Apple investors brace for more turbulence

SAN FRANCISCO (Reuters) - Apple Inc's results will be dissected more closely than ever next week, after a share swoon raised concerns on Wall Street that the stock's gravity-defying rally may be losing steam.

Five straight days of stock losses for the world's most valuable company sparked fears it had ventured into dreaded bubble territory and was overdue for a strong pullback. Shares reversed course on Tuesday, gaining 5 percent.

Between major legal challenges across several continents, increasing competition from Google Inc's Android -- now the world's most-used mobile software -- and confusion over what its next groundbreaking product will look like, more cautious investors are re-evaluating their positions and cashing in some holdings ahead of Apple's second-quarter earnings next Tuesday.

There's reason for caution: Apple's shares surged nearly 60 percent to a high of $644 this year. The slightest sign of trouble in the earnings report may prompt further profit-taking.

"Any disappointment in Apple could lead to a significant selloff in the short term," said Channing Smith, co-manager at Capital Advisors Growth Fund. "Are we long term believers in Apple? Absolutely, but as we move forward...you get up here to over $600 and you say, ‘Hmm, this is getting pretty frothy, expectations may be getting out of line.'"

Apple shares fell 7 percent when the company missed Wall Street expectations for the first time in years last October.

Should investors choose to park their cash elsewhere, many believe they will eventually return.

Most investors remain bullish on the longer-term -- 45 out of 53 Wall Street investment banking analysts still have "Buy" or "Strong Buy" ratings on the stock, citing robust iPhone and iPad sales and new products from a TV to a 4G iPhone coming down the pike.

They argue that Apple will again reveal a bumper quarter, attributing the nearly 9 percent slump in the stock since last Tuesday to a combination of pre-earnings caution and profit-taking, and successive strings of sell orders triggered as the lofty shares retreated.

In the days leading up to the selloff, at least two analysts predicted the stock will vault over $1000. Wall Street analysts on average expect it to touch $675 in the next 12 months.

Apple, riding on strong iPhone and iPad sales, has smashed consensus estimates in recent quarters. But any dissatisfaction with the numbers could weigh heavily on its shares, which have quadrupled over the past two and a half years.

Major challenges for the California firm this year include the lawsuit against it by the U.S. Justice Department for alleged collusion on ebook prices and a potential hit on gross margins if key contract manufacturer Foxconn is able to pass on increased labor costs. The world's most valuable company is expected to present a positive short-term picture when it reports earnings. Apple is estimated to have sold between 30 million and 35 million iPhones and around 13 million iPads on average last quarter, according to Wall Street analysts. Monstrous sales of the iPhone -- 37.04 million -- accounted for more than half of Apple's first quarter revenue and assuaged investors' worries about the company's size slowing it down. "It's going to be a blowout quarter, just like the last one, but there's been a big move in the stock and to trim back on your position a little bit makes imminent sense," said David Rolfe, chief investment officer at St. Louis-based Wedgewood Partners Inc, who manages $1.6 billion.

IPHONE SALES SEEN STRONG