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Apple Inc. (NASDAQ:AAPL): 7 Reasons Apple’s Stock Could Be The Short Of A Lifetime

March 30th, 2012

Keith Fitz-Gerald: I have a confession to make. I believe Apple stock (NASDAQ:AAPL) is going to be world’s first trillion-dollar company yet I want to short the snot out of it.

Am I being compulsive?…impulsive?….or foolish?

Perhaps it is all three considering that Apple has risen more than 3,000% in the last ten years, turning almost any attempt to go against the grain into a “widow maker” trade.


I say almost because I am one of the lucky ones.

A few weeks ago I recommended my Strike Force subscribers purchase put options on Apple, effectively shorting the stock. That resulted in a 47% profit in less than 24 hours for anyone who followed along, excluding fees and commissions.  [Related: How To Earn A 9.25% Gain In 30 Days While Waiting For Apple’s Dividend]

I’m not alone in my thinking.

Uber investor Doug Kass, general partner of Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP, tweeted recently that he had covered “half his short” on Apple following the announcement of their dividend and buyback plan.

Given that the stock had run up to nearly $608 a share before the announcement, presumably Kass had banked some gains, too. 

7 Reasons to Short Apple Stock (Nasdaq: AAPL)

I haven’t spoken with Mr. Kass so I can’t comment on his current thinking nor the specifics of his trade, but here are mine:

1. The company has single-handedly repeated the bubble curve of the Nasdaq (NASDAQ:QQQ) run up. That leaves a lot of empty space to the downside.

2. Apple is a “fad” or a “hit” company, meaning that its price seems to correlate to new product launches rather than the sustainable development of key product lines. Companies that do that tend to fall back from orbit at some point – especially in the tech world. Palm and Research in Motion (NASDAQ:RIMM) are two that come to mind.

3. When great leaders are gone, their legacies can struggle. While Apple has stood up so far following Steve Jobs’ unfortunate death, I can only wonder, as many in the tech community are wondering, how deep and how far out his thinking will live on. Is it one product cycle, two cycles? Nobody knows. But we do know that Microsoft (NASDAQ:MSFT) became a very different company after Bill Gates stepped aside. Intel (NASDAQ:INTC) also flatlined three or four cycles after Andy Grove’s departure from day-to-day operations.

4. Apple’s short interest of only 9.8 million shares is very low considering the company’s three-month average daily trading volume is 18.2 million shares and the company’s float is 931.8 million shares.

5. The analyst community is almost completely positive. That’s usually a sign of two things: a) that they’re soft peddling opposing trades from other parts of the “shops” they work for or b) that they want a run up to maximize profits from positions they already hold. Either way, many have been tremendously wrong in their sales projections in recent quarters, understating anticipated results by as much as 30%-40% – a factor also noted by Kass in his trade set up analysis. Therefore, I am skeptical that they are raising numbers again.

6. Apple’s profit margins are unbelievably high at a time when the rest of the economy lurches along. While that’s not a bad thing in isolation, I have a hard time believing that Apple can remain so far out of line if for no other reason that what goes up must come down eventually. And, since the road higher is far more unlikely for the rest of the markets, it is logical that Apple likely heads lower in the short term.

7. Apple’s fundamentals may soften. There are lots of reasons to love Apple but there are just as many reasons things may not be what they seem. If the economy worsens just how many people are going to buy “gee-whiz” technology beyond the hard core Apple-heads? Is there an Apple-killer in somebody’s garage right now? Anti-trust investigations and supply problems are also big what ifs at the moment. Even a carrier failure could rock Apple because it may be their subsidies that keep Apple’s costs down and profits high.

 

AAPL Nasdaq chart

Add it all up and there is enough to make you go hmmm…

Of course, there is no doubt I will incur the wrath of Apple fans everywhere and arm chair traders from here to Tibet.

Get over it guys; please refrain from the snarky e-mails telling me I’m an idiot or out of touch or worse – I believe in Apple. I really do.  [Related: Apple Inc.’s Gigantic Impact: Apple’s Meteoric Rise Is Distorting Everything]

What I am suggesting is simply the logic behind Apple as a trading opportunity for nimble, aggressive and like minded market mavens.

Besides, if I am correct and Apple does trade lower in the weeks ahead, I’m going to be picking up shares as an investment.

I hope you will be buying too.

Related: ProShares UltraShort QQQ ETF (NYSEARCA:QID), PowerShares QQQ (NASDAQ:QQQ).

