what happens with momentum stocks," says Kim Caughey Forrest, portfolio manager at Fort Pitt Capital Group. "Now there's a fear (Apple's growth) is not keeping pace."

The massive downdraft in shares of Apple:

Erodes Apple's runaway dominance on the stock market. With such a brutal decline, the value of Apple is losing its massive value gap from the other titans of industry. Following its fall Tuesday, Apple is still worth $471 billion, making it the world's most-valuable company. But its lead has narrowed, with No. 2 ExxonMobil about 15% behind at $408 billion. Apple had been worth $662 billion at its peak.

Contradicts the massive bullishness on the stock. Denial is typical when a market, or stock, starts its decline. When the selling in Apple started last year, Wall Street analysts said it was due to investors selling to lock in profits ahead of higher tax rates for some taxpayers in 2013. But the selling has continued into 2013. The company has also missed earnings expectations the past two quarters, says FactSet.

Meanwhile, analysts remain bullish, with 36 of the 38 Wall Street research firms rating the stock a "buy" or "strong buy."

"There are people in denial saying the stock can't go down more," says Ken Winans of Winans International.

Marks a rotation away from the stock. Apple's decline comes despite a rally in the broad market and movement into other, potentially faster-growing tech stocks such as Facebook. Shares of Facebook are up 13% this year. Apple's decline amid a market rally shows traders are anticipating problems, Winans says.

There's no shortage of people saying the decline is short term, and a bounce wouldn't be unexpected. Apple shares still have a fair value of $770 a share, says Morningstar analyst Brian Colello in a report. The stock is "deeply undervalued," writes Jim Kelleher of Argus Research.

But Caughey Forrest says stronger competition, especially in the relatively untapped area of tablets for business use, is a weakness for Apple and shows how its valuation was unsustainable.

"Investors bet Apple could continue to dominate for a very, very long time," she says. "It's really hard to do this."

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