2 Big Reasons to Sell Apple Stock Today

I'm going to attempt something a little odd today, Fools. Even though Apple (NASDAQ: AAPL  ) makes up 6.2% of my real-life holdings, and I recently considered  buying shares of Apple stock, I'm going to be giving you two reasons to consider selling shares of the company today.

Why am I doing this?

Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we're just deluding ourselves.

It got me to thinking about how I don't write enough about the risks of owning the stocks I own. So, although I don't plan on selling my Apple stock anytime soon, I think it's healthy for me to practice and model this behavior.

1. No sustainable competitive advantages
Anyone who has watched Apple's remarkable comeback from near bankruptcy over a decade ago would argue that Apple has tons of competitive advantages. But the key word here is sustainable. In other words, what might Apple have going for it -- that others don't -- that will likely remain for years to come?

When I look at Apple's competition, I see lots of sustainable competitive advantages. Google (NASDAQ: GOOGL  ) has such a wide moat through the ubiquity of its search engine, which is bolstered by the global dominance of the Android operating system, that Charlie Munger once said, "Google has a huge new moat. I've probably never seen such a moat."

As Amazon.com (NASDAQ: AMZN  ) has grown, it has become a one-stop-shop for e-commerce. That network effect, combined with the buildout of wildly expensive -- but equally important -- fulfillment centers  has made it virtually impossible for another company to offer the value proposition Amazon has

Even Microsoft (NASDAQ: MSFT  ) has the protective moat of its ubiquitous Office Suite. In 2012, 31% of Microsoft's revenue came from people buying access to use Microsoft Word, PowerPoint, Excel, and the rest of the products in the Suite. The necessity of these products isn't going anywhere anytime soon.

Apple simply doesn't have this type of advantage. The growth of the iEmpire was based upon continually out-innovating the competition, whether through the iPod, the iPhone, or the iPad.

The sustainable advantages that Google, Amazon, and Microsoft have are incredibly important. While Apple innovates new products, these three can come along and create knock-off versions -- like the Nexus, Kindle Fire, or Surface tablets, respectively. The tablets can be offered for less than Apple charges because all three companies have money coming in from other sources, and those sources have sustainable advantages.

That means that all Apple is left with is innovation. While that innovation has been beyond impressive, there's nothing sustainable -- like a search engine, network of fulfillment centers, or a popular Office Suite -- to let investors know that this advantage will be around for the next decade.

Which brings me to my second point:

2. Where's the innovation?
Apple has spoiled us over the past decade. The company had rollout after rollout of new or significantly upgraded products from 2001 to 2012, and Apple stock's rise (eventually) followed suit.

Source: Apple.

But since the death of Steve Jobs, it's been difficult to pin down whether the brilliance in innovation was due to one man, or if it had become something institutional.

I think the website Ad Contrarian has one of the most interesting views of how to tell if the innovative genius is still there. In it, the author contends that the quality of ads are a tell as to how the company is fairing:

The product pipeline will take years to screw up. But the ad pipeline can be screwed up in no time...the "ad pipeline" is now officially screwed up. Apple has two problems. First is that they have nothing to talk about. They haven't produced anything of major interest to consumers in a long time. Second, they have lost their voice. They no longer know who they are. And neither do we. 

How can Apple fix this?
In the end, there's only one way Apple can fix this: by proving that they're innovative. At today's prices, I'm willing to stick around and see if the magic is still there.

But to prove themselves, Apple is going to have to do something that's rarely attempted, and even more rarely successful: cannibalize its best sellers.

Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. It's worked so far, but will it continue to?  Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.


Read/Post Comments (11) | Recommend This Article (14)

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 July 08, 2013, at 8:32 PM, PocketsX wrote:

    Get REAL !!!!!!

  • Report this Comment On July 08, 2013, at 9:08 PM, twolf2919 wrote:

    Examining your risks:

    "1. No sustainable competitive advantages". Hogwash: iTunes and its various services (music, video, books, and apps) has been - and will be - a competitive advantage nobody else has. Yes, competitors have some (e.g. Google has the nearly unprofitable "Play Store" for apps and is trying to add music/video sales/rentals, Amazon does have music, video, and book sales - but no meaningful number of devices that point to these "stores"). Apple keeps adding valuable new services too - e.g. "photo streaming", "iCloud" storage and backup, etc., making iTunes pretty unassailable as Apple users depend on more and more of these services.

    "2. Where's the innovation"? You haven't exactly backed up your argument that there isn't any with the timeline you gave. I don't see any long stretches of "nothing" in between product/innovation releases. Arguably, Apple has had three huge innovations: the iPod, the iPhone, and the iPad - with the iPad really just being a big iPod, that leaves two real innovations: the iPod and the iPhone. These came 6 years apart. So, a new real "innovation" isn't due until this year or next! So this "risk" isn't one - at least not yet.

  • Report this Comment On July 08, 2013, at 9:39 PM, MDB86 wrote:

    Your article would be valid if you were talking about Samsung, however Apple has a competitive advantage in that it's a software and hardware company. Google is attempting to do the same, but user experience isn't anywhere as close to Apple's. That keeps people coming back. Furthermore, I would argue that the apple's ecosystem is a competitive advantage. No other company has that integration of hardware, services, and software.

