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Malcolm Fobes, Berkshire Focus’ portfolio manager, says it’s his job to find the best stocks possible, and he has a tough time finding anything nearly as appealing as Apple. "Apple is the holy grail stock. It has been for years."
Demand for the company’s products remains strong, which appeals to his investing sensibilities for fast-growing companies. But at the same time, by Fobes’ estimation, the stock is cheap, too, a rarity among companies growing as rapidly as Apple.
Because the stock is so reasonably priced, Fobes doesn’t think there’s much downside, even if the company falters. And in fact, the stock has posted big gains this year despite Apple’s disappointing third fiscal quarter earnings in June, as well as less-than-expected initial sales of the iPhone 5 smartphone.
Cautionary tales • Yet, it’s precisely when it looks like a company or stock can do no wrong that they often do. Wall Street is filled with examples of previous investment sensations that have ended badly.
The dot-com crash of 2000 was epic because many of the investors who thought they had to own Internet stocks saw their holdings lose 60 percent to 99 percent of their value. Similarly, the housing boom wound up in a real estate crash from which the U.S. still is trying to recover.
Most of the "Nifty 50" stocks that were popular back in the day wound up underperforming the market during the bear market that didn’t end until 1982. And too many people have learned the hard way the dangers of getting carried away with the hype surrounding a company —even one in a "safe" industry — and putting too much of their portfolios in that single stock. Enron was a prime example.
"The world is littered with companies that were going to conquer the world and didn’t," said Kim Caughey Forrest of Fort Pitt Capital. Even a seemingly minor disruption to a company, especially in technology, can cause a stock to falter. Diversification is "what portfolio theory is all about," she said. "It’s not just about gains, but it’s also about keeping those gains."
Some professional investors think the Apple hype is outpacing reality. Rupal Bhansali, a portfolio manager at Ariel Investments who runs a global and an international fund, has "zero" assets invested in the iPhone maker. She says Apple’s domination won’t last forever. Competitors will catch up. New innovations will emerge. Just because you are No. 1 today doesn’t mean you will be No. 1 tomorrow.
"It’s the nature of electronics and technology," said Bhansali. "Sony was the Apple of Japan a decade ago. Remember the Walkman?" The Japanese company is no longer considered cutting-edge, and its stock, now trading at $11.51 per share, is roughly 50 percent below its 52-week high and 90 percent off its all-time high in 1999.
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Even some of Apple stock’s biggest fans are wondering if the company is starting to lose some of its competitive edge, now that it’s a corporate titan. Rodgers says he doesn’t think Apple, under the guidance of co-founder Steve Jobs, would have released the iPhone 5 with such egregious problems with its mapping feature. And Habif laments the decision to change the port on its iPhone.
Habif is wondering if even Apple might eventually hit a wall as it becomes a victim of its own success. Each iteration of the iPhone gets increasingly repetitive, she says. She worries that because Apple stock is already such a darling and in so many investors’ portfolios, how much higher can it go?
Once the stock hits $750, she’s selling "If everyone owns something, who is left to buy more?"
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