The 5 Challenges Now Facing Apple; Is it Time to Take Profits? (AAPL, GOOG, MSFT)
Apple (AAPL) is receiving a massive amount of attention lately as the stock has soared higher and the consumer electronics giant has become the world’s most valuable company. Next Inning Editor Paul McWilliams, whose Next Inning model portfolio has returned over 300% since inception, was an early backer of Apple.
McWilliams first suggested that Next Inning readers consider Apple as a good speculative investment in June 2003 at the split-adjusted price of $9.85. Today Apple trades nearly 6,000% higher, and $10,000 invested then is worth over $600,000 today. More recently, in January 2009 when Apple was trading for under $100, McWilliams alerted readers that accounting policies were masking Apple’s earnings. Nine months later, this became a topic on Wall Street, and Apple shares soared. Late last year and early this year, McWilliams advised readers that significant gains were still ahead. Since the new year Apple has seen its stock rise from about $400 per share to more than $600 per share.
Now, following a huge rally in Apple shares, McWilliams has done a full audit of the stock in a 24-page report, that includes 11 tables providing fundamental data and valuation analysis. Next Inning free trial subscribers will have immediate access to this report, which includes McWilliams’ comments on where he believes the stock his headed next.
McWilliams sees five challenges facing Apple right now, each of which are explored in depth in his new report:
Precedent – Apple has set a precedent of consistently topping its guidance by a very substantial margin. As a result, covering analysts consistently estimate future results substantially above guidance.
Size – With a market capitalization of about $560B the next double will come, if it comes at all, much more slowly than the last. This is not so much a risk factor as it is a factor that limits the rate of further upside appreciation for stockholders. As such, investors need to put the magnitude of this number into perspective.
Regulatory Risks – While we can argue whether the suits brought against tech companies in the past were well deserved or not, there is a long history of governments taking on tech companies when they gain too much power and/or money. Apple is already attracting the attention of politicians and regulators and the trend may accelerate going forward.
Direct Competition – So far direct competitors have had limited success against Apple. Sure, the aggregate number of Google’s (GOOG) Android smartphones sold is substantially higher than iPhones, but that’s only a small part of the real story here and, with Microsoft’s (MSFT) Windows 8 for tablets coming out later this year, Apple may face its first viable challenge in the tablet market.
The “Cook” Factor – With great sadness, we marked the passing of Steve Jobs last year. While Tim Cook is clearly a very smart person, we also need to evaluate what this change in leadership might bring to Apple.
Can Apple overcome these challenges to drive the share price higher?
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