The Mighty Fall: Five cautions for Apple stock enthusiasts

“As Apple announces its 2012 second fiscal quarter earnings on Tuesday, some analysts think the stock price could hit $1,000 and the company reach $1 trillion in market capitalization. I have no idea where Apple’s price is going or what’s in its secretive product pipeline, but I suspect that even with strong recent earnings, it will eventually fall from the tree it’s on now,” John Wasik writes for Reuters. “What troubles me most are stunning similarities to other Wall Street darlings of the past and the ignorance of risk that owning a single stock carries. All former stars have tumbled once they fell out of investor favor – often when their profits were still robust.”

Here are five cautions worth considering:
1. THE MIGHTY FALL: Far too many investors buy in at extravagant valuations and typically hang on when prices fall and the companies are no longer in the spotlight.
2. INVINCIBLE LEADERS LEAVE: How will Apple fare in the less charismatic, post-Jobs era?
3. TORTOISES SURVIVE: Remember the “must-have” phone titans of the past such as Nokia, Research in Motion and Motorola? The more visible the technology, the more volatile it is.
4. BEWARE THE POISON FRUIT: Whether it’s an earnings disappointment, botched product or failure to outpace the competition, Apple will not be immune to worms in the future.
5. THE EXPECTATION CLIFF IS STEEP: Because of its gargantuan market cap – roughly larger than the entire gross domestic product of prosperous Switzerland (2011) – Apple has gained a demanding global audience. Does that mean its stock is less risky because so many people own it? The opposite is true.

Read more in the full article here.

MacDailyNews Take: When it comes to Apple, Reuters is the new CNET.

As we wrote back in February: “The only number that matters is Apple’s headroom (TAM) and there is plenty of that. How many people are still suffering with Windows PCs and do not own Macs? How many people do not own iPads? Or iPhones? Or Apple TVs? Or possible Apple televisions? Or, yes, even iPods? Billions. In fact, there must be over a billion people that have the means to buy an Apple product that do not have one yet. Until Apple saturates all of its markets and/or stops opening new markets, the only limit is the sky.”

[Thanks to MacDailyNews readers too numerous to mention individually for the heads up.]

Related articles:
All eyes on Apple as Cupertino powerhouse reports Q212 earnings tomorrow – April 23, 2012
Reuters claims ‘Apple investors brace for more turbulence’ – April 18, 2012
JP Morgan: Apple Inc. is a sector unto itself – February 24, 2012
Apple and the myth of ‘The Law of Large Numbers’ – April 19, 2012


  1. Where was this donkey when the stock was going up?

    If all the analysts understood this company or it’s potential we would never get a sale.

    In addition to the huge TAM, Apple has what Buffett calls “durable competitive advantage” in that it is so vertically integrated and controlled everything from the hardware/software as well as the content delivery system. Nobody else comes close to offering the same value, integration, or user experience that you get with Apple products.

  2. The gist of the article is to diversify. It’s sound advice. No one should ever have all of their money invested in 1 stock – not even AAPL. I’ve bought and sold some stinkers in my portfolio, but I’ve always held on to my AAPL stock. But AAPL is NOT the only stock I own.

    The five lessons outlined in the article are valid, and have many examples though out time. You can learn from history, or be doomed to repeat it.

  3. Honestly it doesn’t really matter what these moron’s say. They just help drive the price down so smart investors can buy the stock at a reduced price.

    You want to see a monster quarter from Apple? Invest now for January of next year. This is when those people who finally starting buying Mac’s have learned to love them as the rest of us have for years. Those iPad2 and iPhone 4 folks ready to upgrade to the next big thing and Christmas being the catalyst for new Apple products under everyones’ tree.

    “Build it and they will come”, yes they will. Because within a short 8 months from now, you will reap and savor the benefits of a very nice return on your investment.

    Where else you going to put your money, surely not a bank I hope.

  4. I stopped reading at ‘extravagant valuations’.

    Apple with 85% income growth (65% average last five years through the recession ) with P.E of 16 (smaller if you minus 100 b cash) is ‘extravagant’?

    Amazon has a P.E of 137 with Negative income growth…

    Future aapl price targets by analsysts for $750-1000 etc are based on income growth of only 15-20%.

    another moron who writes on ‘extravant valutaions’ based on stock rise alone without matching it to income growth. and the rehashing the ‘giant marketcap’ crap…

    I agree with Observer… he’s just another moron to help push the price down so you can buy more.

  5. What “extravagant valuation”? What “gargantuan market cap”?

    Neither apply to Apple with its P?E of about 16 or its market cap currently way lower than, say, Microsoft’s peak of about $800 billion (inflation adjusted) in 2000. Also keep in mind that when MS hit that peak its P/E was about 45…

  6. Nice to know that the slime ball ANALyst thats been hiding under that moist mud laden rock are roaring to go at it. Soon as a blip hits Apple stocks, they immediately claw their way out of the mud and beat their chest announcing their ANALysis and explanation on Apple stock. Amazing group of people.

  7. How many people here, have tried apple products? They are actually kinda neat. They work pretty darn good. When apple starts making garbage products, then you should worry. Who cares about the stock price, that’s not why I buy apple products. Plain and simple!!

  8. “The Mighty Fall” was when AAPL was over $200, and then dipped below $80, during the financial crisis (08-09). Now that AAPL is on the $600 range, the recent price drop is not a big deal. It’s about 10%.

    Still, the AAPL “manipulators” make money because there are plenty of stupid investors who get all excited and buy near the short-term top, and then panic sell because “the mighty fall” is happening. Long term investors can ignore the fluctuations, and even take advantage of them (to buy more AAPL lower and eventually sell higher than “average”).

    Look at the AAPL price chart since early 2008 (when it dipped below $80). You could draw a perfectly straight line on the steady climb (averaging out the fluctuations) until early 2012, when the upward movement accelerated. Even after the recent drop, we are still WELL ABOVE where that “steady line” would have been.

  9. The difference between Apple and Nokia, Research in Motion and Motorola is that the others didn’t have much substance behind their name. Managers calculated how much compromising they needed to do their products in order to meet some monthly or quarterly budget while Apple quietly and smartly invested heavily in their foundation. A foundation in both technology and philosophy.

    Apple will keep selling because the others just don’t get it.

  10. Apple is overpriced and many of it’s recent shareholders think it will go up just because the stats are good quarter over quarter. The simple fact is good companies can get caught in downdrafts just as easily as bad ones.

    The world economy is a basket case right now and Apple does not make one thing that people need to live- especially at Apple’s 30% margins. At some point the market will be saturated or economics will bite and Apple will be dead in the water.

    Long term Apple the company should be fine, but the stock is overpriced. The bulk of the bandwagon expects the same scale of growth that Apple has posted the last decade. 11 years ago you could buy a share of Apple for less than $10 ($5 split adjusted) and has risen to over $600/share. The odds of such additional growth are not only long- they have never been achieved by any high flyer ever.

  11. Before when so many so-called analysts praised Apple , Apple dropped . Now the analysts said Apple is not good . In my investment experience , it means time to buy !!

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