A company is either worth owning or it's not. Like many investors, I read nearly every viewpoint under the sun about what to buy and what to sell. I especially pay attention to what is said about Apple (Nasdaq: AAPL), because I have money invested in it.
Apple has had an amazing run, but is it time now to sell? The answer is irrefutably "yes" -- if you think any of the following three statements are true.
1. Another market collapse is imminent.
If you think a market collapse is coming soon, selling Apple (and other stocks) makes sense. I suspect that even the most stalwart buy-and-hold investors would consider selling if they strongly believed a market meltdown was around the corner.
Is a steep market downturn on the way? Some might point to the recent announcement by Cummins (NYSE: CMI) as a hint that bad things are around the corner. Cummins had been calling for 10% revenue growth in 2012, but it is now stating that there will be essentially no growth.
Others might look to one of the crises looming on the horizon, such as the tax cuts set to expire at the end of 2012. Then there are the global uncertainties, like China's economic slowdown, and continued fears over the Eurozone.
The truth is that we don't know for sure what will happen with the markets. However, in my view, none of the examples that I have given portend an imminent market collapse. Cummins' bad news on revenue growth was accompanied by a dividend increase. That indicates confidence for the long term.
While the President and Congress habitually allow major decisions to go down to the wire, they usually do something to prevent an outright crisis from developing. China's economy is expected to rebound by the end of the year.
If you truly believe markets will tank, sell Apple. If you think any downturn would be muted and short-lived, keep your shares.
2. Apple's growth has peaked.
Apple is still cheap if the company continues to grow even close to how it has grown over the past few years. But if you think the growth is tapering off significantly, it makes sense to take your profits.
Are there any reasons to believe Apple's growth has peaked? Google's (Nasdaq: GOOG) Android operating system trumps Apple in market share for cell phones. Google has done well in the tablet market, as well. Still, iPhone and iPad sales continue to grow.
Amazon (Nasdaq: AMZN) might be a successful Apple-slayer with its rumored new smartphone. However, some also predicted that Amazon's Kindle Fire could seriously hurt iPad sales. That didn't happen.
My guess is that we could see a slowdown in growth for Apple in a few years. I wouldn't bet on slowness materializing in the next year or two, though. I'm holding on for now.
3. There are better stocks to own.
If you think there are better stocks to own, sell your Apple shares, and use the proceeds to buy those stocks instead.
Growth investors could look to a smaller company in a burgeoning new market. One possibility is Fusion-IO (NYSE: FIO), a leader in the fast-growing solid-state drive market. The stock is currently trading 50% below the average analyst target estimates.
For some, a stock that pays higher dividends might make sense but, for many investors, Apple still offers compelling qualities. Earnings growth topped 94% in the last quarter. With a forward price-to-earnings ratio of 11, the stock is valued attractively. The upcoming dividend payment is simply icing on the cake.
Refutable
Investors can disagree about plenty of things. Will the markets go up or down? Will a company grow or not? Which stock is best?
With respect to Apple, I don't think many would disagree that this company is one of the greatest success stories of our time. Investors who hung on to the stock have profited greatly.
If you think any of the three premises I gave above are correct, sell now. As for me, I don't think any of them are true. I think Apple remains one of the best growth -- and value -- stocks around. Am I right? Refute away.
To get another take on whether Apple has more to run, make sure to pick up a copy of our brand new premium research report. In it, our top technology analyst, Eric Bleeker, goes through a number of key opportunities and threats facing Apple, and how he thinks investors should position themselves leading up to some key events this year. Click here to learn more.
