Wow, Was I Wrong About Apple

Earlier this year, I made a few bold CAPScalls. Of course, as with many moves one might consider "bold," you can find yourself boldly wrong.

I put red-thumb, underperform calls on Apple (Nasdaq: AAPL  ) and Netflix (Nasdaq: NFLX  ) , two stocks that have long been among individual investors' favorites. This was despite the fact that I had previously called out both stocks with "outperform" ratings in the Motley Fool's CAPS database for years.

I'm a big believer in the importance of allowing for changes of heart in investing. I started to seriously wonder whether Apple was simply losing its core.

I was put off by Apple's new dividend and share-buyback plans, which reminded me of companies heading closer to the slower growth inevitability of many huge corporate entities. I also fretted about the loss of Steve Jobs, who long led this company to build products full of beauty and innovation, not to mention his knack for knowing exactly where computing was going. How could anyone ever replicate his style and vision? It was a worthwhile question to ask.

Today, it looks as if I spoke too soon.

Now that it's been a year since Tim Cook took the helm, business still looks pretty lively for the iGiant, as my colleague Evan Niu recently outlined. Products such as the iPhone and iPad continue to be hot commodities among consumers, and Cook may be bringing a new era of openness and even shareholder friendliness to the company.

On the competitive front, those who used to scoff at the idea that Apple could ever unseat Microsoft's (Nasdaq: MSFT  ) computing domination aren't laughing now. In fact, the iPhone line brings more revenue to Apple than Microsoft rings up in sales of all of its products.

I haven't always thought Apple did a particularly bang-up job with corporate social responsibility, but it's made some strides in that area recently, too. It recently got high marks for making moves that should reduce the use of conflict minerals in its supply chain, and my colleague Justin Loiseau pointed out that it's making headway in dealing with the blight having to do with controversial Chinese supplier Foxconn, as illustrated by recent reports by the Fair Labor Association.

Last but not least, encroaching competition in the smartphone market from the likes of Google's (Nasdaq: GOOG  ) Android was just dealt quite a blow, as a jury in a federal court found that Samsung had infringed upon quite a few iPhone patents, copying some important design features. In other words, Apple got a landmark victory.

And come on, even though Research In Motion's (Nasdaq: RIMM  ) being touted as a possible beneficiary of the ruling as well, I'd say it isn't even really a contender anymore; the BlackBerry maker's fallen behind the tech times, delayed new products, reported operating losses, and laid off thousands of employees.

As soon as this article publishes, I'm ending my "underperform" call on Apple in CAPS. However, I stand by my belief that Netflix's competitive positioning is toast and that it will continue to underperform, so I'm standing pat on that call. You can see my overall CAPS track record for yourself.

Put your own CAPScall on Apple, pro or con. And be sure to check out our new premium report on Apple that details the risks and opportunities that face the iEmpire. Our analyst is also providing a full year of updates to go with it, so make sure you stay on top of all the key Apple news and analysis.

Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of Netflix and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, Netflix, and Google, creating a synthetic covered call position in Microsoft, and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (18)

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  • Report this Comment On August 28, 2012, at 9:07 PM, Cushing1 wrote:

    The next 5 months will be important in defining Apple's future growth. A new iPad will launch in September, an iPad mini in October, new desktop computers (iMac and Mac Pro) by December and addition of China Mobile to its distributors by January (in time for the Chinese New Year).

    If all prove successful, next year's growth rate will continue at an unequalled pace. One or more new products (Apple TV?) could surprise positively.

  • Report this Comment On August 28, 2012, at 10:57 PM, sharpx2 wrote:

    I like to look at Disney as some sort of analog to where Apple is headed, except that Jobs was far better than Walt Disney in envisioning the future. He specifically put procedures, training and structures in place that would assure, as much is possible, that his visionary sense would become codified in the future actions of the company. Apple has an advantage over other purveyors of electronics in that part of its corporate DNA is to always try and project forward five years, and to build products to that vision. That doesn't stop them from changing their prototypes as a running exercise, but at least Jobs established that they always had to look forward, and imagine the future. This is what is the core of Apple's value going forward, and I believe that the current management and design team has it totally together. Until other companies cease to be reactive (that is, slavishly imitating the latest Apple innovation) and become proactive and creative, Apple truly has no competitors. Oddly enough, I think the first company to grasp this is Microsoft, and I see that the Surface and other innovations on their part may drive a rebirth of their growth.

  • Report this Comment On August 29, 2012, at 7:44 AM, jdmeck wrote:

    Regarding the Surface. It's deals between Softie and Apple that allow the Surface to exist in its present form and look. Apple wins again.

  • Report this Comment On August 29, 2012, at 9:42 AM, dctodd27 wrote:

    What was the timeframe on your original underperform call???

  • Report this Comment On August 29, 2012, at 1:40 PM, Darwood11 wrote:

    I think the current lesson to be learned is the impact of the courts.

    This should make most investors hit the "pause button" and think the process through.

    One issue I have is this. A court made a decision and so now AAPL is an "outperform." What impact will the next court decision have?

    BTW, my perspective remains that of a long term investor. I am inclined to say that some aspects of the tech sector are really a minefield, and we can't predict when one will go off.

  • Report this Comment On August 29, 2012, at 4:44 PM, ikkyu2 wrote:

    You know, I have been an Apple guy since '81 - made more money in Apple stock than all my other trades put together - but I am not sure that your call was entirely wrong. I think when a guy like Tim Cook takes the reins at a place like Apple it may take more than 1 year for his influence to be totally known - maybe 2 years. There is momentum, there is a corporate culture, there are products in the pipeline, and some might agree that Steve Jobs left an unusually larger-than-life stamp on Apple, more so than the average CEO.

    On the other hand, one of Apple's marvels in the last decade has been its ability to scale its supply chain, and by all accounts that magic was mostly Tim Cook's doing.

    Corporate culture at Apple is definitely changing this year. From what I hear, long-term employees - 20, 25 year men - are starting to get up early, wear slacks instead of jeans into work, and are worrying about their jobs as new managers come in to their department and shake things up. Time will tell - I think in another year we'll know.

  • Report this Comment On August 31, 2012, at 12:05 PM, H3D wrote:

    @ikkyu2

    "I think when a guy like Tim Cook takes the reins at a place like Apple it may take more than 1 year for his influence to be totally known - maybe 2 years."

    Tim Cook been at the helm for most of the last 5 years.

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