News Column

Apple's Stock Is Fading Fast

April 19, 2013

The last time Apple ran into serious trouble, co-founder Steve Jobs was there to save it. But now, the stock is crashing back to levels not seen since the company's visionary leader died.

Shares of Apple continued their vicious crash Thursday, falling $10.75 to close at $392.05. They're less than 4% away from cutting through Apple's $378.25 price on Oct. 5, 2011, the day former CEO Jobs died.

The Apple stock crash is reaching a historic order of magnitude, shaking the faith of investors who piled on in large part on Jobs' showmanship. Shares are down 44% from the closing high of $702.10 on Sept. 19, 2012. This crash has obliterated $291.2 billion in shareholder wealth, exceeding the market value of Google and Microsoft individually and nearly five times the market value of Facebook.

The rapid come-uppance for Apple and its investors is a big reminder that the company, especially lacking the leadership of its CEO and top salesman, Steve Jobs, is "becoming just another stock," says Frank Longman, analyst at Brean Capital. "The phenomenon is unwinding."

But while Apple is only now getting back to the point it was at when Jobs died, the fact is that having a sick or dying CEO is generally a big problem right away for stocks. Research has shown:

--Announcements of medical leaves are a negative. On average, companies that have announced the medical leave of absence of a top officer suffer a 2% hit the day of the news, says Sara Holland, professor of finance at the University of Georgia. Declines are even larger when a CEO leaves due to a long-term or chronic illness and eventually dies.

--There can be long-term problems when a CEO is sick. During the time that top managers are sick, the companies often pull back on research and development spending, potentially starving future innovation, Holland says. This happens in some cases because the CEOs know they might not be alive to steward the project, Holland says.

--The death of a CEO is a big negative. CEO deaths aren't as uncommon as some might think. They happen on average seven times a year at publicly traded companies, says research co-authored by David Larcker and Brian Tayan of Stanford University. One of the biggest negative reactions occurred when Mark Hughes of vitamin seller Herbalife died on May 21, 2000, and the stock fell 12%. Most recently, shares of chipmaker Micron Technologies fell 2.8% the day its CEO, Steve Appleton, died in 2012.

And so Apple is dealing with what many firms face when their CEOs fall ill or die, short-term shock that turns into long-term disappointment. "It's not just a short-term reaction, but a (cause) of long-term declines in stock prices," says Ugur Lel, finance professor at Virginia Tech.

Source: Copyright USA TODAY 2013

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