Why I'm Remaining Cautious With Apple

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Before the Apple (Nasdaq: AAPL  ) Nation starts chiming in on how silly I am to be cautious about Apple, let's make one thing clear: I think the company is probably one of -- if not the -- greatest of our generation. I'm also not saying investors should stay away from the company.

Recently, I've been reviewing  all of the companies in the World's Greatest Growth Portfolio.  Each year I rebalance the portfolio based upon a guiding principal: Invest first and foremost in companies that demonstrate exceptional levels of innovation, with special emphasis given to those that I believe will be around decades from now. Apple has been an important contributor to the portfolio this year.

Read below to see why I'm being cautious, and at the end I'll offer up access to a special premium report on Apple compiled by our resident Apple guru, Eric Bleeker.

Reasons to be happy
Though Apple may have missed earnings expectations during its most recent announcement, the company has still amassed an impressive record. Over the past four years, Apple has increased sales by a jaw-dropping 318%, while earnings per share have increased an even more impressive 550%.  

During that time, the company has basically grabbed a significant share of the smartphone market, and created an entirely new market -- that of the tablet -- almost from scratch. Along the way, rivals like Nokia (NYSE: NOK  ) and BlackBerry-maker Research In Motion (Nasdaq: RIMM  ) have simply been left in the dust.

As if that anecdotal evidence isn't enough, the company now offers up a 1.9% dividend yield, and trades for just 12 times trailing earnings and only 12 times free cash flow. All of these reasons combine to make Apple a very compelling buy at today's prices.

But there are concerns
There's little question about what helped catapult Apple from an almost-bankrupt company to the largest the financial world has ever seen: Steve Jobs. People have as many opinions on the man as there are grains of sand on a beach, but one thing is for certain: He was the main driver behind the company's awesome performance.

When Jobs passed away, I was concerned about what that could mean for the company's innovative DNA. At the same time, I was also aware that there were surely many irons in the fire that Jobs helped create that would be coming out for a number of years after his passing.

Since his passing, things have gone fairly well, all things considered. But I'm also aware that Google (Nasdaq: GOOG  ) and  (Nasdaq: AMZN  ) -- two companies that have their own visionary founders still calling the shots -- are also more than capable of filling in any gaps Apple allows.

The recent defection of a number of Apple executives leads me to believe that the actual make-up of Apple's innovative culture is undergoing some major changes. I guess that's to be expected, but it's still an unknown where once there was a pretty certain known.

As it stands, Apple makes up about 9% of the World's Greatest Growth Portfolio. I probably won't be eliminating the company, but I believe I'll be paring down its allocation.

As you might have noticed, I tend to focus a little less on numbers and a little more on intangibles when it comes to evaluating my investments. For some, that seems silly, but it's a strategy that has served me well, and fits with my style.

If you'd like a more numbers-centric, detailed view of where Apple stands in the technology field, I highly suggest checking out our special premium report on the company.

By picking up a copy of our premium research report on Apple, you'll learn everything you need to know about the company's most recent earnings report, and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.

Read/Post Comments (7) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On November 14, 2012, at 4:12 PM, applebull wrote:

    The one thing not mentioned is the Apple Options market. This is the tail that wags the dog. The Apple stock price is manipulated by massive short selling every week to maximize Profits from selling options, and minimize losses to the Hedgefunds and Momentum Traders. Naked shorting is rampant, and the stock closes every Friday at the exact price they have selected. The SEC does nothing, so the only cure is to Split Apple stock. If it was split 10 for 1, and the price was $54 instead of $540, the manipulators are out of business. If they short 200,000 shares that nets a decrease of 50 cents instead of $5, they will go find a new yo-yo. This would be the best thing Tim Cook could do for real Apple Shareholders.

  • Report this Comment On November 14, 2012, at 4:23 PM, applefan1 wrote:

    Just because Apple hasn't said anything about iOS 7, doesn't mean they aren't working on it. I'm sure at WWDC they'll make an iOS and OS X new version announcement and maybe some demos which is what that forum is held.

