Investment Contrarians

Has Apple Topped Out?

By for Investment Contrarians |

Has Apple Topped Out?When it comes to technology stocks, I don’t think any one firm can match the massive growth in both the company and the share price that Apple Inc. (NASDAQ/AAPL) has experienced over the past decade. Some people might forget, but at one time the market sentiment on Apple was so bad that some people might have even thought it was going to go bankrupt. Obviously, Apple has been able to not only turn things around, but it has also been able to set a new standard for technology stocks.

This is where things get interesting. After being a company that only sold “Mac” computers, Apple introduced the “iPod.” The iPod was not the first MP3 player, but it did revolutionize the industry as a slick product along with the introduction of “iTunes.” The iTunes ecosystem allows Apple to lock users into its operating system, a unique strategy at the time among technology stocks. Right now, the only other ecosystem for mobile devices is “Android” from Google Inc. (NASDAQ/GOOG).

Looking back, market sentiment became gradually more bullish on Apple until the last year when it has increased substantially to almost a frenzied state. I would say that even some institutions that don’t include technology stocks in their mandate are long on Apple shares. I pose one question: is the stock priced to perfection? That doesn’t seem possible, as we’re now seeing some cracks in the market sentiment.

The new “iPhone 5” is another strong product offering from Apple. Approximately two-thirds of the company’s corporate earnings come from iPhone sales. The iPhone 5 is lighter, bigger, and more powerful, and it runs on the new high-speed wireless network, but it’s not leapfrogging other technology stocks anymore.

It’s interesting to note that Apple is not leading other technology stocks in any of these categories. Yes, that’s right; Apple is now catching up to some of the capabilities of products from other technology stocks. For example, while the new iPhone is increasing the screen’s size to four inches, there are numerous phones with screens of 4.5 inches or larger that are already on the market.

I think we’re getting to the point where the product offerings from technology stocks are so close that the phones are becoming a commodity. This also means that there is much more importance to every product offering from Apple, as any slip-up could give one of the other technology stocks the opportunity to take market share away from Apple. We’re now seeing this with Samsung Electronics Co. Ltd. (KSX/005930). A few years ago, no one would have thought to put a Samsung phone ahead of an Apple iPhone, but now the market sentiment has indeed shifted.

While the iTunes ecosystem is great in theory, I’m hearing more anecdotal evidence that people are fed up with the restrictions. I know I am, as I was an early user of the original iPhone, but have since abandoned the product. There are plenty of technology stocks that offer great products; I don’t want to be tied into one ecosystem and forced to go through iTunes to access my phone. Not only that, I constantly found upgrading to be problematic, and I have had much of the information that was stored on my phone wiped out during the process in the past.

I’m not the only one questioning the supposed “ease” with which one interacts with Apple products. John Battelle, a well-known technology entrepreneur and journalist, also voiced his concerns. Battelle was one of the people who launched the technology magazine Wired and he has been a long-time Apple fan and advocate. On his web site, www.battellemedia.com, he wrote an article that was critical of Apple software and how it has gotten progressively more difficult. The article surprised me, since he’s been a dedicated fan of the company; even more surprising is that most of the comments from readers were supporting his point of view!

I can remember, perhaps even a year or two ago, when a public figure would get roasted with hate mail from Apple fans if they were to criticize the technology stock. I think this might be a tipping point, as market sentiment is clearly in favor of Apple, but cracks are appearing. I still think the company will sell record numbers of the iPhone 5; but with “mapgate” being the latest bungle, if the company has a serious misstep next year, I think we could possibly see a real shift in consumer demand to other technology stocks.

Apple Chart

Chart courtesy of www.StockCharts.com

Apple has clearly been an outstanding firm among technology stocks. Every pullback was used in the past as a buying opportunity, as market sentiment continued to pour in. An interesting change has occurred with the latest high in the stock price, as the Relative Strength Index (RSI) and the moving average convergence/divergence (MACD) indicators did not reach new highs. This divergence might indicate that market sentiment has topped out, at least over the short term, and that the stock is on the verge of pulling back. The most likely area of support would be approximately $569.00, not only because that is the stock’s 200-day moving average, but also because it has been an area of support over the past few months.

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  • Tom Swift

    Yes Apple has topped out. No longer will you see 60-90% increases in growth and stock prices per year. Investors will have to suffer and settle with measly 20-30% increases in stock price per year. Oh the horror..the horror.

  • J Scott Anderson

    I thought you had a good article going until you related a bit about your personal experience with upgrading iPhones and having to use iTunes. First, I've never heard of anyone losing information in upgrading from one iPhone to another. Even in the early day, everything was backed up using iTunes.

    In recent years that back-up of the phone is handled by wireless. The iPhone (in fact, no modern iOS device) does not require iTunes and has not for years.

    Because of your very inaccurate statements, I now have to suspect any other comments that you made in the article.