When a stock is under owned and good news comes, there are plenty of buyers to move the stock up. On the other hand, when a stock is over owned, there aren’t many buyers left to push it higher and even the slightest bit of negative news can push the stock down.
According to Morgan Stanley, the top 100 institutional investors cut their holdings of Apple in the first quarter of 2014. Morgan Stanley also says that Apple is the only large cap technology company with institutional ownership less than its weight in S&P 500.
There are three technology companies, among the top 10 constituents of S&P 500: Apple, Google (GOOG), and Microsoft (MSFT).
A fund manager does not put his job in danger by performing close to the S&P 500 index. For this reason, many fund managers hold a portfolio that correlates well with S&P 500 with a few major differences. The main difference right now is that Apple weighting in many funds is lower than its weighting in S&P 500.
Public filings of the position of funds are made on a quarterly basis so this data becomes outdated quickly. For this reason, I rely heavily on a variety of other indicators that attempt to estimate under ownership or over ownership, not only among institutional investors but also among smaller money managers and retail investors. Institutions own about 62% of Apple stock. In comparison, institutions own about 87% of Google stock. In the case of Apple, in the past, retail investors and small money managers have been big contributors to the stock’s movement, therefore their positioning is important. The data we gather at The Arora Report continues to show that Apple is under owned now compared to summer of 2012 when Apple was trading at a similar price level.
Further in 2012 when Apple hit its peak at about $700, I figured that Apple was over owned by about 60-80% compared to a neutral weighting. The estimates now are that Apple ownership is 20-30% lower than a neutral weighting.
Apple is like a rocket with plenty of fuel sitting on a launch pad. Until there is a trigger to ignite the fuel, Apple stock is not going anywhere. The trigger may come in the form of a new product that engenders a big “wow.”
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