LONDON -- It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. Right now, I'm asking the question on every investor's lips: Should I Buy Apple (NASDAQ:AAPL)?
Life's a Mac
There is a tide in the affairs of men, which, taken at the flood, leads onto fortune. Consumer electronics giant Apple caught Shakespeare's tide better than any other company in history, and has made a flood of money as a result. It put the "i" into IT, bewitching us with iMacs, iPods, iPads, iTunes, iPhones -- spearheading the invasion of desirable handheld iDiot-proof gizmos into every corner of our lives. I've never known so many sane, otherwise level-headed people, fall instantly in love with a company's products, stroking them, touching them, passing round their shiny new baby for everybody to admire, as if they had given birth to it themselves. Who wouldn't want to own a piece of Apple?
Crabby Apple investors
Apple's fortunes were transformed when co-founder Steve Jobs returned to the company in 1997. But Jobs has gone, never to return. It struggled before without its talisman, and the market's panic-stricken response to its recent first-quarter update suggests it might struggle again, with the share price almost instantly falling 10%. So what disaster triggered this price plunge? Why was the market so disappointed? Was it the meagre net quarterly profit of, um, $13.1 billion? Or the dreary 18% rise in revenues to $54.5 billion? Or that measly gross margin of 39%? Or its $137 billion cash molehill? Or are they worried by its zero long-term net debt? You tell me. All I can say is, I wish the other companies in my portfolio were that disappointing.
But then, Apple isn't like other companies. No other company could generate so much money, only to watch its share price fall 30% over six months. What exactly do you people expect? Did you think Apple could continue to post sales growth of 45% a year, like, forever? You did?
Yet I have my doubts. I question whether Apple can really keep churning out sleek, planet-changing objects of desire. The iPad is a delightful consumer desirable, but was it ever much more than a touchy-feely Macbook? Will the law of diminishing returns set in with iPhone 6, 7, 8, 9...? Apple management has promised plenty of innovation to come, but how much of this will simply be cannibilizing variations on a theme (I'm thinking the iPad Mini), rather than what we got before, which was a social revolution in a cool box? The fanboys aren't as noisy as they used to be -- in fact, when you follow up an Apple online thread, you're more likely to encounter crazyheads yelling that "iTunes is the work of the devil." To every company, there is a season.
I dream of Apple
Apple was bound to generate a backlash. When you have briefly overtaken U.S. oil giant Exxon to become the world's biggest company, people are going to take potshots at you. Apple is no longer the cool, edgy outsider -- it is the establishment. But my eight-year old daughter won't stop loving her iPod Touch. She won't stop pestering me for an iPad. I'm certainly not reverting from my Macbook to a "Prehistoric Computer." And after a short-tempered fiddle with a friend's Samsung Galaxy, there is no way I would swap an iPhone for it. I was always hamfisted with technology, until I bought into Apple.
One question facing investors is what Apple is going to do with that massive 137 billion-pound cash pile. It could buy several small countries, although I haven't seen any mention of that in its strategic plan. A better idea would be to share it with investors, through special dividends or share buybacks. Plenty of people have their eyes on that money, including David Einhorn at hedge fund Greenlight Capital, who wants Apple to reward investors with a juicy dividend. Who wouldn't want a share of that?
I might regret this, but...
And yet, and yet... I just can't bring myself to spend $475 on a single Apple stock. When I compare its fantastic double-digit earnings-per-share growth of the last five or six years to the projected 1% in the year to September 2013, and better-but-still-modest 14% the following year, I lose my appetite. That 0.6% yield leaves a sour taste. Its valuation is hardly demanding, at 10.6 times earnings, but given the extreme reactions that Apple generates, the slightest dip in fortunes could trigger another bout of mass panic. Technology companies rise and fall -- just ask IBM, Nokia, Sage, Microsoft... Apple's share price could still hit new highs but, if it doesn't, it has a long way to fall.
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Harvey doesn't own any shares mentioned in this article. The Motley Fool owns shares in Apple. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.