NOTE: See my posting, Why I am Bearish On Apple for more discussion.
Should you buy Apple Stock? I think not. It is the talk of the town right now, because of a lot of mindless press - just as Facebook and other "dot com" stocks are. But I think that Apple stock is due for a correction, and this will probably happen in later 2012, perhaps early 2013, when a lot of these "dot coma" and tech stocks "correct" - when people realize they aren't worth all that.
There are a lot of misconceptions about Apple:
1. Steve Jobs was a bloody genius who invented the personal computer, the mouse, and the graphical user interface: No, not really. A lot of people were experimenting with personal computers in the early 1970's as companies like Intel introduced processors-on-a-chip that were intended originally for industrial controls. Most of these were CP/M systems. Apple was in the right place at the right time with an inexpensive product with a catchy name. The GUI, mouse, networking, and e-mail were all ideas from XEROX Palo Alto Research Center that were discarded by Xerox ("We're a document company, not a computer company"). Both Jobs and Gates were there to see what Xerox had developed and they took it and ran with it - and created the Mac and Windows, respectively. No geniuses, just opportunists.
2. Steve Jobs invented the iPod, iPhone, and iPad: Not really, either. Products like that are a communal effort among a number of Engineers. And again, Apple scored a marketing hit (not a technology hit) by purchasing the first two year's output of 1" hard drives, making it impossible for competitors to make a "me too" product for several years. That cemented the iPod's place in history. The iPhone and iPad were great follow-on products, but really just variations on what others were doing in the smart-phone field.
3. Apple is worth $500 Billion: Market Cap is a nonsense figure, and is arrived at by multiplying the price the last chump paid for a share by the overall number of shares. This does not represent the "value" of the company, the liquidation value, value of assets, anything. It means nothing, but the idiot market press makes a big deal about it on slow news days.
4. Apple Stock will Keep Going Up: As this report notes, clueless retail traders (schmucks like you and me) buy stocks based on headlines - and we get creamed. People keep hearing about Apple, so they think the stock is good. This is the worst way to buy stocks. Apple is profitable. Apple has a lot of cash on hand. Apple has great products and a great future. But that does not mean the price will keep going up, indefinitely, like mini-mansions in Fort Lauderdale did. Oh, wait...
5. Apple Will Continue to be as Profitable as it is: Past performance is no guarantee of future returns, as they say. Apple has some market wins - right now. But the wireless companies are nervous about being dependent on one supplier - one supplier who demands a lion's share of the loot. So they are looking to alternatives - the droid platform, the windows platform, and whatever else is out there. Nokia is hurting. So is Research In Motion. But one or more of these companies will come together with an alternative product at a reduced cost, which could threaten Apple's market share. Already, the droid platform has nearly double the market share Apple does. Bear in mind that Apple had the lion's share of the PC market in 1981, and then the IBM-PC was introduced, and within a year, the Apple Computer market share dropped down to nearly nothing. Things change in the tech world, in a hurry. Could Droid be the PC to the iPhone?
What is interesting is that the market is quickly shaking out to a two-player market - Apple and Android, with the Windows/Nokia phone being the wild card. And who knows? Maybe Research in Motion will get their act together. Pretty much everyone has written the obituary on Blackberry, which is now down to 16% market share. Funny thing, this time last year, they were about even with Apple. But it is Android seems to be grabbing more share, and doing it more quickly.
Fortunes can change rapidly in the tech world, particularly in the volatile wireless market. Ask Nokia. Ask Research In Motion. Ask Motorola. One minute you're hot, the next minute you're not.
In order to justify Apple's stock price - you have to assume they can maintain their current level of profitability indefinitely. In order to justify the stock going up, they have to increase profitability. I find it hard to see either happening.
And basically, when you see a stock ZOOM up in price, what usually happens? If you are lucky, it just stays there - it doesn't keep zooming. In most cases, it zooms back down again. I never buy a stock that has already shot up in price. The train has already left the station, and you were not aboard. Wave to the nice people and hope they don't get into a wreck. You don't have to try to get in on every "big thing" that is talked about in the press - particularly once the press has gotten a hold of it and it is too late.
And I'm sorry, but I don't drink the Kool-Aid with Apple. Steve Jobs was a great guy, but like Bill Gates, he was more of a marketing genius and in the right place at the right time, than a visionary computer guru. A lot of people like to imbue Apple with a lot of emotional baggage - that the are the Dali Lama of computer companies. But the Dali Lama ain't even the Dali Lama. And there is nothing mystical or magical about Apple products that can't be copied by everyone else.
And in fact, the proprietary "sealed box" nature of Apple gear is in fact its weak point. While Apple products are user-friendly, they are only so until they break. I can put a new battery in my cell phone. I can replace the SIM chip. I can replace the hard drive, the memory DIMMs and the video card in my PC or the hard drive in my laptop (and I have done all of these things). Apple products require a trip to the factory for repair by "authorized personnel." Expensive to buy, expensive to own, expensive to repair. This leaves a huge vulnerability for an opponent to exploit.
So no, I won't be buying $550 a share Apple stock, or going Gee-Whiz about a $500 Billion "Market Cap" which is meaningless. Because while the company is doing well, I just don't see a huge growth model here - not when all the products can be readily copied by others for half the cost.