    The problem is that people think that all of these "features" that Android Jelly Bean (which STILL isn't on all Android phones, most are STILL using 2.x), THINK that Apple doesn't have anything else in the pipeline.

    Windows phones STILL aren't selling well.

    So, while the SIII gets attention for their first 3 months of sales BEFORE the iPhone 5 got released. I'm sure that the iPhone 5 will catch up and eclipse the SIII within the first 3 to 6 months of sales of the iPhone 5 and eventually eclipse the all time raining iPhone 4S (70 Million unit sales and STILL growing).

    Most people end up not even using most of these so-called features enough to worry about. While some praise Google's Voice Search. I've tried it, yeah, when it works it's better than Siri for doing web searches, but it doesn't always work. So far, I put it about 50/50.

    What i find Siri good at is doing more opening/closing apps, setting up appointments, and getting specific data and while it has it's own limitations it works just as well or as bad as Google Voice search.

    I still don't have the habit of using vocal commands to my phone for several reasons.

    1. I kind of might looking stupid talking to my phone with certain commands while in a pubic place.

    2. One has to enunciate and sometimes we're a little lazy in our diction.

    3. I can sometimes type the info because of habit, than speak it. Because i don't always know the best way to ask the question.

    4. Outside noise preventing the phone to hear me.

    Overall, Voice recognition is STILL in it's infancy. PERIOD.

    Maps? I like Apple Maps, until I find something better, I will use it. I have NOT had any problems with Apple Maps in my area which where I live and travel the most. Until I need another Map program, which i have plenty to choose from. Apple Maps is what i will use until I find something better or NEED something else.

    Apple consistently makes a quality product.

    Jobs didn't "LEAVE" the company. He passed away. Kind of a BIG HUGE difference.

    Boring? Why? Because it doesn't have a lot of flashy animations, themes and eye catching BS that doesn't make it work better that just ends up making the product more difficult to use, taxes the CPU/GPU, RAM, Storage, and ultimately lessens the battery life?

    Well, if it's eye candy you want, then you have take all the bad along with it.

    I don't buy a phone because the OS is like a video game. I use a phone for the apps and the OS SHOULD be as transparent as possible. That's what a good OS is. Transparent to the user, not staring them in the face detracting them from using the product.

  • Report this Comment On November 14, 2012, at 4:35 PM, applefan1 wrote:

    For all of those that are concerned, Think about this for a second.

    When you buy a car and get all of the "features' they put in. Do you get all of them? Do you actually USE all of them?

    The reason is that many times these features are either useless, or don't work the way they were intended.

    Everyone is trying to figure out what features to have, what not to have, how to have them implemented, how to avoid lawsuits, how to protect their "differentiation", etc., etc. ad nasium.

    I would rather have a stripped down smartphone and get used to the "features" gradually rather than get a TON of features all at once that I will never use or take too much time to learn that I have them, know how to use them and to figure out I didn't really need it in the first place.

    Ultimately, the Smartphone must certain things well, after that, is just icing on the cake, but sometimes it's icing I don't always have to have.

    The only switch I will make is going from an older iPhone to a new phone because i like the company and the direction and how it is consistent and problems EVENTUALLY get fixed.

    I've burned too many times with Microsoft products and Android for me is never an option since they don't make a laptop/desktop platform and I want my mobile devices to place nicely with whatever laptop/desktop I get.

  • Report this Comment On November 14, 2012, at 6:29 PM, cpemail wrote:

    Dead Jobs, Rotten Apple, $300 by 13

  • Report this Comment On November 15, 2012, at 4:53 AM, lowmaple wrote:

    cpemail: So you've shorted the stock?

  • Report this Comment On November 15, 2012, at 11:19 AM, 48ozhalfgallons wrote:

    "I think the company is probably one of -- if not the -- greatest of our generation."

    ... and this generation is passing on. Apple has worn out its customers; new OS, new devices, naa.

  • Report this Comment On November 15, 2012, at 1:50 PM, sobani wrote:

    When I click the link to the premium report at the end of the article, I end up at the November 2012 Analyst Report by Joe Magyer.

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