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Tuesday, February 28, 2012

Apple goes parabolic - stocks looking extended

I have written recently about the possible challenges Apple could face with the loss of Steve Jobs.  My concern stems from my belief that without Jobs driving the bus so to speak, it will be difficult to keep the large team of highly skilled talent in place with so many other opportunities at their feet.  Additionally, Jobs was the "polish" that made new products released by Apple so sleek, so tactile, so ergonomic, and just so cool.  My question is, where will the new products come from that will be needed to replace the iPad, iPhone, and iPod, once those produce saturate the market?  Keep in mind that at some point, as with any product, Apple will run out of customers.  Yes, they can continue to offer enhancements to existing products, but that is never enough to drive continued consistent powerful sales - sales levels that are needed to sustain a very high stock valuation.

As can be seen in the stock chart above, the price of Google shares is going parabolic, meaning that the slope of the price curve is increasing at an increasing rate, or more simply, the chart is going vertical.  This cannot last.  At some point the stock will peak.  Following that peak, stocks typically experience pretty severe declines at a rapid pace.  Apple is also approaching a $500 billion market-cap - the value of the company if you multiply the number of shares outstanding by the current share price.  This is a very large number, even for Apple.  Apple has also appreciated dramatically over the past few months, rallying from the December market lows, when the stock was about $375 to the current $532, or by 42% in just 2 months.

I like Apple's products as much as anyone, but from an investment standpoint, I see some serious risk in the shares of Apple at current prices.  It will certainly take a while for the shine of the latest batch of Apple products to lose their luster.  But unless Apple can continue to develop and release new, equally amazing products, the stock is going to suffer.  The real question is: When will the stock peak?  I can't answer that question, but I can say that I do not want to be holding the shares once the stock rolls over and begins it's inevitable decline.

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