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Why One Apple Analyst Says to Sell Amid a Crowd Saying Buy

Apple CEO Tim Cook speaks at the Apple Worldwide Developers Conference in San Francisco on June 13. Tony Avelar — AP

As Apple prepares to release its quarterly results after the market closes on Tuesday, one prominent Wall Street analyst who follows the company is warning of possible losses for investors.

But the views of Colin Gillis, who says Apple shares could fall by as much as 12%, were not matched by plenty of other analysts who see better times ahead.

Gillis on Tuesday cut his rating on Apple to “sell” from “hold.” Apple has displayed alack of creativity and bold moves, such as Softbank’s recent $32 billion acquisition of computer chip architecture designer ARM Holdings (ARMH), he wrote. Gillis also appears to be no fan of Apple CEO Tim Cook.

“We mention peak Tim Cook happened on February 23, 2015 when Apple reached a record valuation of $775 billion,” Gillis wrote. “This quarter we expect iPhone revenue to decline for its third consecutive quarter, while iPad revenue has declined for an astonishing nine consecutive quarters. The stock has lost approximately $235 billion in value while repurchasing $117 billion in shares.”

Shareholders should move on to other tech stocks, he noted. “When we ask ourselves ‘Do we see Apple gaining or losing its next $100 billion of value,’ the answer is losing,” Gillis wrote.

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Apple reports the results of its fiscal third quarter, the three months ended June 30, after the markets close. Expectations are low. Analysts on average expect revenue of $42.2 billion, a 15% decline from last year, mainly due to a predicted 17% drop in the number of iPhones sold. Expected earnings per share of $1.40 would be 24% less than a year ago.

Most of the more optimistic analysts on Apple (AAPL) are focused on the middle of this year as lowest point, with the tech giant starting to recover and grow with this year’s iPhone update while entering a “super cycle” of upgrades beginning a year later. Of 47 analysts following Apple, 40 of them rate the stock either “buy” or “outperform,” according to data compiled by Reuters.

“Investors remain heavily underweight and as long as the guidance is not a disaster, we expect to get more traction for our work on the installed base and look ahead to a ‘super-cycle’ in ’17,” writes Tim Arcuri at Cowen & Co.

Sales of the current iPhone model look weak to Steven Milunovich at UBS, but he also sees improvements ahead when Apple starts its next fiscal year, 2017, in October.

“We believe iPhone sales will stabilize in (fiscal year 2017) and grow 15% in (fiscal year 2018) on a strong upgrade cycle, justifying a higher multiple,” wrote Milunovich.

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Nehal Chokshi, at Maxim Group, says the next quarters of Apple’s iPhone sales don’t matter much, but after that sales will grow again. He wrote, “With our data indicating we will see 2 years of consecutive (year-over-year) growth, we believe we are entering another multi-year positive investment cycle for AAPL.”