  • Report this Comment On July 08, 2013, at 10:18 PM, arnaud44 wrote:

    you can Stoffel this article up ur A$$$$$. I am tired of the louzy reporting, mindless blog articles, etc on the Motley Fool....Barrons offers much more value for my $. I am cancelling my Motley Fool subscription. I have been made a fool for too long reading articles written by pseud0-journalists that have absolutely no hindsight into the running of companies. Well they are writers after all. Running a business is an entire different thing... Writing and making things up as you go along about a company you obviously have no inner knowledge is a fraud.

  • Report this Comment On July 08, 2013, at 10:41 PM, PocketsX wrote:

    ^^^ well said

  • Report this Comment On July 08, 2013, at 11:30 PM, TMFCheesehead wrote:

    Remember, this is written to give a fair insight into an Apple bear perspective, and Apple is still a large personal holding.

    That being said...

    @twolf2919-

    Fair point on the innovation timeline. The big difference here is that the other players (Samsung with smartphones, Kindle et al with tablets) have been able to come to market with other acceptable options much quicker.

    @MDB86-

    Correct, Apple's ecosystem is the company's strongest competitive advantage. Is it sustainable? Only time will tell. It's certainly not sustainable in the same way that Google, Amazon and Microsoft's are.

    Brian Stoffel

  • Report this Comment On July 09, 2013, at 12:27 AM, Bobrossta wrote:

    "Certainly not sustainable like Google Amazon and Microsoft"

    So your definition of sustainable is a fragmented android world, that makes no money that gained market share by whoring itself out with an almost non existent customer support system that's magically going to continue making money off of advertising?

    An online retail world that makes little money and whores its products out while making a cheap iPad mini knockoff and selling it at a loss?

    Microsoft? The company that laughed at the iPhone? Is somehow going to continue making money copying apple with there cheaper retail store knockoffs, and their dwindling PC community? I've been trying to use bing, it's got about 2 more days before I switch back.

    If it was about market share for apple to succeed they could sell their stuff at a loss whore out their iOS and it would be over for everyone else. That's not apple. They offer a great product, with tons of support and its users love it and get in line. You're nuts.

  • Report this Comment On July 09, 2013, at 4:55 AM, hoggleboggle wrote:

    Apple most certainly has a strong sustainable advantage with its itunes based ecosystem, for that alone it is highly unlikely to slip into insignificance any time soon, but what it never had was actual innovation. Fantastic marketing without a doubt, but apple hasn't released a truly innovative product in 20 years.

    the ipod? nope, there were numerous mp3 players out there when it was released, however it succeeded through unprecedented marketing and clever tie in with itunes.

    the iphone? nope, microsoft and palm had the touch screen smart phones out years before, however none really tried to sell to the masses. Apple proved you can sell a smartphone to everyone with the right marketing and a good, simple user interface.

    The ipad? again microsoft had the concept of a tablet many many years before and there were several android tablets already available long before the ipad was announced but nobody really believed there was much of a market for them. What Apple did was prove that with good marketing you can create that very market.

    So by all means salute Apple for their market savy and ability to build an unprecedented Brand desire through outstanding marketing and promotion, but don't believe their hype of being innovators.

  • Report this Comment On July 09, 2013, at 5:40 AM, fauxscot wrote:

    I don't mind reading negative stuff. I'd be a lot more impressed if you short a few thousand shares.

    Here's two reasons to dump google:

    Selling/giving data to the NSA while taking nearly all of its user's privacy as a product. We're watching now and not impressed. We may want to go to companies that are a little more user-interested.

    End-to-end encryption on Apple products. Not ideal, but light years ahead of Google. Made possible with hardware/software integration and control. Google's 'moat' is perforated with mediocre manufacturers who don't bother to patch vulnerabilities in their customized Android OS and 90% of deployed units aren't up to date.

    I'm on my first cup of coffee, BS. If I had time to waste this morning, I'd give you 100 more reasons to be BUYING AAPL, not selling. You are buying into the 'wisdom' of the market, which chases immediate, unwarranted gains as a sign that hype beats fundamentals. BS, Mr. BS.

  • Report this Comment On July 09, 2013, at 7:54 AM, gcp3rd wrote:

    Nevertheless commentators, it IS always a good thing to consider your own bias if you are a shareholder. That being said my analysis yesterday put's the fair market value per share at $653 and change. Projected growth from analysts is 15%/year over the next 5 years. Not nearly as much as the past 5 years, but who cares - nothing lasts forever and that growth will ferret out the real market value, which is way higher than today. I don't think Apple is done yet, not by a long shot. As soon as possible I will replace my last Windows computer with an Apple because the Windows OS STILL SUCKS.

    Finally, Microsoft's office suite is going away thanks to Google Docs. I'm converting all my MS files to Gdocs and never looking back - Google built some speed boats that are crossing that moat by the millions.

  • Report this Comment On July 09, 2013, at 2:20 PM, lonewolf699 wrote:

    You guys complaining like somebody raped your mother are way too emotionally invested in Apple and have no business investing with your frame of mind. You guys seriously need to sell your AAPL and use that money to see a shrink about your Apple obsession problems. I've never seen people get so defensive over a corporation before It's downright disturbing.

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