The Parnassus Fund, which held 340,000 shares over the course of four years, sold its stake in the last two days as the declining stock got a sudden jolt on talk of a buyout by an investor group.
Apple shares, which are trading at their 10-year low, rose 11 percent in heavy trading Thursday to 18-5/8, up 1-7/8. That sudden rise came as Oracle CEO Larry Ellison last week said he wants to raise about $1 billion so he could offer current shareholders 60 percent cash and 40 percent equity for Apple, as well as boot out existing management and directors.
"The stock was up as a result of all that talk, about $2 more a share, and that seemed like an opportunity to get out," said David Pogran, head of research at Parnassus.
Pogran explained that the fund has certain criteria that companies must meet, and failing to meet or keep up with those standards can lead to a sell-off. Indeed, Parnassus sold its entire stake and took a 50 percent loss on the investment.
Parnassus gives Apple high marks for meeting its first two criteria--a socially responsible company and also one that is undervalued. But the computer maker missed the third criterion of having good prospects that are likely to catapult the stock to a higher valuation. The possibility of capturing the final point is out of reach at least for now, Pogran said.
"We don't think they have terrible products. They probably have the best products, but there is more to [investing] than that. For months, we have felt that the prospects for an immediate turnaround are not likely, and there are better things that we can do with our money."
The fund sold its shares over the past couple of days as the stock passed the $18 mark. The fund had spent an average of $37 per share for its investment, representing a sizable loss to its investment.
"We've lost a lot of money, but you have to look at what you are going to do for the future. This wasn't an attempt to cut losses, but rather seeing better gains elsewhere," Pogran added.
However, Apple is not out of the question for future investment, though. If the company shows the fundamentals that will propel the stock, then Parnassus would reconsider an investment.
Other investors and analysts also question the company's ability to generate growth. The California employee pension fund, CalPERS, has also criticized Apple for posting low returns on investments compared with the S&P Computer Index. CalPERS is an investor in Apple and an active shareholder activist.
The group previously said it was concerned about a lack of PC experience among Apple's top management and about the board of directors being stretched too thin.
CalPERS had a meeting set for today with Apple's board and management to ask for a plan of action, but that meeting has been postponed for several weeks due to a schedule conflict with the fund's chief executive.
Meanwhile, Bear Stearns said in a recent report that it has concerns with Apple's strategic and operational challenges and its declining cash situation.
The report added that the company's valuation could continue to slide to the $10 to $11 per share in March with additional losses in June.
"We still have a cautious view towards the stock owing to the major challenges that it faces, including the need to maintain its customer base as it revamps its operating system, downsizes the company, realigns the product line, maintains customer loyalty, and faces intensifying competition in its core markets of small business and education from Microsoft-Intel," the report stated.