Are Apple's Best Years Over?

By JAMES B. STEWART

Can things get any better for Apple?

The stock has been a mainstay of my portfolio since I recommended it during the depths of the financial crisis. I have owned Apple shares and long-term options, including those I bought in 2009 with a strike price of just $50. I recommended Apple again last April, when shares were at $272. This week they hit $345.

Reuters

New partners: Apple's Tim Cook (left) and Verizon Wireless's Dan Mead.

With Apple up nearly 80% since last February—and more than 400% since its 2009 low—the stock has single-handedly guaranteed that my portfolio has outperformed the major averages.

This week, Verizon Communications announced that its 93 million subscribers will be able to buy the iPhone in February. I plan to be one of them. This development should bring a gusher of sales for Apple, which has been blowing away analyst estimates already. Its recent year-over-year earnings growth was 70%, on revenue gains of 67%. Its operating margin was 27%. Analysts are nearly unanimous in recommending the stock, even as it reaches new highs.

The Apple-centric world I hypothesized when first recommending Apple shares has largely materialized, at least for me. I tote around my iPad and my MacBook Air, own an iPod and am typing this column at a work station with a large Apple desktop screen. I'm intrigued by Apple TV, and, as I said, hope soon to be brandishing an iPhone.

I see only one problem: I'm not sure what worlds are left for Apple to conquer.

I realize I'm in a minority, and that there are plenty of customers still to be wooed by Apple. But competition is stirring. At last week's Consumer Electronics Show in Las Vegas, a resurgent Motorola—which this month split into Motorola Solutions and Motorola Mobility Holdings—trumped Apple. Motorola Mobility's new Xoom tablet computer, designed to rival the iPad, was named "Best of Show," and the Motorola Atrix was named the best smartphone.

Motorola's Xoom will be the first tablet to use Google's "Honeycomb" version of its Android operating system, designed specifically for the tablet market. CNET called it a potentially "disruptive technology" that "can literally and figuratively measure up against the iPad."

The Atrix, which Motorola calls "the world's most powerful smartphone," docks into a laptop computer. It, too, has Google DNA, since it's powered by Android, though it will be available only with AT&T.

I haven't seen or used either product. But as much as I love the iPad, I can't say it is flawless. The screen has a lot of glare and collects fingerprints, and I'm still struggling to type emails on the oversensitive touch-screen interface. Having once written off Amazon's Kindle, I find I'm now lugging around a Kindle (for book reading), the iPad (for newspapers, magazines and lots of other wonderful apps), and the laptop (for email and writing).

All of this has made me nervous as an Apple investor. As with any long-term holding, I'm always trying to assess threats from competitors, which in this case seem all too real. Nor am I convinced Apple enjoys a natural monopoly. I love Apple's products, but the company basically is a hardware company, and hardware companies are vulnerable to competition. So I realized the gains on my Apple options, which are expiring this month.

I haven't given up on Apple. I still own shares and another set of call options that expire in January 2012. But the market recently hit one of my selling thresholds, and I feel comfortable taking some profits.

The promising new products from Motorola Mobility could make it a good candidate for some of the proceeds. And I remain a strong believer in Google, which I own and have recommended in the past.