Back on September 11, 2012, I suggested to readers of my newsletter "Brush Up on Stocks" that it was a good time to go negative on Apple (NASDAQ:AAPL) stock. It traded at a split adjusted $90 at the time. Within seven months it was down by more than 35%, to trade well below $60.
My core thesis back then, as it is now, is that Apple was largely a personality-driven company under the genius of Steve Jobs.
Now Jobs is gone, and so is the company's future.
I know this is sacrilege for hard-core Apple fans, and I know Apple still has a lineup of great product franchises in the iPhone, the MacBook, and the iPad, among others. But all of those were major product breakthroughs spawned by the genius and force of personality of Steve Jobs.
With no disrespect to the current team in place, many of whom Jobs hired and mentored, I don't believe that Apple has the same potential for revolutionary product breakthroughs going forward.
If you doubt me, and I am sure many people do, then please consider the following color on this theme, one of seven reasons to sell Apple stock now.
1. Apple's hits were ideas that came from Jobs.
I challenge anyone to read the biography Steve Jobs
by Walter Isaacson, if somehow you have not already, and try to come away with the conclusion that Apple was not mostly a personality-driven company.
Try to conclude that Apple's stream of hits was not largely due to Steve Jobs' obsession to create what he perceived to be perfect products.
My favorite anecdote demonstrating this involves the selection of the color of an early version of an Apple computer. The supplier for Apple II parts offered over 2,000 shades of beige for the casing. But none of them was good enough. Jobs asked for more.
I wasn't even aware that there were so many shades of beige, let alone that there could be even more. The president at the time, Mike Scott, put his foot down and said, Steve, just select one.
2. We've already seen what happens to Apple when Jobs is not in charge.
Larry Ellison, CEO of Oracle
(NYSE:ORCL) and a close friend of Jobs who spent considerable time with him on the long brainstorming walks that Jobs liked as a preferred form of meeting, has the same opinion as me. To my surprise, he stated so quite clearly in an interview
with Charlie Rose.
Ellison pointed out Apple stock has a history of being strong while Jobs was at the company, and weak when he was not. "We saw...we conducted the experiment. I mean, it's been done." said Ellison. It's rare that CEOs so openly disrespect another company. Of course, Apple stock has risen a lot since he made this pronouncement. But I believe his point is still valid.
3. When Cook arrived at Apple, he left an inventory-control position at a company not known for innovation.
The current CEO Tim Cook might not be a great innovator, but he no doubt learned a lot from Jobs. At the same time, it's hard not to think he was selected as chief operating officer at Apple precisely because he had an operational background.
So he might not be naturally disruptive and visionary as a thinker, qualities required for the kind of revolutionary product development which Jobs was good at -- and which Apple needs for its stock to go higher. Cook came to Apple from a background in procurement and inventory management at Compaq
(NYSE:HPQ). The position is not exactly a hotbed for innovative product development. Nor was Compaq, for that matter.
4. It appears Apple no longer believes it can "do better."
The purchase of Beats Electronics, cofounded by rap artist Dr. Dre, seems telling. Apple's core competence has always been writing code and designing hardware that is better than what anyone else could do. Is the purchase of Beats, for the music streaming platform as much as for the headphones, a concession that the long-standing aspiration inside Apple -- "We can do it better" -- is gone?
5. Apple is no longer "cool."
Though this is purely anecdotal, Apple seems to have lost a bit of its cool, given that it is now regularly the butt of jokes among the late-night talk show hosts. They often provide a good read on cultural trends, since these hosts have to appear hip. Consider this quip from Jimmy Fallon about Apple's Earth Day pledge earlier this year: "Apple will recycle its used products for free. That's not to be confused with what Apple normally does -- when it recycles its old ideas for $600."
At the same time, there are now plenty of competing phones that are just as cool or even better than Apple's iPhone, depending on your tastes, including the Samsung Galaxy
and HTC One M8
6. Analysts have lowered their expectations.
Even Wall Street analysts, not known for their lack of exuberance towards stocks they cover, have tempered enthusiasm. The median 12-month price target for Apple is $95, according to Thomson Reuters, just slightly above where it currently trades.
To me, owning Apple now for a possible 3.5% gain over 12 months, if the analysts are right, doesn't make much sense, considering all the risks in this story.
7. Watch the stock price after major product releases.
Here's one more theme that supports my case that Apple stock may be a good short near the iPhone 6 product release date, or at least a stock to avoid: Apple stock often declines after major product releases.
Of course, none of what I've written guarantees that Apple stock will fall from the levels it trades at right before the iPhone 6 hits the shelves, perhaps in September.
But if it does, it will confirm an age-old investing maxim: "Sell the news." In other words, the major price moves in stocks tend to happen in the buildup to an event. The actual start of the event represents the exhaustion point in the move, which precedes an inevitable reversal.
I think it makes sense to avoid Apple stock now, after the 53% rise in the past year. For investors willing to assume some risk, it probably makes sense to put on a small short position, and then add more aggressively in the two or three weeks before the release date of the iPhone 6. Please remember that Apple is still a cult stock to some degree, and it is always risky shorting cult stocks because, by nature, they can make irrational moves.
Michael Brush, editor of the stock newsletter Brush Up on Stocks, has covered the the stock market and economic news for the New York Times, the Economist Group, and MSN Money.
No positions in stocks mentioned.
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