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When Do You Sell Apple?

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Apple (AAPL - Free Report) has become pretty much every investor’s favorite stock and for good reason. The global tech gadget behemoth has, in the span of a few years, become the most valuable firm in the world with a market cap approaching $650 billion.

Additionally, the company is now paying a decent dividend of roughly 1.5% to investors, while the PE remains below 16 when looking at a forward reading. To top things off, the stock has provided investors with incredible gains over the past few years including several hundred percent in returns in the last half decade. Take for example this chart:


Oops! That is actually a chart of Microsoft (MSFT - Free Report) from 1995-2000, in which the company was the darling of the investment community, making over 1,000% in the time frame. In the following five year period, the stock lost about 50%, absolutely crushing investors who had bought in near the top for Microsoft.

Now, consider the most recent five year chart for Apple (both courtesy of Yahoo Finance). Looks eerily similar, doesn’t it?

Clearly, if we are using MSFT as an example for a stock ‘mania’ Apple still has a way to go in terms of reaching Microsoft’s lofty levels. Still, in the most recent two year period for Apple, the company added about 140% while MSFT saw a roughly 200% increase in the two years before its all-time peak, suggesting that if AAPL follows MSFT’s path from roughly 13 years ago we could see an epic crash (eventually) in the price of everyone’s favorite stock (see Three ETFs with the Most Apple Exposure).

While some people refuse to believe that Apple has anywhere to go but up in both the near term and in the long term as well, some possible catalysts are already beginning to appear for the eventual decline. Although a number of issues are starting to crop up, a few of the biggest include:

  • Supply issues in China- How long can you pay someone two dollars an hour to make something that costs $600 retail (before rebates/waivers)? Where is the backlash/protests against Apple for not manufacturing anything in the U.S. despite their impressive cash hoard and margins? 
  • Increased competition- The tablet game is no longer dominated by the iPad as a variety of exciting new products look to eat into Apple’s market share and drive down margins for the firm. A similar situation is also in the phone world as well; arguably the iPhone isn’t the best on the market anymore, how long will people line up for an ‘inferior’ product?
  • Lack of Steve Jobs- Jobs was a landmark figure of our age, his loss to Apple would be the same as if Warren Buffett had died 30 years ago; a truly catastrophic blow. His vision carried Apple to its impressive status today, but what is next? Sure his ideas can sustain the firm for a few years, but without a new visionary, one has to wonder when the shine will come off of Apple…

Please note, I am not saying that today is the day to get rid of Apple, just that this impressive story cannot go on forever despite what many people might think. Every single high flyer in history has fallen from grace eventually, to think that Apple will not face the same fate at some point is naïve at best.

I mean, in late 1999, was anyone really questioning Microsoft’s total dominance of the computing world? At that time, the company’s total control of the market forever seemed more or less assured and that continued appreciation would be the name of the game.

Is that any different than Apple today with its iPhone and iPad? (As a side note, if someone in the comments writes ‘this time is different’ you know trouble is ahead)

After all, Apple is now worth more than Google and Microsoft combined, as well as more than the entire U.S. retail market. To top things off, Apple’s market capitalization of nearly $650 billion is more than the GDP of every country on Earth save 19 nations, greater than the economic output of Thailand, Vietnam, and Peru combined.

This trend cannot continue indefinitely, and when you take Apple’s market cap and compare it to other items in the global economy, even the most ardent Apple-bull has to admit it does seem rather insane to say the least (read Three Great Tech ETFs That Avoid Apple).

Still, with that being said, the stock could still have plenty of room to run in the short term as valuations on a forward PE and growth metric still seem quite reasonable. However, the above issues and the sheer size of Apple compared to not only other equities, but now major G-20 countries, could begin to hammer away at the firm’s growth potential, and eventually, the price as well.

So, as far as I am concerned, it is inevitable that Apple’s impressive growth trajectory slows and that the stock comes back down to earth, the only question is when this happens. With that being said, when do you sell Apple?

Do you have a price target that you will sell at no matter what or are you just holding indefinitely?

For the Apple perma-bulls out there, what would have to happen for you to jettison your shares? The market cap is approaching one percent of total global GDP, at what point can we admit that it can’t go much further?

Let us know what you think in the comments below!


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