Monday, January 17, 2011

Steve Jobs Medical Leave

Stock strategists usually tell investors to hang tight when a company's CEO takes a medical leave.

Unless the company is Apple (AAPL), and the CEO is Steve Jobs.

Apple is the second-largest stock by market value, behind only ExxonMobil. Jobs, the company's co-founder, announced Monday that he is stepping down to take care of his health.

"Jobs' medical leave will hit the stock," says Dan Chung, chief investment officer for the Alger funds. "He is a visionary and brilliant marketer and businessman. This is rare."

Apple is the largest holding in the funds Chung manages. He thinks any hit the stock takes will be temporary, and a buying opportunity, as Jobs' "strategy for Apple will carry it for many years."

STEPPING AWAY: Apple CEO Steve Jobs will take medical leave

Others are less optimistic. "From the beginning, Apple has flourished when Jobs was present and declined when he was absent," says Donald Luskin, chief investment officer of TrendMacro.

Jobs resigned from Apple in September 1985 and returned in August 1997. During that period, Apple stock gained 133%, vs. 626% for the Standard & Poor's 500-stock index with dividends reinvested. From August 1997 through December 2010, Apple stock soared 7,273%, vs. a 67% gain for the S&P 500.

Apple slumped 6% to 8% in overseas markets Monday. The stock closed Friday at $348.48, an all-time high.

Most analysts feel that Apple has plenty of new products in the pipeline, meaning that earnings won't start to suffer any time soon. The recent deal between Apple and Verizon, allowing Verizon to sell the iPhone, could provide enormous growth for Apple this year, says Anthony Sabino, professor of law and business at St. John's University.

"Near-term effects will be small, but four quarters from now, investors will need to see that Apple remains on a successful strategic path," says David Kotok, chief investment officer of Cumberland Advisors.

Two years ago, Jobs, 55, stepped away from the company for medical reasons. The news sent Apple stock down about 7%.

Sabino thinks the fears of Jobs' departure are overblown: "It's safe to say that Jobs' last health scare made it clear as crystal that Apple had to prepare for life beyond Steve, and they've done so."

The company has not provided any information on the nature of Jobs' illness, his current condition, or succession plans. Jobs will continue as CEO, the company says, but COO Tim Cook will oversee day-to-day operations, as he did in 2009.

"I will not sell based on this, but I will not add either," says Kotok. "I need to see the succession."


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