Apple sale

This is an update on my recent sale of apple stock. I had a recent buy on apple stock into the price decline of Apple stock at USD 169, I have sold it off following the hitting of my price target at USD 176.78. Despite maintaining a general stance of buy and hold for the long term, there were several red flags that prompted me that Apple best days might be over.

Original thesis : Stalwart stock. 

Buy apple as market sentiment unruly battered down apple stock due to hearsay and speculation of poor earnings report. 

There is significant margin of safety from buying a cheap stock that has a strong brand, impressive cash hoard, and ability to maintain its profit margin due to its incredibly sticky ecosystem and users. 

There is potential new innovative products that Apple can develop and sell at a premium due to strong branding.

Revised thesis : No growth stock. 

Looking at its numbers, Handset sales have declined steadily and Apple is mainly milking its sticky users off their loyalty to the brand. Just because Apple is releasing 3 smartphones this year dosen't mean every user will buy 3 smartphones. There is limited upside on user acquisitions due to plethora of cheaper better smartphones. OPPO, VIVO, Huawei Samsung are simultaneously fighting aggressive price wars and providing premium features to compete for market share. There is a limit to how much Apple can milk its users by raising prices, until they show resistance. In the event of a market downturn, premium phones can easily deteriorate from a necessity to a expensive commodity.

The replacement cost thesis of Apple seemed flaky as I discovered this wondrous app known as Easy-share . One can easily migrate apps, music, clone phone data as well as migrate information easily from one smart device to another. This relatively new technology might spell a downfall of the fabled stickiness of the Apple ecosystem.

Apple has proved naysayers wrong and provided earnings that beat low market sentiments. BOA even revised Apple to buy recommendation despite no change in fundamentals. With battalions of analysts following this stock, market mispricing opportunities are likely exhausted and I should see this stalwart with limited further upside.

Apple is not cheap from a growth perspective, Tim Cook proved that his talents are in capital allocation and share buyback rather than product development. Healthcare appears to be a diwosify / long shot and Apple glass seem to be a heavily contested market. Least to say, apple latest development in its smartphones proved again to be disappointing and easily replicated by cheaper brands like Oppo at a formidable low price point. With multiple players going for branding and product differentiation, I am not confident that its branding can hold the fort. As apple no longer hold first mover advantage, new users (India, developing countries) will not be ensnared by Apple branding, and not contribute to the growth of the software ecosystem.

Its cash hoard are used solely for capital allocation decisions, as Apple  announces reversion to a cash neutral policy. Although I generally approve of share buyback, to my understanding apple is buying back shares of a no growth company with limited upside rather than focusing on capex/ growth expenditure that will grow the company further. Share buyback and dividend payout (subject to dividend tax) suggest deteriorating fundamentals rather than shareholder friendly management.

Product development (Home pod and android /Amazon variants), (Fitbit, android and other smartwatches) seem stagnant and more of long shots. Without an innovative and visionary product team, there is so much marketing one can do to flog a dead horse before the quality of its product presents itself. Although astute investors such as Warren buffet remains bullish on the branding moat of apple, the moat of the smartphone industry seem stretched. My worries may as well  prove to be unfounded fears, but considering my desire to accumulate more cash at hand, I will weed out my weak conviction positions and focus on the strongest selections.