Apple Inc. (AAPL): 5 Warning Signs

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June 16, 2014 2:31pm NASDAQ:QQQ

apple targetTony Sagami:  If you’ve owned shares of Apple Inc. (NASDAQ:AAPL), you’re a pretty happy camper for two reasons:


  • First, you have seven times as many shares since Apple went through a 7-for-1 stock split.
  • Secondly, Apple was trading below a pre-split $400 a share in the summer of 2013, and has jumped by more than 60% in the last 12 months.

Those types of numbers certainly deserve some stock market champagne.

But don’t get too drunk on Apple’s success, because there are certainly some  that may upset the Apple cart.

Warning Sign #1: Here is what I wrote last week about my visit to an Apple store in China.

“I was shocked — really shocked — at how empty the Apple store was. There were so few customers there that you could have played a game of lawn bowling.”

Over the years, I have visited Apple stores dozens of times all over Asia, and they have always been consistently packed and filled with money-spending customers.

But not this time.

Warning Sign #2: Amazon Smartphone

Samsung has already swiped a big chunk of the smartphone market from Apple, and now Amazon (AMZN) is about to enter the battle.

Amazon will debut its new smartphone on Wednesday, June 18, and the early buzz is very positive.

Plus, Amazon has proven that it is a serious hardware company with the big success of the Kindle. I, by the way, am a very happy and committed Kindle user.

Warning Sign #3: Splits Coincide With Apple Tops

Past performance is never a guarantee of future results. But you have to hang your hat on something … and history is as good of a roadmap as you’ll find.

If that’s true, stock splits have historically indicated a peak for Apple stock. Here is a quote from a recent Barron’s article:

“Based on history, splits in Apple’s stock have coincided with peaks … The previous three Apple splits on April 22, 1987; April 19, 2000; and February 11, 2005, all were followed by tops.”

Warning Sign #4: $3.2 Billion for Beats Headphones … Really?

Beats headphones are very popular with teenagers and 20-somethings, but Beats headphones are more of a fashion statement than a technology accessory.

There are much better headphones for cheaper prices. And the fickle whims of young consumers could turn Dr. Dre and his Beats headphones into fashion “has-beens” in a blink of an eye.

More importantly, Apple was crystal-clear that the real value in the Beats acquisition was its streaming-music subscription service … and not the headphone hardware.

However, Pandora (P) is kicking everyone’s butt — including Apple’s iTunes — so $3.2 billion for an also-ran streaming music service seems foolish to me.

Warning Sign #5: Tidal Wave of Profit-Takers?

Apple’s 52-week high is $95.05 (or $665 on a pre-split basis). And while the stock is just slightly below its high, don’t forget that Apple paid out $6.30 in dividends so far this year.

After adding in the dividends, Apple is indeed trading at an all-time high.

And now that Apple has split its shares, how tempting do you think it is for most Apple shareholders to take some of their winnings off the table?

It is a physiologically compelling option for an Apple investor to sell, say, maybe one-seventh or two-sevenths of their shares, now that Apple is at an all-time high.

In fact, in terms of portfolio composition, it may make sense for a lot of these investors to re-balance their portfolios.

The implication of that, however, could be massive.

If investors start selling one-seventh or two-sevenths of their shares, that is a mountain of selling pressure.

Now, I am not suggesting that you rush out and dump your Apple shares tomorrow morning. As always, timing is everything, but I can tell you that the next Apple investment I am going to make is likely a bet that its shares are headed lower.

Tony SagamiThis article is brought to you courtesy of Tony Sagami

Money and Markets is a free daily investment newsletter published by Weiss Research, Inc. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. We cannot guarantee the accuracy of third party advertisements or sponsors, and these ads do not necessarily express the viewpoints of Money and Markets or its editors.


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