Written By Keith Fitz-Gerald From Money Morning

Keith Fitz-Gerald is the Chief Investment Strategist for Money Map Press,  as well as Money Morning with over 500,000 daily readers in 30 countries. He is one of the  world’s leading experts on global investing, particularly when it comes  to Asia’s emergence as a global  powerhouse. Fitz-Gerald’s specialized  investment research services, The Money Map Report and the New China Trader, lead the way in financial analysis and investing recommendations for the new economy. Fitz-Gerald is a former professional trade advisor and licensed CTA who advised institutions and qualified individuals on global futures trading and hedging. He is a Fellow of the Kenos Circle, a think tank based in Vienna, Austria, dedicated to the identification of economic and financial trends using the science of complexity. He’s also a regular guest on Fox Business. Fitz-Gerald  splits his time  between the United States and Japan with his wife and two children and regularly travels the world in search of investment opportunities others don’t yet see or understand.

 


NASDAQ:QQQ, NYSE:QID


 

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  1. Joe
    July 11th, 2013 at 13:41 | #1

    @KenC

    Seeing all the attacks on this article (like this one) from a year ago is hilarious. Fast forward to July 2013, DOW and S&P near record highs with Apple down to ~$400 from a high of $705

  2. Mike
    March 12th, 2013 at 17:14 | #2

    Wow, what a call! The guy was totally right.

  3. Johnny Lee
    August 14th, 2012 at 14:32 | #3

    So if you are long and want to make a profit on your investment when do you sell? At what price are you prepared to say enough is enough it can’t go higher so I will cash out. Is there any price you will do that at? Or do you think it will just go up and up forever? Is AAPL really a hold for ever and give to my grandchildren type of stock? If so it is the first one in history. So if you have a sell price in mind why can’t you accept that other people have a different sell price in their minds? And do you even care if they own the stock they sell or if the borrowed it? A sell is a sell. Just as someday you probably will do with your long investment.

  4. May 13th, 2012 at 07:29 | #4

    Idiots who short a stock with a forward PE under 10 and a PEG ration of under .5 $110 of cash per share growing 20-30% a year with a dividend and a cash buyback program in place generally tend to get their faces ripped off long term.See Philip Elmer DeWitt best Apple Fortune analysis getting AAPL to $2000/share by the end of 2-15 a far more likely scenario than the stock going to 0 for us.Fundamentals never lie but pundits who are admittedly short do to enhance their position and so fear. Even Doug Kass went bullish on the market last week grandaddy permabear trying out horns for the first time truly amazing, If even Kassis getting long I do not wantto be short.

  5. KenC
    March 30th, 2012 at 14:22 | #5

    Dude, other than your first point, none of the other 6 points have any time factor, that is, there’s nothing new about those points, so why didn’t Apple shares collapse before? Why now?

    As for your first point that Apple’s shares have gone up too fast, mimicking the dot com bubble, that is so superficial. What were the fundamentals of the dot com bubble? Apple’s fundamentals are the exact opposite, they’re rock solid.

    As for Doug Kaas, he tries to make the same point by using Google’s 2004 to 2007 chart, then points to Google’s collapse to 2009 of 48%. Of course, that was during the macroeconomic recession, when the whole market collapsed 40%. The marginal difference was all of 8%. For his tea leaf reading to come true, not only would Apple have to collapse, but so would the broader market. Further, if he believes in his short and that it would mimic Google’s collapse to 2009, why did he cover half of it?

  6. March 30th, 2012 at 14:15 | #6

    I agree with @ralo. You may understand trading based on technicals, but comparing Apple to RIMM and PALM shows that you do not understand technology companies or the business mistakes that sunk RIMM and PALM.

  7. Oren
    March 30th, 2012 at 14:00 | #7

    I am really sorry for you, you are going to lose a lot of money.
    The bubble of the internet was based on p/e = 100, not on a company with PEG under 1, and 1 billion $ a week profits. And this is before tapping China and India.
    I’ll save you the other 6 reasons for going long, actually 600 reasons growing soon to 1000 reasons

  8. ralo
    March 30th, 2012 at 13:58 | #8

    The minute you compared AAPL to PALM and RIMM, I stopped reading.

  9. jliptzin
    March 30th, 2012 at 13:52 | #9

    you made money on those puts because of the subsequent decline in implied volatility priced into those puts which was obviously on the high end…not because of your directional bet against the stock. had you shorted the stock instead of buying puts, you’d have lost 10% or more on the trade, depending on where you covered.

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