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Why Jeff Gundlach Thinks Apple Goes Lower

Tickers in this article: AAPL

NEW YORK (TheStreet) -- Apple (AAPL) had such an incredible run during the first nine months of 2012 that's it hard to argue with the results. Sentiment changed during the last quarter of 2012, however, with a share price decline of nearly 20%. Bond guru Jeff Gundlach thinks the stock has much further to fall.

DoubleLine Capital's Gundlach thinks Apple, one of the most polarizing stocks in the world, will fall to $425, from whence Apple came.

Appearing on CNBC, Gundlach noted that Apple started its run at $425 in mid-2012, going all the way to a high of $705.07, but that bubble has started to deflate.

"I deeply believe Apple is headed to $425 a share," Gundlach said during the interview. "Not because I'm a bond guy or stock guy but because I'm a market guy. I've been around for a long time and I know that when something goes vertical like Apple did from $425 once the bubble pops it goes back down to the point at which it lifted off."

The former TCW fund manager introduced his short idea at the Ira Sohn Conference in April 2012, pairing it with a long trade of natural gas, something known as a pair trade. A pair trade is a trade with one short and one long component, designed to be market neutral. Subsequently at the same conference, hedge fund guru David Einhorn told investors he believed Apple was "misunderstood", and that it has the chance to be the world's first trillion-dollar company.

After moving past $700 a share in September, Apple announced a slew of new products, including the iPhone 5, iPad mini, fourth-gen iPad, and a host of new Mac computers. Some have attributed the share price in Apple to consumer fatigue with all the new products, though Apple has noted on multiple occasions that sales of the products have been off to extraordinary starts.

Apple is set to report its fiscal first-quarter earnings on Jan. 23.

Shares of Apple were lower in early Friday trading, off 2.86% to $526.61, underperforming the broader Nasdaq.

Interested in more on Apple? See TheStreet Ratings' report card for this stock.

--Written by Chris Ciaccia in New York

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