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Avoid This Hot Stock

Editor's note: This article is a stock pitch made by a member on CAPS, The Motley Fool's free investing community. The pitch is published UNEDITED and is the opinion of the CAPS member whose pitch it is, in this case: buffettjunior1.

Each week, Motley Fool editors cull a top stock idea from the pitches made on CAPS, the Motley Fool's 180,000-member free investing community. Want your idea considered for this series? Make a compelling pitch on CAPS with a minimum length of 400 words. Want to follow our weekly picks? Subscribe to our RSS feed or follow us on Twitter.

Company Apple (Nasdaq: AAPL  )
Submitted By: buffettjunior1
Member Rating: 97.22
Submitted On: 12/10/2011
Stock Price At Underperform Recommendation: $391.68

Apple Profile

Star Rating (out of 5) ***
Headquarters Cupertino, Calif.
Industry Personal Computers
Market Cap $354 billion
Industry Peers Dell (Nasdaq: DELL  )
(Nasdaq: CSCO  )

Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS.

This week's pitch:

History has proven countless times that the hottest stock in the industry under-performs in the long run.

Before I continue I want to make it clear that based on a fundamental analysis, Apple, looks outstanding. Heck, they even make a pretty good product.

Apples compounded annual growth rate in revenues over the past 5 and 10 years has been around 35 percent. This is exceptional no matter how you look at it.

How did this company manage to grow this much every year? The answer to this question is simple; by selling products, while very well made, that are extremely overpriced. I'm still surprised that it has gone on this long. Apple products are most certainly a fad, however, a fad that has lasted longer than most.

How much can investors expect the company to grow in the future? The answer to this question is also very simple. You don't have to be a financial genius to realize that no company can grow 35 percent every year forever. Even 3 percent growth cannot be sustained forever. So how much growth can we expect? A lot less than 35 percent and possibly negative growth as people switch to the next hot product.

Valuing this stock based on its past earnings could be very dangerous because future earnings and earnings growth will most certainly decline. In the long run I am positive that earnings growth will be negative. There will always be new companies emerging that make products better and cheaper.

Honestly, I just don't understand why people are willing to pay 2, 3 or even 4 times what something is worth just because it's made by Apple. Again, as I mentioned before, Apple products are very well made. However, I know other things that are also well made and people are not paying outrages sums for it. I have also noticed over the last several years that the ingenuity that made this company what it is today has disappeared. The company no longer makes new innovative products. I mean just look at the iPhone, they keep coming out with a new one every year, however, if you think about it they are all pretty much the same. Eventually people will get bored of this same old thing and move on.

Apple has had a great run, but now it's time for this company to fall and another one to take its place.

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The Motley Fool is investors writing for investors. Dan Dzombak had no position in any of the companies mentioned in this article. The Motley Fool owns shares of Cisco Systems and Apple and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems, Dell, and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (20) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 17, 2011, at 9:20 AM, midnightmoney wrote:

    is this seeking alpha or motley fool? idisappointed!

  • Report this Comment On December 17, 2011, at 9:24 AM, mikejw wrote:

    They are so hungry for content they are ripping off their own CAPS....

  • Report this Comment On December 17, 2011, at 9:24 AM, daveshouston wrote:

    This has to be the worst article I've ever read on the Motley Fool.

    The guy has some strong biases that are not borne out by the facts.

    I suppose a typical Hyundai owner thinks BMWs are overpriced too.

    The fact is, Apple's products are not overprice. They're simply the best and Apple's customers are the most quality conscious and perceptive.

  • Report this Comment On December 17, 2011, at 10:42 AM, MagicNEAL wrote:

    Over priced? LOL!

    I bought a Mac Air at a thousand dollars while the best Windows competitor, the Ultrabook is about $200 cheaper. However, in terms of features, functions, looks and durability, the Air is 10X better. I overpaid??? Reviewers often make the mistake of comparing Kindle Fire to the iPad. Wrong! It should be compared to the iPod Touch. Then this whole premium price theory goes out the window. For all the quality, looks and durability that Apple products bring I think they cost maybe 20% more than the competition. I will gladly pay that premium and delighted to walk home with a bargain!

  • Report this Comment On December 17, 2011, at 12:04 PM, rajaramanand1981 wrote:

    Pathetic article, get a life

  • Report this Comment On December 17, 2011, at 1:01 PM, H3D wrote:

    "Apples compounded annual growth rate in revenues over the past 5 and 10 years has been around 35 percent. This is exceptional no matter how you look at it."

    Apple's 5 year compound revenue growth is 41%.

  • Report this Comment On December 17, 2011, at 1:25 PM, H3D wrote:

    You really haven't done your homework.

    The ideas that Apple products are 2, 3 or 4 times overpriced is absurd.

    Competitors are struggling to compete with the iPad and MacBook Air and make money.

    It is this article that is overpriced. It was free. We should have been paid to read it.

    Apple's 10 year revenue and earnings history is co consistent as to provide an excellent basis for short to medium term projection.

    Apple is Cheap.

