Apple the perfect long-term short

To start with I like Apple.  I generally like their products even though they are more playthings than serious business tools.  They are clearly the current technology leader in devices and computers.  Steve Jobs did an incredible job remaking the company from a has been to the market leader.  After so many years a company gets too large and bureaucratic.   Think IBM and Microsoft.  

The stock has skyrocketed to more than $400 per share in August 2011 from below $5 a share in 1997 (allowing for splits).  A number of business books have been written about Apple’s success.  Steve Jobs has been showcased in 100’s of magazines and TV programs.  The stock has obtained an almost mythical quality.  Investors view the stock as a sure thing and one of the markets key holdings.  The company is clearly at its pinnacle.  

It has nowhere to go but down.  We can argue that the balance sheet and products are all rock solid.  We can even show that there are still millions more that want and need iPhones, iPods, and iPads    The revenue and profit numbers for Apple have been steadily increasing over the last few years thus making it very predictable stock for mutual funds and retail investors to purchase.  This has caused a strong psychological uptrend in the stock, steadily separating the value of the stock from the fundamentals of the company.  

What can break a long term psychological uptrend?  A down quarter?   A new competitor products product?  Or a management change?  The latter is the one that I am most concerned about for the Apple stock.  Since Steve Jobs has obtained this surreal persona there is a big risk that public perception could now change once people think the Apple story was based on mostly on Steve Jobs and not the company in general or the new CEO specifically.  This has happened to many stocks like Microsoft and GE.  Once their storied CEO’s left the company the heirs of the throne had a difficult time measuring up to the predecessor.  All it takes is time and one slight kink in the armor like a missed quarterly number or failed new product offering to start the ball rolling downhill.

• When Jeff Immelt took over from Jack Welch at GE in September 2001 GE was trading at $40.90  and as of August 25^th it is trading at $15.45 a 62% decline

• When Steve Balmer took over from Bill Gates to become CEO of Microsoft in January 2000.  In January Microsoft was trading at $97.87 and as of August 25^th it is trading at $24.57 an almost 75% decline

This is where I think Apple is now.  I am speculating that Apple will shortly be starting a long downward stock price trend as psychological quality of the stock retreats back to a more normal level.

Prediction

On the close August 25, 2011 Apple stock (APPL) closed at $373.72.  I would predict the stock would take a drop of 50% to 60% from their peak.  This usually takes between 24 and 36 months to trade down that level.  It would mean that in my opinion Apple stock should trade down to approximately $150 per share by August 2014.   I am basing this prediction based solely on what I perceive to be a stock trading more based on psychology than on fundamental values.

Full Disclosure

As of August 26^th, 2011 I do not own any Apple shares, Options, or debt.  I also do not have any shorts or puts tied to Apple stock.  I do own 150 shares of an ETF that shorts the S&P 500 which Apple is a member.