Before the barrage of hate mail begins to arrive, let me start off by saying that I like Apple (NASDAQ: AAPL ) as a company, and at current levels, I even like the stock as an investment. It is because of this appreciation, and not in spite of it, that I am able to offer the following three major concerns I have for the stock. This is not to say that I do not believe these issues cannot be overcome; long-term, I am very bullish on the stock. But there are some issues that should be considered before you deploy capital into the biggest company in technology.
The general state of the market
Jeff Saut, a strategist at Raymond James, is calling for a 5% to 7% correction in the overall level of the market moving forward from here following the State of the Union address. The primary driver of Saut's prediction seems to be a matter of market exhaustion. He explained on Feb. 4 that "[t]oday is session 23 in the typical 17- to 25-session duration of a 'buying stampede.'" While Foolish investors are not typically technicians or trend followers, there is a reasonable argument to be made that the market is due for a pullback. Should this occur, it will negatively impact all stocks, and Apple is not likely to be an exception. This type of pullback could cause the stock to test previous near-term lows and reinvigorate the bears. Current shareholders should be aware of the direction of the overall market, and those considering buying new shares may wish to wait to see how, if at all, the market reacts to the President's speech.
The perception of consumers has changed
According to the recent Harris Poll Reputation Quotient for 2013, Amazon (NASDAQ: AMZN ) has beaten out Apple as the most trusted company in America. Executive vice president of Harris Interactive Robert Fronk explains that while the general level of trust has not changed dramatically, the drivers of opinion for Apple are different than what they have been in the past. In previous years, Apple was viewed as the leader in technological advance -- innovation in the market was driven by this company. This has changed, largely as a result of the fall in the stock's price. Fronk explains the shift: "Now, actually, financial performance is a dominant driver of their reputation and of course financial performance can be somewhat out of your control, as they're finding." This translates into a different motivator for the respect that people have for the company, and emphasizes the need for a new game changer out of Cupertino. While financial performance is not a bad baseline driver, it can be out of the company's hands. This shift should be a consideration for how you allocate your investment dollars.
Microsoft (NASDAQ: MSFT ) is coming hard in emerging markets
Emerging markets represent the fastest-growing segment of the smartphone market around, and Africa is considered the fastest-growing region, even within emerging markets, having maintained a 43% growth rate in smartphone use since 2000. Microsoft recently announced a partnership with Chinese manufacturer Huawei to bring a low-cost Windows Phone, called the Huawei 4Afrika Windows Phone, to Africa. The new device will initially be sold in seven countries and cost $150. As Apple continues to weigh the pros and cons of a cheap iPhone for emerging markets, Microsoft is aggressively going after the low-hanging fruit. To be sure, Microsoft's smartphone market share numbers are still well outside the realm of worry-producing for Apple, but it is making progress and coming hard. Apple's seeming lack of a decisive strategy -- the waffling between remaining a premium, aspirational brand and the need to have a low-cost presence -- is creating enough concern to take notice.
What's an investor to do?
As I mentioned, I remain very positive on Apple and the medium- and long-term prospects for both the stock and the company. With that in mind, the above factors should be enough to give you pause at current levels. I maintain my position that Apple will touch $400 before it returns to $500 and well beyond, but given the swings the stock is capable of, caution is advisable.
Ultimately, Apple is working on enough new things -- the iWatch or smart watch, for example -- that it should find a way to return to both its role as an innovator and a market-leading investment choice. In the immediate term, however, I believe the above concerns have merit and I would be cautious in how I approach the stock for the next few days and weeks. The company has $137 billion in cash, a market-defining smartphone and tablet, and no lack of love from its faithful. In investing, however, blind adoration gets you in trouble, and these concerns are worth a close look.
There's a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company going forward. To get instant access to his latest thinking on Apple, simply click here now.