The iPhone Gains in Popularity, Yet Apple Stock Falls

Apple's stock currently trades around its 52-week low. The latest smartphone industry report shows that not only are smartphones being adopted at the second-highest rate ever in the U.S., but also that Apple actually gained 4% market share. Why is there such a disconnect between company performance and stock performance?

Investor sentiment
After being the biggest momentum stock of 2011, hitting a high around $700 per share, Apple hit a few speed bumps. Its new Maps application that replaced Google Maps was heavily criticized as an inferior choice. The company ran into supply issues with the new iPhone 5, with shipping times between three and four weeks even two months after its launch. The latest earnings release showed flat profits, and as cost of sales outpaced sales, margins fell.

In an industry where a slight trip can lead to a disastrous fall in a few short years, such news spooked investors. Take BlackBerry , for example. Blackberry once held 20% of the global smartphone market share in 2009, and in 2012 only claimed 5%. The seemingly unassailable position of Blackberry and its brand were quickly undone by its competition. Blackberry is attempting to regain its footing with a new OS and line of phones, and sold 1 million of its latest Z10 model last quarter, but the next quarter will tell whether it can keep up a sustainable pace of sales.

Additionally, the huge run up in share price of Apple's stock in 2012, when it had roughly 70% institutional ownership, would lead to a rebalancing of portfolios. And that, together with questionable news on Apple's future, meant that some institutions didn't want to be caught having Apple on their list of holdings. Institutional ownership is now around 64%. The stock is no longer the "in" thing to hold.

But is the future that bad?
Even with the few missteps, including the strange events that caused CEO Tim Cook to issue an apology to China, Apple continues to barrel ahead. But, the market is looking back on Apple stock's past poor performance and not giving it proper credit.

First, trading at a P/E of 9.6, it's roughly half the market's current overall valuation, yet offers a dividend yield of 2.5%.

Second, it remains the dominant force in a growing, future-oriented industry. Google's Android OS gained 17 million users over the past year, whereas the iPhone added over 20 million. Apple was able to steal 4% of U.S. market share in the quarter ending in February, with Google and Blackberry both losing about 2%. Apple's phones have not lost popularity, even though the stock has.

And the iPhone is just a piece of the Apple story, making up 51% of Apple's revenue last quarter. The iPad made up 20%, and Mac 10%. These products are best in class, which gives them higher pricing power even if the industries trend toward commoditization. Add in future product developments, and Apple deserves a higher valuation.

The one question, however, is whether or not the market will shake its negative feelings toward Apple. It's impossible to say if and when that could occur, but if investors are looking for a solid dividend in a solid company with a solid grip on the future, Apple is it.

For a more detailed look at whether Apple remains a buy, check out our new premium report. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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Fool contributor Dan Newman has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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