How Do You Like Them $AAPL’S?

• Posted by Joe Fahmy
• on July 15th, 2010

Warning: If you love Apple, DO NOT continue reading this!

A few days ago, I told two friends there is a “possibility” that $AAPL’s stock has topped. One of them threw his iPad at me and the other smashed his new iPhone on the table, thus breaking an already useless antenna.

I have to make something perfectly clear: I AM NOT SAYING THAT APPLE HAS TOPPED. I am simply saying to keep an open mind to the “possibility” that it could be dead money for a while.

Here are my reasons:

1) You should NEVER marry a stock! Companies go through growth periods (some longer than others), then sales slow down, and then they eventually decline. Take advantage of the growth period, ride the trend, and then kick it to the curb! Never become obsessed with a company because they will ALL eventually disappoint.

2) Stocks tend to top 2 to 3 quarters before their earnings top. In 2000, companies such as $CSCO $DELL $QCOM $MSFT topped in the early part of the year, but continued to report stellar earnings later in the year. Investors kept asking, “Why are these stocks declining after such strong earnings?”…only to find that sales would slow a few quarters later. Keep in mind that the stock market is a leading indicator. It trades on what will happen 6-12 months from now.

3) Every growth manager on the planet owns Apple. It is not a new or undiscovered story.

4) The law of large numbers. $DELL was a big winner in the 1990′s because they increased their sales from $3 Billion to $30 Billion. Their growth rates were as high as 40-50%. After that, how many more computers could they sell? In other words, the larger the revenues, the harder it is to grow at a high rate.

5) Difficult year-over-year comparisons. In the last two quarters, $AAPL reported revenues of 15.5B (32% YOY growth) and 13.5B (49% YOY growth). Going forward, Apple will still grow, but it will be extremely difficult to sustain such high growth into next year. In fact, next year’s analyst estimates are already expecting growth to slow from 52% in 2010 to 19% in 2011.

Again, I must repeat: I DO NOT HATE APPLE! I simply don’t like to own stocks that I feel will be dead money. My clients will never see me own $MSFT $INTC $GE $IBM $DELL or any other mega-cap company. Why? Because Wall Street wants to see growth! And I’m not looking for 10% growth; I’m looking for 30% earnings and sales growth or higher. I honestly feel that Apple is one of the best-run companies in the world. I am not trying to bash the stock. I am simply reminding people NEVER to marry a stock because they will ALL eventually disappoint!

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