Apple Manipulated by Prestigious Journal before Earnings?

Wyatt Investment Research

One week ago, I came out with a bullish report that advised readers to buy Apple (AAPL) before earnings. Though the shares have fallen since last week, I maintain that buying AAPL before earnings is the right move.

Last week, I cited (among other things) that Apple would sell more iPhones than expected.

Analysts worried that supply disruptions reduced iPhone 5 sales. However, it’s unlikely these sales were lost.

U.S. shoppers spent $42.3 billion during the year-end holiday season - a 14% increase from last year. It’s likely that consumers kept Apple products on their shopping lists in November and December, meaning a portion of that $42.3 billion headed Apple’s way.

In an unfortunate bit of timing, the Wall Street Journal reported that Apple was slashing parts orders on the same day as my bullish article. Initially, the WSJ claimed Apple was cutting iPhone parts orders by half from 65 million during the March quarter.

Other reporters quickly caught wind of the apparent story and jumped on the Apple-bashing bandwagon. The flurry of negative news sent AAPL tumbling by more than 3.5% last Monday. AAPL declined another 3.2% on Tuesday as investors jumped from the sinking ship.

Though most investors turned negative on Apple, some devotees haven’t changed their colors. In fact, a large portion of the investor base believes the stock was a victim of manipulation.

BGR’s Tero Kuittinen was among the first to challenge the numbers from the WSJ article. Kuittinen explained that the consensus sales estimate is 52 million iPhone units for the first quarter. The March quarter is soft (seasonality) and most analysts expect around 30 to 40 million iPhone unit sales.

Kuittinen rightfully questioned where the 65-million iPhone 5 number came from. Unit sales were never expected to be that high. Only 52 million unit sales are expected in Apple’s strongest quarter. And roughly 85% of that figure will be from the iPhone 5. So why would the WSJ expect 65 million from the weakest quarter?

The fishy part, as Kuittinen claimed, was that “the current version of the WSJ article no longer cites the 65 million unit figure. Sometime between Sunday at 8:00 p.m. EST and Monday at 7:00 a.m., the Journal decided to drop the number from its article. But if the 65 million number is not right, is the estimate for halving March orders correct?”

I’d agree that the 65-million number came from left field. I’ve never seen an estimate that high and I don’t know where it came from. However, I’m not sure the inclusion of that specific number means the WSJ was manipulative. However, there’s more ...

Forbes’ Eric Savitz also chimed in. Savitz pointed out the WSJ information was old news and directed his readers to an analyst report compiled by UBS last month. UBS lowered their iPhone 5 sales estimate to a range of 25 to 30 million units in the March quarter. They are modeling 45 million iPhone unit sales for the December quarter.

The remark about cutting production by half appears reasonable, albeit misleading. The production revision was five million, not 30 million. So the WSJ misled its readers by reporting that orders will be cut in half amid weak demand.

However, the worst part of the WSJ story may not be that it was poorly reported. The worst part is that the decrease to orders is old news. Analysts already cut their estimates for iPhone sales weeks ago. The WSJ article repeated dated information that should have been reflected in the stock price. Instead, their bearish article caused a two-day rout that erased $38 billion of value and took the shares 7% lower.

So the Apple defenders have a valid claim against the WSJ. The misleading article likely caused a panic that hurt AAPL.

However, I’m not really sure what the WSJ had to gain from its piece. If anything, the only thing the WSJ gained was the knowledge that it needs to hire a new editor or do a better job of fact checking in the future.

Though many Apple zealots are screaming manipulation, I’m afraid I don’t agree.

Apple continues to be one of our favorite stocks. In fact, we recently sent readers of Top Stock Insights three reasons to buy the shares before earnings are announced on January 23. More information about this report and our investment service is available by clicking here.



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