This article is part of our Rising Star portfolio series.

My relationship with Apple (Nasdaq: AAPL) has been rocky. I've owned the shares, sold them, and then purchased them again. I've covered the company for more than two years for Motley Fool Stock Advisor, even while personally agreeing with this article about Steve Jobs, and then rethought my position and written that I was wrong. I've even written that I wasn't going to buy Apple for my Messed-Up Expectations portfolio.

Well, today I'm reversing that position, too.

Changing expectations
When I wrote the article saying I wasn't going to buy Apple for my MUE port last December, its share price was $320.56, and its expected growth in free cash flow was 18.3% per year for five years, 9.2% for another five years, and 2.5% from then on. (I used a 15% hurdle rate to discount the cash flows.) That expectation level seemed too high for me to put Apple into the MUE port.

However, using last night's closing price of $315.32, the expectations have dropped to 11.5% / 5.7% / 2.5% for the three periods. Much better, from my point of view. That drop's not really so much a function of the lower share price; it owes more to an increase in FCF, from $16.6 billion for the year ending Sept. 25, 2010, to $23.3 billion for the year ending just last March 26. Increase free cash flow, keep price essentially the same, and priced-in expectations must drop.

A couple of concerns
As implied above, Apple's stock price has been pretty much stagnant for the past seven months. One concern, then, is, "Is Apple too big to grow?" If you believe that there is an absolute upper limit on market capitalization, then the answer is "yes."

If, however, you believe that over the long term, price follows performance -- a la Benjamin Graham's "weighing machine" -- then the answer is "no." (Besides, what rationale other than "never been done before" is there for an upper limit on company size?) Given the historical growth of FCF at Apple -- an average of 90% per year for the past five years -- and given the growing popularity of its products, I believe that 11.5% per year for the next five years is relatively easily achievable, and I wouldn't be surprised if it achieved 20% per year over that time period. The stock price should follow that performance.

Another concern is increasing competition. There's Google (Nasdaq: GOOG) with its Android-based smartphones and tablets. Nokia (NYSE: NOK) is still not out of the picture despite recent developments -- $16.4 billion in cash and short-term investments can buy a lot of development. And the cloud is not the exclusive domain of Apple, yet. (Nasdaq: AMZN), Google, and Microsoft (Nasdaq: MSFT) all have similar ambitions in the space.

Biting the fruit
Competition is a fact of business life. Apple, with its popular product line and savvy developers, not to mention the strong management team I called out in my earlier article, is well-positioned to successfully navigate its way through that challenge.

With easy-to-use products and their growing popularity, I believe that FCF will continue to grow at a healthy clip, and that the market will eventually recognize that performance. For instance, if Apple can grow FCF by 20% annually for five years, 10% for another five, and 2.5% from then on, and the market is truly Graham's weighing machine, shares would be priced around $480, about 50% higher than today.

While I believe the 90% per year FCF growth rate it's done recently isn't sustainable, I also believe that the market is going too far the other direction in what it is expecting. Tomorrow, the MUE port will purchase a single share of Apple, which actually is a 2% initial position, based on investable funds. That will likely be expanded in the future, but my goal is to ease into each of the portfolio's positions.

After you add Apple to My Watchlist by clicking here, come discuss the investment on my Messed-Up Expectations discussion board or follow me on Twitter.

This article is part of our Rising Star portfolio series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.