This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: The Bear Case for Apple

This column originally appeared on Real Money Pro at 8:32 a.m. EDT on Sept. 24.

Pride goeth before a fall -- also publicity, handshakes and celebrity. The biblical injunction about the first and the last trading places often has literal truth. Thus, stocks and bonds, which fared poorly in the inflationary 1970s, excelled in the disinflationary 1980s. The country's most admired companies (as listed annually in the glossy business magazines ) are frequently on their way to becoming among the country's least admired investments. When a cynical investor hears that there are too many optimists in the market, he will begin to worry. By the same token, an over-abundance of pessimists will give him courage. After all, he may ask, if everyone is already bearish, who is left to sell?

-- James Grant, Minding Mister Market: Ten Years on Wall Street With Grant's Interest Rate Observer

Apple (AAPL - Get Report) has been a once-in-a-century profit dynamo that has prospered and has expanded its market share by delivering innovative products and expanding its self-sustaining ecosystem.

Here is the remarkable chart of Apple's shares since 1985.

In the 1960s and 1970s, the stock market was inhabited by the " nifty fifty," a small subset of one-decision stocks that had strong balance sheets, solid franchises (typically leaders in their field), relatively superior profit prospects and were generally credited with the bull market of that era. Some examples of the nifty fifty included Wal-Mart (WMT), Avon Products (AVP - Get Report), Disney (DIS - Get Report), McDonald's (MCD), Polaroid and Xerox (XRX). The stocks flourished for a while but ultimately became overvalued and were weighed down by the bear market that continued until 1982.

Today there is no more nifty fifty, arguably there is the nifty one -- and that one is Apple. The Wall Street analytical community and many money managers are unambiguously and unanimously optimistic about the company, but let's not lose sight of the fact that the sword is double-edged, as an investor who bought the nifty fifty at the end of 1972 would have had 50% less wealth by year-end 2001 relative to an investor who bought the S&P 500. ( Sic transit gloria.)

Over the weekend, The New York Times' Joe Nocera wrote an interesting article which speculated that Apple has peaked.

It got me thinking, and below I highlight a list of 10 concerns, fully recognizing the current quarter will be ahead of expectations.

Apple's significant role in the indices as well as its extraordinary relative and absolute performances have been an important determinant of investment returns. A portfolio heavily weighted to Apple has been a ticket to outperformance. By contrast, a portfolio dismissive of Apple's prospects and underweighted the stock has underperformed.

But the above paragraph modifies the past; it does not necessarily hold for the future.

Investment history shows that when there is such unanimity of good will bestowed toward a corporation's equity, when the very share price performance of only one security has such a profound impact on aggregate investment returns, when a record amount of analysts (53) follow an individual company with enthusiasm and optimism and when a company's total capitalization is mentioned in the media constantly and throughout the trading day, resonating throughout the investment community, it is time to be on guard if not concerned.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs