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Will Apple Trade Its Corvette for a Station Wagon?

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Apple (Nasdaq: AAPL  ) closed out Friday at $547 per share -- 22.4% below the all-time highs the company set in September. The iPhone 5 launch broke records as expected but failed to light a fire under the stock. The iPad Mini didn't help much, either.

We're looking at the end of an era, folks. The mere mention of a new Apple gadget is no longer enough to spark a stock market feeding frenzy. Investors are looking for the steak behind the marketing sizzle, and Apple doesn't deliver.

The company has been a turbocharged sports car for the better part of a decade. Starting with the original pastel-hued iMacs and first-generation iPods, Steve Jobs took Apple from the brink of bankruptcy and created the world's most valuable company. Investors have been rewarded with a ridiculously awesome 6,800% return over 10 years. I totally understand if you fell in love with the stock and expect the joyride to go on forever.

It's the end of the ride as we know it
But nothing lasts forever. It's time to shift gears. The massive growth phase is over, and Apple will become more of a steady banger from now on. You know, the wood-trimmed station wagon or eight-seat SUV that takes you where you need to go but you don't want your friends to see it. Time to trade in the old Corvette.

Under Jobs, Apple ran on imagination and nitroglycerin. The Apple ecosystem, masterfully designed around the iTunes store, pulled you in and kept you forever. If you joined the Apple faithful in the past 10 years, chances are you'll never buy a Microsoft (Nasdaq: MSFT  ) Windows PC again, nor consider any smartphone not named "iPhone." This is why Apple will never die in a ditch like so many former giants of the volatile computing sector. Once the company sinks its hooks into you, there's no way back.

But new recruits are getting harder to come by. The iPhone 5 and iPad Mini are surely the finest versions available in Apple's phone and tablet lines; you'd hardly expect to see the products getting worse year by year. But they're not the revolutionary mind-benders that Steve Jobs used to present all the time. Instead, they're incremental refinements on what came before -- nice enough to inspire a few upgrade trade-ins, but not blowing your hair back with total awesomeness.

New CEO Tim Cook is not a visionary genius. He's undeniably a master of efficient operations. He practically sneezes sales data and supply-chain numbers. From Jobs, you got confetti and rainbows. That's how Apple was designed to work, and Cook isn't up to the task.

It's starting to show. Both customers and investors are catching on.

Nothing compares 2 U!
Fellow Fool Evan Niu likes to point out that no other tech giant can deliver the unique blend of high sales growth, fat profit margins, and the low price-to-earnings valuation that Apple sports. Intel (Nasdaq: INTC  ) is cheap but not that profitable. Google (Nasdaq: GOOG  ) is a fine grower, but the stock is relatively expensive. Microsoft just falls short on every count.

But you know the old adage: "Past performance is no guarantee of future results."

Apple can look back at a tremendous decade of insane growth, and the rocket engines are still firing. Chances are, the next quarter will look great, too -- Apple's mojo should vault it into another fine holiday season. But Cupertino cannot afford to rest on its laurels for too long, lest the trendsetters and taste-makers turn to Android, or Windows Phone, or maybe even Research In Motion's (Nasdaq: RIMM  ) upcoming BlackBerry 10 when they get bored with the same old iPhone presentation. Looking at this year's new products, it looks like Cook is getting awfully comfy on his enormous laurel pile.

Yes, there's value in presenting a consistent user experience. Apple sure delivers that. But there's a fine line between consistency and complacency, and I think the company falls on the wrong side of that line. The iPhone hasn't changed all that much since the very first version, save for cosmetic design improvements and the inevitable evolution of faster and better hardware. Moreover, every new product Apple presents nowadays appears to be another spin on the basic iPhone or iPod Touch platform.

The wow factor is fading fast. Next year, the runaway sales growth may very well flatline or even turn negative. And without that growth promise, Apple becomes just another stodgy mastodon, defending an old business model rather than inventing the future.

But hey, Apple will at least find some old friends around here. Microsoft has been in that zone for 10 years, for example. Nobody buys Microsoft stock with triples or five-baggers in mind -- they buy it for solid but unexciting performance and expect the dividend to rise.

Yep, Apple already bought that station wagon. Time to fill 'er up and get on the road.

Apple may not be the market darling it once was, but the company will remain relevant for years to come. By picking up a copy of our premium research report on Apple, you'll learn everything you need to know about the preeminent tech titan and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.

Read/Post Comments (10) | Recommend This Article (3)

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 November 10, 2012, at 10:44 AM, PedroHMG wrote:

    You are DEAD WRONG on Apple. Apple has the best overall product line up in the history of the company. They will sell over 50,000,000 iPhones and 30 million iPads this quarter. In addition, they will break all records for Mac sales. The January 2013 quarter will be a major record BLOWOUT... and the stock will be back at record highs after the January 2013 quarterly earnings. You are a FOOL to bet against Apple. Long Apple since $37 per share.

  • Report this Comment On November 10, 2012, at 11:18 AM, demodave wrote:

    I think that this Motley Fool piece is a wood-paneled Chevrolet compared to those that Evan Niu writes.

    I'm not actually going to say "dead wrong", though, either, because we need to see how Apple's leadership evolves. If the vision is truly installed, and I believe it is, things will sort themselves out. In cases where the vision is not installed, bad apples (Forstall) can be de-installed. It takes time to see the effects of those changes.

