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Arguments against Apple

By Sheyna Steiner ·
Friday, March 9, 2012
Posted: 4 pm ET

With Wednesday's launch of the newest iteration of their groundbreaking tablet, the iPad, Apple is once again the toast of the town. The new iPad will be in stores March 16, and forecasts for the stock are stretching into the stratosphere. For now, it's tough to scratch up arguments against investing in Apple.

Most mutual fund investors probably already own the iconic technology company in large-cap mutual funds.

A story published in the Wall Street Journal on March 5, "Apple is hard to resist" tells us that nearly 86 percent of the large-growth funds tracked by Morningstar own Apple. Many own quite a bit.

Out of 465 funds in Morningstar Inc.'s large-growth category, nearly 400 own shares of the personal-technology powerhouse. Of those funds, roughly 320 keep more than 4 percent of the portfolio in Apple stock. Some 270 have it as 5 percent or more of assets. That makes it an important driver of fund returns. And among large-blend funds, about 63 percent own Apple shares.

And, of course, index funds hold it as well. It's the largest constituent of the Standard & Poor's 500 index at more than 4 percent -- as well as the Russell 1000 index at about 3.5 percent. The Russell 1000 index contains close to 90 percent of the U.S. stock market.

So clearly it's huge. Last summer, Apple surpassed Exxon Mobile Corp. as the most valuable company in the world; hence the tiptop spot in market-weighted indexes.

How much higher can Apple's stock go?

Apple.Inc stock chart

Information source: Yahoo finance.

The stock is currently trading at $545. Most of the arguments against a continued bull run for Apple go along the lines of, "How much longer can this last?"

For instance, writing for in the story "The right time to sell Apple's stock is … " Frank Byrt writes:

But at some point, something will eventually upset the Apple cart. Peter Cohan, a business consultant, author and business-management teacher at Babson College in Wellesley, Mass., speculated that any abrupt slowing in the company's earnings growth rate or a quarterly earnings miss versus its own projections would cause analysts to scale back price targets and precipitate a share-price slide.

As well, the Wall Street Journal article quoted earlier makes the point that by not owning Apple, mutual fund managers are effectively betting against Apple. For active managers trying to find hidden values in the market, going against the grain can pay off.

For everyone else, it's tough to find reasons not to own it. The company has been criticized on some issues, including working conditions at factories in China as well as its environmental impact.

Recently Apple has moved aggressively to improve their environmental image. On in the story, "How Apple went from environmental laggard to leader," writer Todd Woody details the evolution of Apple's environmental standards.

From using renewable energy sources at their new North Carolina data center to cutting emissions at factories in China, Apple has upgraded their environmental image, according to the story.

What do you think?

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March 20, 2012 at 12:15 am

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March 10, 2012 at 1:52 am

You are having a problem if APPLE stock is increasing