Apple Holders Get Conflicting Clues From Iconic CEOs

(Corrects location of Wedgewood Partners Inc. in 12th paragraph of story published Aug. 25.)

Apple Inc. (AAPL) investors looking at history to gauge how shares may fare after the resignation of Chief Executive Officer Steve Jobs will find a mixed record at companies whose iconic leaders left.

Microsoft Corp. (MSFT) surged 38 percent in the year after co- founder Bill Gates stepped down as CEO in June 2006, and Walt Disney Co. rose 28 percent in the 12 months following the departure of Michael Eisner in September 2005, both beating the Standard & Poor’s 500 Index. General Electric Co. (GE) declined 16 percent in the year after Jeffrey Immelt was named as successor to Jack Welch.

“It’s really hard to find any parallels in history as Steve Jobs’ impact on Apple is totally unique,” said John Buckingham, chief investment officer at Aliso Viejo, California- based Al Frank Asset Management Inc., where he oversees $500 million and has held the shares since 2002.

Under co-founder Jobs, Cupertino, California-based Apple became the world’s second-most valuable company after Exxon Mobil Corp. (XOM) and one of the best-known brands as he pushed devices that revolutionized the mobile phone, personal computer and music industries. His departure, like the loss of other founders closely aligned with a company’s strategy, forces investors to decide whether to keep their shares as Apple moves ahead under new CEO Tim Cook.

Dell Inc. (DELL), the Round Round, Texas-based computer maker, slumped 27 percent between the time that founder Michael Dell said he would resign as CEO in March 2004 and his return in January 2007, as the computer maker struggled to fend off competitors, including Apple. The S&P 500 Index rose about 25 percent in the same period.

Hedge Fund Holdings

Apple was the top stock holding among hedge funds that disclosed their stakes in regulatory filings for the quarter ended June 30, according to data compiled by Bloomberg. The funds collectively added 2.1 million shares in the second quarter to increase their holdings to 40.6 million, valued at $13.6 billion.

GE, whose broad business makeup was looked at as a proxy for the U.S. economy, declined 1 percentage point more than the 15 percent drop in the S&P 500 Index in the year after Immelt was named as successor to Welch, who had run the Fairfield, Connecticut-based company since 1981 and was named manager of the century by Fortune magazine in 1999. Welch retired on Sept. 7, 2001.

“I thought of Jack Welch when I heard the news,” Abhishek Gami, a senior equity analyst at Atlanta-based Invesco Ltd. (IVZ), said of Jobs’ departure. “It’s rare that you see great leaders leave at the top of their game.”

Medical Leave

Apple was the largest position in the $5.6 billion Invesco Van Kampen American Franchise Fund, a mutual fund whose managers Gami advises, as of June 30 at 6.9 percent. Investors and analysts who trusted Jobs to lead the company after the successes of the iPhone and iPad may pressure Apple’s leadership to be more open about its strategy and outlook, a positive for the stock, Gami said.

Jobs, 56, who started Apple as a PC maker at the age of 21, was on medical leave since Jan. 17 after combating a rare form of cancer since 2003 and surviving a liver transplant in 2009. Cook, as chief operating officer, has been running day-to-day operations.

Apple shares, which have more than doubled in the past two years, fell $1.36, or 0.4 percent, to $374.82 at 2:35 p.m. New York time on the Nasdaq Stock Market, after declining as much as 3 percent.

“As far as surprise, there was really none,” David Rolfe, chief investment officer at St. Louis-based Wedgewood Partners Inc., said in an interview. “Cook has been running the trains like nobody’s business,” said Rolfe, who manages $1.1 billion, mostly for institutions and wealthy individuals.

‘Unduly Cheap’

Apple accounts for slightly under the cap that Rolfe sets for any holding at 10 percent of assets, he said. The shares are “unduly cheap,” Rolfe said. He expects the company to earn $9 a share in the fourth quarter, or almost double the profit from a year earlier.

Apple’s shares have soared more than 9,000 percent since 1997 when Jobs took over as CEO after returning to the company, lifting its market capitalization to about $345.3 billion.

Profit more than doubled last quarter to $7.31 billion on revenue of $28.6 billion. The company had record sales of iPhones and iPads, products that didn’t exist five years ago and now account for about two-thirds of revenue. Apple also has accumulated $76.2 billion in cash and other holdings.

“Similar to the departure of Henry Ford, Walt Disney -- unique creative forces whose companies carried on for years -- Apple without Steve will go on,” Mike Abramsky, an analyst at RBC Capital Markets in Toronto who rates the stock “outperform,” wrote today in a note to clients.

“However, it’s hard to believe Apple won’t be different,” Abramsky said. “Steve was involved in every detail of product, marketing, execution, deal-making.”

-- With assistance from Rachel Layne in Boston and Adam Satariano and Peter Burrows in San Francisco. Editors: Josh Friedman, Larry Edelman

To contact the reporters on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net; Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Larry Edelman at ledelman3@bloomberg.net

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