About 4 months ago, I gladly ate my crow for predicting (wrongly) that Apple (AAPL) would fall back to the $500 level before ever reaching the $600 level. I believed this because of the history of the stock and the fact that all stocks give something back during any climb, and in Apple's case it is usually something significant. Although the stock did retreat (as I predicted and followed history), it didn't reach my targeted price.
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The last few days have been different. I wrote a few days ago about Apple being poised to (once again) have a pullback and present another opportunity to buy more shares or buy puts against it. I chose the put route, and had an 18% ROI for a one day trade. Since last Thursday when the stock was at a high for the month of around $615 and has had 3 out of the last 4 days turn negative, dropping the price to around $604, with it dipping to as low as $597. I do not believe this short term correction is done yet, though the earnings run up should help soften things.
This is a stock that has soared from the $530 range back in late May to the $615 price I mentioned. That is a 16% spike in less than 2 months, during a period in which the stock has gained nearly 50% overall in less than 7 months. As I said, I feel the stock is in the middle of a small pullback, which I have written about before, but that is not what today's article is primarily about.
I see three major things (agreed that the third could hinder most if not all stocks) that could hinder Apple and I believe will cause this rapid climb to slow down quite a bit at least until the Xmas holiday season. I have outlined them below, but keep in mind you can remain bullish on the stock (as I have) and still hold and wait but generate a profit for yourself. Use covered calls to your advantage and you can take advantage of stagnant pricing and even pullbacks like this one.
1) Competition has nowhere to go but up
For 2011, Apple had 82% of the tablet device marketplace in the United States and about 23% of the marketplace for cell phones. Both numbers are very impressive but can you expect them to get better than that? Do you really think with all the new tablets that have been coming out, Apple can increase their market share significantly above 82%? It is virtually impossible.
Just type the word "tablet" in Google and see the different choices; Samsung (SSNLF.PK), Sony (SNE), Polaroid (thought they did cameras back in the 80's). Best Buy (BBY) currently has 27 different tablets for sale (of which only 3 are Apple). Most of these are not the same quality as an IPad (I own one myself) but maybe someone cannot afford an iPad and needs something more cost effective. Or they need to have Windows and Office and Flash and cannot live without them. Either way, I do not see 82% being a number they can hold. If they can get to 70% with the increase in sales of tablets worldwide, they perhaps can maintain the same earnings they have in the past.
The marketplace for phones is getting tighter as well. Samsung slingshot past Apple for the #1 ranking after the Xmas holiday taking 29% of the marketplace through QTR 1 in the world compared to Apple's 21% (see link above on bottom). Will it remain this way? Samsung seems to be geared up for a backyard brawl with Apple, with their new phones, especially the Galaxy 3 (which is available on ALL the major carriers unlike the iPhone). Even Amazon (AMZN) is developing a smart phone, who saw that one coming?
History: Yes we are back on this (again). How long and far can this stock go without taking a timeout? Although we all would hope that this stock will propel us to early retirement (or a better retirement) odds are it simply will not. It is already up almost 50% for the year, I cannot imagine it growing much more than that unless they overshoot earnings in each and every report. And the charts I have shown before are accurate. Apple has had 4 major pullbacks these last 12 months, it is bound to continue to have them.
As you can see from the chart, there were 2 large double digit givebacks between June and November last year, and a third this past March (fell from $548 down to $516, not the double digit but was a 6% drop in less than a week). Also keep in mind Apple had mostly nothing but good news during the start of 2012 through the middle months.
I have shown that the numbers the last week look very similar to the history above though we have not had the 10%+ pullback (yet), though I expect this could be the start of one (would be the fourth in less than 12 months). This seems to be a stock which roars with large gains only to give large parts of them back. It is natural and there is nothing wrong with it, but you can make money from it.
Intangibles: Based on the competition catching up and the status of the world economy, I just do not see this stock growing to some of the astronomical numbers I have heard. Some commenters on this site have preached it will reach $1,000 by New Years. Huh? Apple is a juggernaut no question but do you really think it will grow another 60% for an annual ROI of 150%?
There also is chatter about the 4 things that combined could be a death trap for the market happening this year:
Stalling growth in the U.S.; debt troubles in Europe; a slowdown in emerging markets, particularly China; and military conflict in Iran
I am normally not a huge believer in folks making market-wide predictions but I have to admit, the scenario he discusses to me seems like something that could possibly send the market as a whole backwards quite a bit. And the only one of the three missing is the war in Iran which we really cannot say which way that will go. In an election year I would not doubt that war could be on the horizon. Apple will not be immune to something like this.
In closing I do like Apple overall (I have stated many times) but I seem to always get burned at the stake for not having this "sugar high" on its potential numbers. All companies good, bad, and ugly give back gains at some point and you do not see stocks head up like Apple has without slowing down at some point. If you are the folks holding forever, god bless you keep holding. I think you are holding a good investment long term. Me personally, I want to not fall in love with any stock and just make money. It is why I am in the game.
Additional disclosure: I have recently liquidated my puts in both AAPL and SPY