    Clearly, unfortunately, Mr. Market has punished AAPL over the past few weeks. And I *do* feel that that is unjustified. I agree with Pedro that Apple will have a record December quarter this year. That is what Apple does. I just can't comprehend, justify, or explain the current 12.5 ttm P/E ratio. Not for a company that is growing 15-20% YOY (and I may be understating that).

  • Report this Comment On November 10, 2012, at 11:18 AM, dm333 wrote:

    Apple hasn't necessarily slowed down innovation. Its the lack of Steve Job's marketing, lack of his reality distortion field that makes people think so.

    Not downplaying Apple's innovation, what is different now than in the last several years?

    You can claim all version of the iPhone after the original in 2007 as incremental updates that didn't blow your socks off.

    The iPad announce in 2009 was proclaimed as nothing more than a big iPod touch.

    What other earth moving products have been released? You could claim non.

    Yet apple releases the iPhone 5. Its thinner, smaller, yet with good battery life of most any LTE phone. That in itself is a huge accomplishment. Bigger, screen, much faster data, processor, GPU.

    Addition of turn by turn navigation was huge.

    iPad Mini introduces yet another form factor. Achieves a 35% larger screen with the same dimensions as Nexus 7 while being even thinner.

    Is that not innovative?

    Macbook Air, Retina Macbook Pros. Razor thin iMac. Those aren't innovative either?

    I think folks remember Steve Jobs with excessively rosy glasses and in hindsight think everything he did was awesome. But didn't think so at the time.

  • Report this Comment On November 10, 2012, at 11:29 AM, Aaplalltheway wrote:

    You are so wrong! Amazing that Apple comes up with consistently great products (that clearly thr public wants and buys) and they get a bad rap for everything they do. I wonder why other companies like google don't get scrutinized the same way. I think it's because people are jealous of Apple's success. I read somewhere that people buy android/Samsung phones not because it is a better product but simply because they hate Aapl. If that is the reason that people choose sub par/ cheap plastic/ horrible user experience products, then I am ok with that. I did not fall in love with the stock. I fell in love with the products and the user experience Apple offers. Aapl products offer quality second to none. Apple as a company is not becoming complacent. They will bring out new products, they will capture huge market share in China. They have figured out their supply issues. All the lies that people spread to bring down the company and its stock price just shows the insecurities they have about Aapl being a MUCH better product than its competitors. No, aapl is not slowing down. We are staring a record holiday quarter in the eyes and all the irrational selling because of the fiscal cliff will be recognized as the best buying opportunity shortly. Their recent management change will also be recognized as one of the most important changes that will catapult AAPL to the next thing. So please keep the minivan for MSFT.

  • Report this Comment On November 10, 2012, at 11:43 AM, daveshouston wrote:


  • Report this Comment On November 10, 2012, at 12:34 PM, DoctorLewis4 wrote:

    Every time I pass an Apple store - and I travel all over - they are not just merely crowded. They are all mob scenes. If customers are so unhappy it seems like they have chosen a strange place to spend their time.

  • Report this Comment On November 10, 2012, at 3:01 PM, chinaman8 wrote:

    This article is entirely wrong. Apple has the best phone, tablet, small tablet, notebook computers (regular and lightweight), music/media players, and all-in-1/small desktop computers on the market. And all of them have been refreshed this year, and are selling like crazy with good profit margins.

    Apple spent nearly $3 billion in R&D last year so the innovation is continuing. And it is still growing 20-30%/year. The iPhone 5 is supposed to launch in China in December this year, and will create many more sales in that world's largest cellphone market. China's largest carrier China Mobile with 70% of the market doesn't even sell the iPhone yet and when it does, Apple's sales will take off even more.

    Apple stock is down recently partly due to the fiscal cliff and other macroeconomic concerns, which are real but have not affected Apple's sales in the past. It's a great time to buy more Apple shares!

  • Report this Comment On November 10, 2012, at 6:47 PM, deasystems wrote:

    The article states that "...they're not the revolutionary mind-benders that Steve Jobs used to present all the time."

    Steve Jobs never did any such thing. Jobs rejoined the company in 1997. In his subsequent 14 years there, he introduced at most, four products that fit your description. That hardly can be characterized as "all the time."

    Stop with the stupid revisionist history, Anders.

    By the way, Apple never worked--nor was it "designed to work"--by regular introduction of "mind bending" disruptive products. Apple's mainstay process has always been steady, reliable incremental improvement. That's what it has always done and continues to do.

  • Report this Comment On November 10, 2012, at 6:58 PM, deasystems wrote:

    @happypoordays: " will get lost if you use their crumpy maps app."

    Actually, Apple doesn't have a monopoly on "crumpy" maps or on getting people lost. Your assertion has no relevance.

    "...2013 is going to be a bad year for Apple as the competition swamps them with better OS experiences."

    Let us know when that happens, happypoordays, because none of Apple's would-be rivals currently provide better OS experiences.

  • Report this Comment On November 11, 2012, at 2:42 PM, Arthur1111 wrote:

    Excellent article. I also agree with happypoordays. I have been stating for over 2 months to sell AAPL and buy RIMM. People think I am a RIMM fan. I am not, I just like to make money. I hope this is not a sin.

    As far as I can see, Apple will have a VERY rough year in 2013. The competion will be tough especially from RIMM. Whether we like it or not, BB10 sounds very innovative. Windows 8 is not bad either. So next year Apple has to compete with Android, BB10, and Windows 8. Competition pushes the prices and margins down.

    If we invest purely to make money, taking the emotion out, AAPL is not attractive at all. RIMM on the other hand is extremely attractive.

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