The Real Apple Problem

NEW YORK ( TheStreet) -- The heart of the Apple ( AAPL) problem is easy to reveal when visiting an investor friend of mine.

To protect his anonymity, I will give him a pseudonym. Let's call him DB.

DB is playing with his retirement, with almost $300,000 held in an IRA. He was in Apple for a while in the 1990s, but bailed before Jobs' return, and has since watched the shares run and run and run.

So, with Apple at $500, he buys 10 shares. And watches them zoom to $600. So he buys 10 more. It rises to nearly $700, then falls below $600 again. OK, he thinks, 10 more. Now he has over 6% of his entire stake in one stock, he has no capital gains left and when the shares fall again, to a little over $540, he asks, do I buy again?

Lots of investors, large and small, face the same question. With Apple's market cap still north of $500 billion, we're all in. (If your portfolio doesn't include AAPL at this point, you're practically shorting it.) But if everyone's in, where is the impetus for further gains, even though its current PE is under 12.5? This is the problem.

Let's start by looking at the downside. CEO Tim Cook is no Steve Jobs, and he just launched a purge of his executive suite. The "new iPad" was a disappointment, losing big hunks of market share to Android-based devices. (You say " Google!" ( GOOG) the way Jerry Seinfeld would say "Newman!" back in the day.)

Then there's Samsung.

The Korean company is both a vital supplier to Apple and its chief nemesis, its Galaxy phones and tablets leading the market share charge. Apple is propping up Sharp, writes ZDNet , just to get away from Samsung, which is pushing through price hikes on it, as ValueWalk notes . And the result of Apple's latest suit against Samsung for copying elements of its designs? An apology, from Apple, Gizmodo reports. (To be followed by paying Samsung's U.K. legal fees.) "Newman," indeed.

So much for the bad news. There's a lot of good:
  • CNET reports that Apple's patent wars may be ending, starting with HTC, with Apple pocketing up to $280 million/year in license fees.
  • Pricegrabber sent me a press release via email last week saying shoppers want tablets, not PCs, this holiday season, and the majority ask for Apple by name.
  • Apple still tops the list of the most innovative companies, writes Wired , and Jonny Evans of ComputerWorld says the long-rumored Apple TV is coming next year.

Apple reportedly has enough cash on its books to buy out Amazon ( AMZN), which is why Cook finally instituted a dividend now yielding almost 2%. Take that out, assume no earnings growth, and you have a forward PE close to that of Microsoft ( MSFT). Take out all the accounting and current PE is still just 80% of Microsoft's -- which would you rather own?

And if you can't help worrying about the company, take comfort in the fact that there are now more people on the Apple beat than there were Kremlinologists at the height of the Cold War. They also make more and I hear some are better looking.

Now it's true that, because of its size, Apple will never be what it was in the last decade. But the "woe is me" stuff, like this from CBS Moneywatch comparing the company to Dell ( DELL) is well overdone.

That's what I'll tell my friend DB next time I see him. Waiter, 10 more.

At the time of publication, the author was long GOOG, MSFT and AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.