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If You Own Shares Of Apple, Then You'll Want To Read This
By: StreetAuthority   Friday, April 27, 2012 12:57 PM
Symbols: AAPL
Furthermore, Credit Suisse expects 2012 revenue to grow 57% to $170 billion from $108 billion last year, and by 25% to $213 billion for 2013.

These are huge numbers and frankly, they just don't seem realistic. That's a 48.6% compound annual growth rate for a two-year period, which basically assumes the same annual revenue growth rate the company has enjoyed since 2008. To assume this could continue and to throw money at the stock is a fool's errand, given the  likely future economic weakness in Europe and China.

There are already a few tiny cracks showing that most devotees refuse to acknowledge. For example, iPhone activations at AT&T (NYSE: T) were down 43% in the first quarter of 2012 to 4.3 million units, compared with 7.6 million units for fourth-quarter 2011. That's significant, seeing as how iPhones represent 60% of all smartphone sales for AT&T. A 43% drop is a big number from Apple's biggest customer. It's also a caution flag.

2. Momentum taking over -- According to New York University finance professor, Aswath Damodaran, Apple has become a momentum stock. Momentum investing relies on the acceleration on a stock's price (in either direction). This strategy relies more on short-term price fluctuations rather than fundamentals.

"The new investors of Apple scare me. They're momentum investors," Damodaran told Bloomberg TV. "Once stocks become a momentum play, intrinsic value goes out the window." Damodaran is a renowned scholar of intrinsic valuation. He's also done quite well with Apple. He started buying shares in 1997, when they had cratered to about $5. He's selling now. I consider him the smart money.

3. Institutional influence -- Institutional investors own about 71% of all outstanding Apple shares. This includes mutual funds, pension funds, endowments, hedge funds, etc. Many institutional managers are no different from individual investors in their tendency to get caught up in herd mentality. Manager A owns Apple? Well... we'd better have it too! What? Manager X is shorting it? We need to get on that right away!

I have become very skeptical when a mutual-fund salesman shows me a large-cap equity fund that supposedly outperformed last year.

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