Wait…There’s Actually a Bear Case for Apple?

Published on June 21, 2010
by John Paczkowski

With Apple, in the words of CEO Steve Jobs, “selling an iPad every three seconds” and early demand for the company’s new iPhone 4 strong enough to red-line the company’s pre-order system, Apple shares have been trading at all time highs. (They opened at $277.75 this morning and spiked to $279.01 before slipping back to the $275.05 level where they are trading as I write this).

Apple (AAPL) stock is clearly on a tear and will be for some time. But that doesn’t mean it is risk-free, says Bernstein Research analyst Toni Sacconaghi. In a research note issued this morning, he outlined his bear case for the stock, pointing to five potential pitfalls that might undermine it.

“These five concerns are as follows,” writes Sacconaghi. “(1) Apple’s market cap is too large for it to outperform, and its image has migrated from underdog to Silicon Valley bully, which will increasingly pit competitors against it; (2) Increased regulatory scrutiny threatens to undermine Apple’s powerful iOS ecosystem; (3) Sustained growth in iPhones will inevitably lead to margin pressure; (4) Near-term expectations for iPhone and iPad units are getting heady, risking disappointment; and (5) Apple insistence on retaining cash points to a risk of the company squandering it on a flawed acquisition.”

Sacconaghi makes a case for each, but in most instances, it’s a bit of a stretch and seems to hinge on hypothetical scenarios (what if content providers collectively choose to support a non-Apple platform) or unfavorable outcomes to developing scenarios (what if the Federal Trade Commission finds Apple’s behavior in the mobile advertising market to be anticompetitive). So much so, that in the end, the analyst concludes that none of them presents an imminent threat.

“We have articulated the bear case for Apple investors principally as a checklist of issues to monitor,” he writes. “At this point, none of the aforementioned potential pitfalls concerns us sufficiently to change our earnings estimates or price targets….We continue to view AAPL as the most secularly attractive name in our coverage universe.”

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