Apple Would-Be Shorts: Bide Your Time, Apple's Run Will Be Over Soon Enough

Nov.28.13 | About: Apple Inc. (AAPL)

Never a society to miss out on a bargain the North American shopper has eschewed their Wal-Mart mentality when it comes to smartphones, expecting higher prices through 2017 while users in every other region of the world expect to pay less.

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A big part of that difference is the lofty premium Americans in particular are willing to pay for an iPhone versus any of the competing devices.

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Apple's strategy of selling a device that cost about $225 to make for $635 a unit on average and getting people to line up to buy it is an amazing marketing success. The fact that each successive iPhone had the look and feel of the previous one was no barrier to sales, a fact made fun of by Jimmy Kimmel on the iPhone 5 release. The interviews were funny and came at the expense of the interviewees who claimed the "new" iPhone Kimmel asked about was thinner, faster, lighter, had greater screen clarity and so on only to find what he showed them was the older version they were supposed to compare the new one with.

Kimmel also interviewed people with the iPhone 5s release showing them an iPad mini and telling them it was the new iPhone. Again, the people interviewed had opinions that say more about the strength of the Apple brand than the product. The interviews are hilarious as well.

Years ago a GE colleague of mine in an effort to turn around a faltering personal care line of curling irons, blow dryers and the like against entrenched competition comprising Miss Clairol and Yves St. Laurent made the dramatic move of sourcing the devices from the same factories abroad the competition did, putting the GE logo on them, and pricing them at two or three times the price of the industry stalwarts. In no time, Canadian GE had captured a majority share of the Canadian market for these items. It seems buyers often bought them as gifts and no real man was going to buy a $9.95 curling iron for his special girl when a $39.99 one was right next it and carried the GE brand. GE is no longer in that business and I don't think it will be missed.

There must be a bit of that brand mania going on in smartphones. The comments on SA evidence a passion for the Apple brand that exceeds devotion to God in its evangelical fervor. When the man on the street will say on national TV that the "new" iPhone Jimmy Kimmel hands him is faster, smoother, and thinner and has a brighter screen than the very same iPhone he has in his pocket, you know you are not dealing with reality.

Don't get me wrong. The iPhone is a terrific device and deserves a great deal of respect for its innovation, ease of use, clean design and well developed ecosystem. But for those who find it necessary to post comments nearly rabid in their character if anyone should criticize the prospects of Apple stock, get a life and get professional help. You are not your phone. Your value as a person is not determined by the phone you happen to use. No one will think less of you if you use a Nokia, Samsung or Google Nexus phone. Well, OK, not much less.

Apple stock has been on a tear and for those of us who have been short it has been painful. But as many investors realized last fall when Apple stock touched $700 only to fall below $400 in the months following, what goes around comes around.

Judging from the euphoria in the stock and the buzz around the gorgeous iPhone 5s there is an outside chance Apple will sell 60 million phones in Q1 if it can get the supply. That will blow the socks off many observers and the stock should pop on the news.

If it does, I will short into the mania and for those who want chapter and verse of my investment decisions I will post the complete details of the trade on SA for all to view and comment on.

I am an Apple bear. Like a wounded bear, I covered my short calls when Apple went north of their strike price and took a small loss, offset somewhat by a small gain on short puts I had closed out earlier. On balance it was a loss, but not enough of a loss to cause tears of anguish.

SA author Bret Jensen has called it right for a while on Apple. Bret usually gets it right. SA Author Quoth the Raven has called it right as well. He is more often right than wrong. Both authors are worth reading.

The inescapable facts are that despite the success of the iPhone 5s and the new iPad Air and its brother iPad, Apple faces two headwinds that will pinch in 2014. First, its products only address a fraction of the smartphone markets as I pointed out in my recent SA article and competition may do more damage than the bulls realize.

Second, and more importantly, the smartphone market is maturing and maturing fast. Apple has shown sales growth despite declining market share because of the very high rate of growth in the market. When that rate of growth drops as the market matures, and drop it will, Apple will either move to hold or gain share with more competitive pricing and a broader range of products, or report declining sales and earnings. Either is not going to be pretty for the stock.

When the market for Apple stock turns, Apple fans may abandon ship. Once bitten, twice shy. There is no one more evangelically against a cult than a former cult member who has seen the light. Kimmel is one of the first to poke fun at people who think they "have to have" a product because it somehow defines who they are, but he won't be the last. I would not want to have to tell my future grandchildren I waited up all night to be first in line to buy an iPhone that was very much like the one I bought last year. They are likely to ask me: "Grandpa, what is an iPhone?"

I have no position in Apple at this moment but will very likely short the stock as the current bull run tires out - very likely with the release of Apple's Q1 results in January.

As always, you must make your own decisions and if they are material for you, get some expert help. I don't recommend buying or selling anything to anyone, I just let you know what I think could happen and where I am placing my bets.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in AAPL over the next 72 hours. 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.