Apple: The Time to Buy Has Passed

| About: Apple Inc. (AAPL)
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After yet another blockbuster quarterly earnings report, it is amusing to hear Wall Street analysts stumbling all over themselves to upgrade Apple (NASDAQ:AAPL). Seems like every day we get calls for target prices on shares of Apple of $500, $600, $700 with once in a while a call for Apple to hit $1000 for good measure.

Most of these analysts are serious professionals and some with enviable track records. And yes, suffice it to say, most of us like Apple both from a consumer standpoint and a financial one. Apple has hit grand slam after grand slam on product after product on a seemingly perennial basis. By creating new markets with its products and platforms, Apple has changed the way many of us live and work. There is no debate that Apple’s prowess in packaging technology to consumers and making it beautiful, stylish and most importantly easy to use, is matchless at this juncture. iMac, iPod, iTunes, iPhone, iPad- the list of products is an incredible roster of game changers that seem to upend every market segment they enter.

Not even Sony (NYSE:SNE) in its heyday could match the cultural appeal that enables Apple to hold sway over the consumer population on a worldwide basis. It is not even close. The ubiquitous Apple trademark – that glossy, elegantly rendered white apple- has come to mean more than just a great product. The signature icon has come to represent an edgy sophistication that stands for a refusal to compromise and its urban chicness transcends the very products it graces.

Now that Apple has gone mainstream, the masses too can enjoy this status - at least for a while. It is not easy for a company to create this aura. Moreover, Apple’s leader, Steve Jobs is revered and hailed as the visionary that he is and in this peculiar instance, the emperor actually does have clothing- right down to the black turtleneck and faded Levi’s jeans. In a historical context, there has been no analog for what Apple has been able to achieve in such short order. But Steve Jobs is not God and Apple is, at the end of the day, just a corporation that does exceedingly well at separating consumers from their hard earned money.

As we all know, sentiments change and the market place is nothing if not fickle. As amusing and profitable as it has been for many to watch Apple humbly claw its way back from a $12.00 share price back in post tech bust ’02 to an improbable $388.00 share, $360B market cap behemoth a mere 9 years later, it is even more startling to note that Apple is still not all that expensive trading at a mere 15 times earnings.

Apple does not have the hallmark characteristics of a candidate for a bubble stock. Its quarterly earnings growth of 125% and product portfolio give it a certain gravitas that easily justifies its current market valuation. Apple is like the exceedingly charming and beautiful dinner guest that at first glance you take at face value as eye candy that is great company and potentially good for cheerful banter, but when it comes right down to it the guest in more sobering moments exhibits a startling intellect and penchant for deep soulful and original commentary that leaves you waiting for more.

You want to be friends or more with this guest. If there ever was a real deal, it is Apple. Apple becomes this multi-dimensional guest even more when an exercise of filtering it through the financial metrics reveals 38% return on equity, stratospheric earnings growth, a balance sheet bursting with $76 billion in cash and no debt.

If I can say this humbly, I liked Apple at $12 and well enough to buy it. I should have held on, but that is besides the point and water under the bridge. I recall being amazed that so many analysts were bearish on Apple Computer then. Even back then, the new iPod was emerging as a rousing success, Steve Jobs was CEO and as I recollect, Apple had close to $10 per share in cash at the time, yet this seems to have been lost on analysts then. That was the time to make a fortune by investing in Apple. That time has passed, but you wouldn’t know it from listening to the crowd. Apple might and probably will meet some of these current analyst expectations, but the time to really “make hay” is likely over.

I can say affirmatively now that for all Apple’s attributes, I am not ready to marry it at this juncture. In other words, I would not buy the stock. Moreover, If I were so lucky as to have held on, I might even take the step of edging out of my position. I would go so far as to say that, if I was a young engineer or creative talent and among the best in class, I may opt to take my talents elsewhere for opportunity and stock options that might have more potential on less appreciated pastures. It might be a lot more interesting (and fun) to create new products for a company that is itching and willing to pull out all the stops to create a category killer in these newer market segments. The best lessons learned in investing come with their share of skinned knees and the one lesson that has stood out most for me is that things change.

Invariably, it is often the opportune time to shift investment dollars when things appear to be going the best with no end in sight to good news. This is especially the case in technology, and even more so when you step out of the comfort zone of corporate enterprise applications whose fortress is tougher to assail than consumer products and applications. As revolutionary as Apple products have become, they succeed or fail on the capricious whims of the consumer class. The market place seems to have forgotten that just because Apple’s competitors haven’t “gotten” the concept of creating elegant, simple to use products doesn’t mean that they won’t.

You can bet that Nokia (NYSE:NOK), Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), HP (NYSE:HPQ), Research in Motion (RIMM), Samsung (SSNLF.PK), Sony (SNE), LG Electronics, HTC and others will engage in a pitched battle with an ever increasing level of sophistication in this war for the mobile os and by extension tablet computing.

There will be bouts of incompetency by some and there will be mistakes and certainly failures, but there will also be hard fought victories on this frontier. And for many claiming that the war has been won, I would refer them to Churchill’s prescient quote in the early stages of World War II when England was hobbled by attacks from a seemingly much stronger enemy, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” So it is with many of these market segments which are mere infants in their evolutionary cycle.

This is precisely where we now stand in the battle for supremacy in the new markets in which it has been so successful as an innovator. Things change and eventually by degree, Apple could cede its dominance to that gaggle of has-beens that was seemingly left in the dust. It is just the way of the world.

In sport, in business, in life- and especially in technology- there is usually a spoiler for best laid plans. It is inevitable that champions eventually step down and cede their trophies, nations lose their power and luster, and great ideas have their time. The din of the crowd is getting a touch too raucous and enamored of the ideal called Apple Computer. This is by no means a knock on Apple- that Apple has done so well is a testament to what can be done when talent, creativity and purpose collide in spectacular fashion.

It is a shining example to those who aspire to greatness and motivation for certain companies to think more carefully about what consumers really want. Nevertheless, on one fine spring afternoon – maybe not this year or the next- but at some juncture in the future, Apple may cease to amaze, Wall Street will be less enamored, and the consumer may reach for another fine option. And we all will be the beneficiaries of choice and progress and we will be amazed by someone else’s device.

Disclosure: I am long INTC, CSCO, MSFT.