Jeff Gundlach: Apple Will Fall to $425

By Roger Baettig | January 03 2013 3:59 PM

Reuters

For the very first time in its history, Apple has overtaken Korean based LG Electronics to become the second largest handset shipper in the U.S., following its South Korean rival Samsung which tops the chart, according to comScore.

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Shares of Apple (NASDAQ:AAPL) will continue to deflate until they fall to $425, according to Jeffrey Gundlach, the founder of DoubleLine Capital and a bond investor known for taking aggressive short positions on the iPhone maker.

“I deeply believe Apple is headed to $425 a share,” Gundlach told CNBC’s “Squawk on the Street” on Thursday. “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.”

Apple fell a little less than 25 percent from a record closing high of $702.10 in mid-September until the end of December, but rose just under 3 percent on Wednesday as some of the bulls returned with optimistic predictions. A fall to $425 would mean another 22 percent drop from the current range. Gundlach said the stock was currently in a “consolidation period” and will only hover around this level “as long as the stock market stays locally reasonably strong.”

The bond investor also had a warning for the larger market, saying a potential bubble could form in credit risk as investors increased their leverage on riskier debt securities, such as junk bonds and emerging market debt.

“The next move that will start happening in the financial industry is that funds will start leveraging credit risk to a greater extent, which will build up an overexposure potentially should the market turn against bonds later on,” Gundlach told CNBC.