Two big reasons to sell Apple

I like Apple products way more than the stock. I know this will upset the Apple faithful, but Apple Inc. (Nasdaq:AAPL), the stock, is a long term sell.

Here are two big reasons to sell Apple.

Visionaries count

Visionaries can add tremendous value and Steve Jobs definitely did.

If management is an important factor in your investing framework then the loss of one of the greatest visionaries of our time must make you rethink your thesis.

You call that a thesis?

What is the bull thesis on Apple?

That Apple’s dominant market share in hot consumer products and fat margins can continue?

How likely is that? The answer surely sits in the NOT ballpark – that is, not very likely.

I’d prefer to extrapolate ‘hasn’t happened before in the history of consumer electronics’, much more than ‘leading products and fat margins’.

Category killing products and fat margins do not persist. An investment in Apple now must be based on ‘it is different this time’. Those are the five most dangerous words in investing.

Another thesis I read was “too cheap for such high margins and growth”. That’s true, except it fails to consider the more likely scenario of shrinking margins and low growth. Extrapolate at your peril.

Consumer fidelity…now that makes me laugh!

Consumer fidelity has a poor track record. Investors are even more fickle. Don’t count on either group being faithful for too long.

Perhaps like me you were once faithful to Nokia before falling in to bed with Sony Ericsson. Maybe you even flirted with a Motorola Razar along the way.

Apple is no more than flavour du jour. Consumers taste buds need constant stimulation and competitors are only one product away from creating the new flavour.

In ten years Apple will be considered a value trap. At best its earnings will be higher, but with compressed price multiple the price will have gone nowhere. At worst, ooh…not pretty.

That’s before we even consider how management could squander the current $80 billion cash hoard in a desperate bid to buy growth once they have a product miss or two.

Foolish Bottom Line

I concede that low enterprise value multiples – like EV to EBITDA – give Apple a veneer of value. Apple stock could even outperform the market for a couple years, as it’s impossible to forecast when the inevitable missteps will occur.

But long term investors will not be well rewarded by Apple stock.

I ask myself this. What happens when one of the probable downside events occurs? While I can’t accurately predict what will happen, I do know that a better long term buying opportunity will come. [Update – is the Q4 earnings miss that occurred after this article was written the start of the end for Apple or is it simply a short term blip?]

Fool on!

Dean Morel is The Motley Fool’s Investment Analyst. Dean has no position in Apple, and would only consider it as a short term play if it falls far enough on its Q4 earnings disappointment. The Motley Fool’s purpose is to educate, amuse and enrich investors. Readers can click here to find out one company Dean does own, The Motley Fool’s Top Stock For 2011-12.

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