Apple Long-Term Trend Likely to Continue, Albeit at Slower Rate

Jul.18.11 | About: Apple Inc. (AAPL)
My view of Apple (NASDAQ:AAPL) is slightly more bullish than my view of Google: yes, I think the share price will rise, but I don’t think the increase in purchasing power Apple shareholders have enjoyed over the past few years will continue accelerating at the same rate. Put another way, while I do expect Apple’s shares to continue growing, I expect them to grow at a slightly slower rate than they have been thus far relative to the cost of living.

The primary reason I maintain a bullish view of Apple -- and many stocks of large, profitable companies in the US -- is because of monetary policy of the Federal Reserve. Ben Bernanke, Chairman of the US Federal Reserve, admitted he was targeting higher asset prices via the Quantitative Easing 2 stimulus program. I view additional stimulus as all but inevitable, as Fed officials suggested this much before retracting due to the market’s response.

Moreover, as Apple is a company with great notoriety that is already a part of many institutional portfolios -- as evidenced by the fact that its average daily trading volume of 17.3M shares ranks 59th out of all instruments listed on NASDAQ, NYSE, and AMEX -- I believe it will be easy for additional stimulus dollars to find their way into the market for Apple’s shares. As a result, I expect Apple’s share price to continue appreciating. However, I expect the boost to equities resulting from stimulus to decline with each progressive round of stimulus, and that the global sovereign debt crisis will grow in the impact it has on the global economy; as such, I believe that Apple’s share price will decline, but the cost of living will decline rapidly as well, resulting in a decline in the rate of growth of purchasing power for shareholders.

This liqudity, coupled with failure to issue dividends, does invite short sellers to entry the fray -- which I believe could also be a hindrance. If Apple ever chooses to issue dividends, I believe shorts will go to other markets instead, and that Apple’s share price will accelerate even more.

Operationally, I believe Apple will increasingly lose market share to Android in the smartphone and tablet market. I believe that the key for Apple is rapid innovation; that it has the potential to continually lead product development, as it has with smartphones, mp3 players, and tablets. New product lines from Apple that I think could be very successful are e-readers and television sets; in particular, an Apple TV set could be very disruptive, in my opinion, and could position the company to appreciate much, much more in value.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.