One bad Apple can ruin your whole barrel of stocks

Apple (AAPL) is a stock that everyone seems to have an opinion about.  If there is anyone on the planet that hasn't heard of Apple the company designs, manufactures and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer, and business customers.

I once heard Mrs.Fields say she didn't sell cookies, she sold warm memories of your childhood and the smells coming from your Grandma's kitchen.  To say Apple is a computer company also isn't enough.  When I go to the mall and pass the Apple store the place is packed and everyone, young and old is standing in a line to get a hands on experience.

All other companies just produce lap tops, computers and PCs -- Apple produces MACs and I-Pods and all sort of devices with wonderful sounding names that you've just got to have before anyone else has one.  Other companies are just the present; Apple has the mistique of being the future.

OMG have the Apple worms crawled in my ears and are now controlling my mind like they've done to all the other cult members?  Is there any way I can plug my ears to the songs of the Apple sirens and write an honest and objective view of this stock?

Let's get the popular stuff out of the way.  To say Apple has a following is an understatement.  On Motley Fool the CAPS members vote 22,413 to 2,018 that the stock will beat the market and the All Stars are similarly in a trance by a vote of 4,787 to 236.  Even the Wall Street columnists Fool follows have written positive articles 46 to 0.

The Wall Street brokerages are not immune to the hype.  There are 43 firms with published recommendations and their analysts have 25 strong buy and 22 buy reports published.  For you math buffs I know that doesn't sound right but several of the firms have the stock classified in multiple categories and have more than one analyst following it.  The consensus estimates are very aggressive with sales expected to increase 73.60% this year and 24.70% next year.  Earnings per share are expected to increase 59.10% this year, 21.90% next year and continue at a 20.19% annual rate for at least 5 years.

Even the old staid and very objective Value Line thinks the stock is a timely acquisition for your portfolio.

Let's step back and look at raw numbers using Barchart.  I note that there are 12 of the 13 Barchart technical indicators on a buy signal for an overall 96% buy rating.  The stock hit 19 new highs in the last 20 sessions including 5 in the last 5.  Last month alone the price climbed 17.75% and recently traded at 288.62 well above its 50 day moving average of 258.20.  The 14 day Relative Strength Index is 80.79% and rising.

For those of you who follow my blogs you know I try to be objective and not follow the crowd.  Just because Citi is one of the most widely traded and reported stock has not swayed me into buying that dog.  Here with Apple it looks like the real deal.  Here's what its got:

• The stock has a very wide an positive following by the general investing public
• Wall Street brokerage analysts have released buy recommendations based on solid fundamentals and expect high double digit increases in sales and earnings
• Wall Street columnists are giving the stock strong and positive press coverage
• Barchart confirms recent positive and consistent upward price momentum.

I can't find anything not to like about the stock except one thing.  It is in almost every ones buy list and is contained in almost all the recommended model portfolios.  Except for some very narrow sector mutual funds it must be owned by an over whelming majority of every pension plnn and mutual fund in the known free world.  And that's the butterfly in my stomach.  If the sales or earnings estimates are not met the mass exodus will be worse than the panic caused by fire crackers at a South American soccer match.

If I were an investor in this stock I'd also buy some puts for insurance. This is a stock where sell stop just won't protect you.

Jim Van Meerten is an advisor to Marketocracy Capital Management who uses his model portfolios not only to manage their mutual funds but also their clients Separately Managed Accounts. You can read his blogs about those model portfolios and investing here and on Barchart Portfolio Blogs. Please leave a comment below or email JimVanMeerten@gmail.com.

Disclosure: Jim Van Meerten through Marketocracy Capital Management has an interest in the stocks mentioned in this blog.