Apple's Looming Downside

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Includes: AAPL, BBRY, DELL, GOOG, MSFT
by: MyHappyTrading

Let me first start off by saying I love Apple products. Apple 'the company' is second to none. They are true innovators and have certainly created an amazing brand of well-made products that live up to the hype.

But I want to talk about Apple 'the stock'. You know, there is an old adage; a great company is not necessarily a great stock, and vice-versa. I challenge you to find a better company than Apple (NASDAQ:AAPL), or a better stock for that matter. The performance this year, heck for the last five years has truly been unreal. However, the future may not be so pleasant for the hardware maker. The law of large numbers may have a way of stopping the stampede of this stock price. Oh, I expect more great products on the horizon, but the love affair between the stock and investors will be shorter term than those who really love the products.

Go back in time with me to when the company first started. Apple Mac owners came out of every corner, loyal to the company like it was the only thing coveted on Earth. But not long after their start and selling many products the company stalled and went into a funk. The rise of Microsoft (NASDAQ:MSFT), Dell (NASDAQ:DELL) and others pushed Apple to a second thought, perhaps even worse. They still had their loyal Apple fans, but their market share remained stagnant.

Approaching the peak

This last decade saw an incredible resurgence of the company with new and innovative products, unbelievable momentum and a positive flare that resonated with the entire world. Today there is no brand talked about more than Apple.

But, I would argue their growth rate as a stock will eventually peak, and we could be embarking on that in the very near future. The irony is they have made so many shareholders rich, and those who have held the stock over the years deserve the wealth that was created.

Earnings were out a couple of days ago, and while they seemed to beat estimates handily, it really was not as much of a surprise as the recent past. The days of strong acceleration seem to be behind them now, again the law of large numbers. Don't believe this law exists? Go talk to Google (NASDAQ:GOOG), Microsoft and others who matured and flattened out. While this may make some Apple shareholders uncomfortable, the stock is likely to underperform from here.

Brokers picked up their targets on the stock today, with Morgan Stanley tops with a $400 target. Wait a minute. 400 billion market cap for Apple? that's a 60% gain from today's closing price, adding perhaps 120 billion in market cap. Do they know of some new revolutionary products in the pipeline? After all, the company grew their market cap only 80 billion or so from zero iPhones to whatever number they have sold today, and that took two years! Give them credit, coming out with a stunning new product during the biggest economic crisis in 70 years and winning, clearly.

But can this trend continue, and more importantly, be even bigger than before? I have my doubts, and when everyone is on the train drinking out of the same kool-aid bottle- tell me anyone who doesn't want to own Apple stock if they already don't have it- then I just don't believe this stock will bear fruit in the future (pun intended). We've seen it happen too many times. Best to get off early than hold for a roundtrip. Competition is coming into the smartphone space with Android, new Blackberries (Research in Motion (RIMM)) and new tablets on the way. So, growth may be limited here, always when there is a choice.

It wasn't long ago that everyone needed to own Google, they were the kings of search and there was no stopping them, and they would soon rule the planet if not the universe (I think they have claimed the Moon as their very own). Well, that certainly is not the case today. Google lost the battle for China to Baidu (NASDAQ:BIDU) and is struggling with a weakening global economy.

To finish up, I do love Apple products and will continue to buy them, as I'm sure many of you will do. I just don't think Apple the stock is something I would touch up here. Trees can grow to the sky only so far.

Disclosure: No position