  • Report this Comment On December 17, 2011, at 1:29 PM, emilevid wrote:

    This article represents Motley Fools criminal attempt to manipulate stocks. They pretend to randomly choose articles from their subscribers when in fact that pattern of these article suggests manipulation. This is clearly criminal activity that is permitted under a criminal SEC.

  • Report this Comment On December 17, 2011, at 1:30 PM, mernick wrote:

    Sounds like someone who missed out on the Apple fortune.

  • Report this Comment On December 17, 2011, at 1:31 PM, BlueWhiteSky wrote:

    What a load of bulls! what is the time frame of Apple's demise? I can totally write some bulls like this, and I will do it for free. I feel like this person is living in survivor mode. Of course, it would be none sense to pay more if your motives are food and shelter. Why would someone pay 20X more for a bowl of pasta when they can go buy a cub of raman noodle for 33 cents? If you pay 2-3 times less, you get a kindle fire, if you pay 5 times less, you may get a kindle. It fills you up just like a raman noodle, but you are not getting anything extra.

  • Report this Comment On December 17, 2011, at 1:50 PM, FoolontheStreet wrote:

    In my foolish opinion, the writer just does not get Apple. It has been a brand leader since day one. It has created whole industries, transformed others, demolished some, and has changed our way of life. Is it worth $400/share? Is an iPad worth $500? Apparently, because many millions believe so.

  • Report this Comment On December 17, 2011, at 2:15 PM, j1bird2k wrote:

    Shame on you MF. Letting this drivel slip by your online editors. Just sad that your organization is so asleep at the wheel.

  • Report this Comment On December 17, 2011, at 2:50 PM, ApuQatar wrote:

    The author is too opinionated on Apple products to have an objective opinion about the company and the stock. However he is correct that all things come to an end.

    Mobile devices are here to stay, but the days are numbered for them being cool, must-have-latest-model, premium priced gadgets.

    Ten years from now it will seem absurd that people once paid thousands of dollars a year on their mobile devices... almost as absurd as seeing those devices prominently featured in movies and TV shows from the early 2000s.

  • Report this Comment On December 17, 2011, at 4:26 PM, Underdogs wrote:

    Yes, nothing lasts forever. Keep in mind that Apple is not simply a product company.

    Besides the truth of this article re: future value thru innovation @ - link below; the relationship Apple has with it's customers is unlike any a corporation has ever had. If / when that trust gets broken then all bets are off.

    At this time Apple happens to be a smooth operating machine and betting against their trend of success is IMHO is a mistake. People keep talking about the living room being the next opportunity for Apple; and while it may be there is an entire world of opportunities for technology to be integrated with, into and improved upon. I don't trust another company for now so I say go long on Apple as it is the the future I hope to see unfold.

  • Report this Comment On December 17, 2011, at 4:48 PM, nancydog wrote:

    I have been an apple user since the Apple II+, and have enjoyed the experience. I don't mind paying a 10 to 15 percent premium for my laptop. I don't like what they did with the operating system, making it dependent on the wintel line. Although this decision to take the other road made it easier to use a wide variety of applications, it increased the danger of viral infection, etc. I've never had any malware in my experience, and am happy with my status. I do suppose, that someday I'll have to move into the mainstream, but shudder when I think of having the headaches my wife has with her Windows 7 computer.

  • Report this Comment On December 17, 2011, at 5:14 PM, HiramWalker wrote:

    Note that no person would dare affix their name to this kindergarten attack.

    The real mystery is who would publish such mindless drivel, also nameless?

    Even comment trolls exhibit more intelligence than demonstrated here.

  • Report this Comment On December 18, 2011, at 12:07 AM, Stkspeculator wrote:

    Buffetjr, your article was outrages (not to be confused with outrageous)! Wow. I have to say that I will never accept another Motley Fool newsletter or advertisement, which arrive almost daily. If they allow this garbage to be published, they must be hoping to manipulate the market. This author must not be familiar with iads, Siri, possibly a very serious Apple TV, etc. These are all new products which will keep Apple's revenues blowing through the roof, as supplements to the other outrages products they offer. I'll be nixing my name from Motley Fool's e-mail list, that is for sure.

  • Report this Comment On December 18, 2011, at 1:31 AM, MichaelDSimms wrote:

    I agree with the article completely. However in slightly different terms. Appl products will continue to lose market share due to yes, the price of their products. Android phones and kindle tablets are far cheaper for the masses and they will continue to improve, closing the functionality gap. Time will tell for sure, but sales figures already substantiate this.

  • Report this Comment On December 18, 2011, at 4:09 AM, Chemsoldier88 wrote:

    Everyone who commented negatively towards this guy or the Fool needs to wipe away their fanboy tears and relax. This is why we read and subscribe to this place, to hear various perspectives. If you don't agree, then you don't agree. Why all the hate? Grow up.

  • Report this Comment On December 19, 2011, at 2:09 PM, JimJam18 wrote:

    Point well taken, Chemsoldier88. And what a great bunch of products.....well worth a little extra.

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