Apple Fell To Earth And Now It's Time To Seek Alpha Elsewhere

Mar.18.13 | About: Apple Inc. (AAPL)

It's already time to update and expand upon my March 3 article titled, "Is Apple Moving Toward Safe Haven Status Within A Long-Term Trading Range?" Events since then have supported this view of Apple Inc. (NASDAQ:AAPL) and its valuation.

On the one hand, the stock has held its own following Samsung's (OTC:SSNLF) big event Thursday. If there had been some major unleaked feature of the Galaxy S IV that would have transformed it into a must-have device, AAPL might have begun a new down-leg. So far, $420 looks like a support area for the stock.

The other point was that a "risky" stock in an unpredictable industry such as AAPL could and probably would be a (relative) safe haven.

A recent analyst action supported that view. BTIG's Walter Piecyk converted to a bull for that reason. He's bullish because he thinks the company is messing up worse than consensus, but he thinks the stock is (was) undervalued anyway. This is the same thinking that led Microsoft (NASDAQ:MSFT) and Cisco (NASDAQ:CSCO) to their trading ranges for the post-2000 period. He knows what you and I know, which is Apple Inc.'s many strengths. He is looking for bad things to happen operationally and still called it a buy. Here's what that means to me:

AAPL became a value stock.

That's a "meh." Since it's far from a Ben Graham-type value stock, it's only "sort of" a value stock. There's no alpha to be gained from that consideration, in my view.

So my bias is that except for the unexpected disruption of a new industry, or astonishing bad news, the stock is a "meh" for a good while. Of course, that's just my "bias."

I think that last year AAPL shares flew too fast and way too high.

In 2012, AAPL achieved a market cap of about 4% of the entire gross domestic product (GDP) of the United States. This has only occurred a few times- ever. When it has, it has marked temporary or permanent market peaks. Apple's market cap also reached about 1% of global GDP. Do you think this was a lot for a company that received at least half its profits from one product, the iPhone, which is subject to intense and growing global competition? I did, and it made me leery of the stock. Now that the shares have fallen 40% peak-to-recent-trough, I think that a better way to look at the stock is that the efficient market hypothesis finally applies to AAPL.

There is little chance now that the individual investor can any longer expect to beat the market with AAPL shares. You and I may do so, but it would be by luck. The company is now too well-studied. There are too many eyes and ears tracking everything it does or does not do everywhere in its supply chain. There are too many analysts and hedge funds modeling its present value. There are too many unhappy, trapped longs, and long-term shareholders who would now sell at higher levels. There are also too many eager buyers waiting to support the stock at predefined support levels. Etc.

But there's more to it than that, since I'm not a great fan of the efficient market hypothesis.

The thrill is gone-- but the memory lingers on.

Here's one example (of several) of why I'm thinking that way.

The company's ad campaign during the London Olympics was more than simply a failure. It suggested that top management may not "get it."

Inexplicably, the three ads focused mainly on the Mac rather than the iPhone and iPad. Just as bad, two ads showed the Apple users not knowing how to fully use their devices. But ease of use is one of the things that Apple is all about. Has Apple forgotten that already? Worse, the Apple users were not especially hip-looking guys. They reminded one more of the PC guy that Apple ads so deftly skewered when Steve Jobs was leading the company back to glory. Where was the "I'm a Mac" coolness factor? (Plus, the ads looked inexpensively made.)

There was no way that Steve Jobs would have approved those ads. He would rather have not run any Olympic spots than promote the opposite image that he had created for Apple.

So I realized:

SJ is really dead. The Apple zeitgeist, the uniqueness, appears to already be fading. He made Apple cool- and then some. He forced the ad agencies to "think different" and develop the iconic "1984" ad for the Mac- often considered the greatest television commercial of all time. (And it was the most expensive TV ad ever made at the time.) The same for the 'think different' ad itself- and those specific words. SJ insisted that Apple's unique approach to product development needed to show through in its advertising.

But the Olympic ads had a negative coolness factor. That's not the Apple I began paying attention to again ten years ago, when my family was buying iPods like crazy and the Apple Store near me was, to my wonderment, always busy.

Steve Jobs was the business equivalent of basketball's Michael Jordan, who led teams lacking either a dominant center or forward to a three-peat, took some time off, then came back and three-peated again. But the difference is that when MJ left the Bulls, no one expected them to be any better than their current players merited. AAPL is looked at differently. I fear that because of SJ's memory, expectations might still be a bit too high for it with its current strong but not superhuman management team.

Apple might achieve new great things and create new disruptive products, but so might any of its competitors now that he's gone.

Apple the company, and AAPL the stock, are now perhaps both followed more closely than any other company or any other stock in the world. Such intense attention works against any of us beating the market with AAPL shares. Eventually, Apple/AAPL will no longer be over-followed, and alpha can again be obtained by diligent research.

Not yet, though.

My research is thus focused on less-publicized companies. (I hold some AAPL shares for long-term total returns- and out of loyalty.) After almost 14 years of the S&P 500 churning at and below its current level, there are lots of stocks that have been relatively ignored where I think I can outperform the market. (I have discussed several of them in other articles on Seeking Alpha.) I believe that your and my stock research time will likely be more financially productive studying those under-followed companies than it will be by continuing to devote a lot of effort into analyzing the most famous, most-followed stock of our era.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.