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Take a bite out of this Apple
The iPod maker still has great prospects but it makes sense for investors to cash in on gains.
December 2, 2004: 12:41 PM EST
By Paul R. La Monica, CNN/Money senior writer

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NEW YORK (CNN/Money) - If you bought Apple's stock at the beginning of the year then you must feel like you hit the Mega Millions jackpot.

Shares of the iPod seller are up 217 percent in 2004, making Apple far and away the biggest winner in the S&P 500.

Heck, even if you bought the stock sometime this autumn, you're probably grinning from ear to ear right now.

Apple (Research) has surged almost 75 percent since the last time I wrote a bullish column about the company -- and that was less than two months ago.

Shares closed on Wednesday at $67.79, just 6 percent below their all-time high from March 2000.

But can Apple keep going?

Several institutional investors are starting to sell even though they still think Apple's fundamentals are strong.

And if you're sitting on a hefty gain in Apple stock, it's probably not a bad idea to follow suit.

"The key to success in tech is taking some money off the table," said John Buckingham, manager of the Al Frank fund. "The lesson for investors is not to own things in black and white. There's a happy medium. You can sell some but you don't have to sell all of it."

Cash in if you can

Buckingham, who said he first bought Apple in early 2003 when the stock was trading at about $14, sold part of his stake when Apple hit $48 in late October and sold some more when it hit $61 last week.

Sweet music: Apple has trounced the market this year and is the best performing stock in the S&P 500.  
Sweet music: Apple has trounced the market this year and is the best performing stock in the S&P 500.

But Buckingham said he still owns about 12,500 shares in the fund and that he probably wouldn't sell his remaining position unless Apple's stock rose to $80 in the near future.

Buckingham said he sees nothing shaky about Apple's outlook. After all, earnings estimates just keep going higher and higher for Apple, in large part because of the iPod's success.

In mid-October, just before Apple reported blowout numbers for its fiscal fourth quarter, analysts were forecasting earnings of 94 cents a share for fiscal 2005. Now analysts are predicting that Apple will earn $1.36 a share.

Strong sales of Apple's iPod in its fiscal fourth quarter have helped fuel the stock's run.  
Strong sales of Apple's iPod in its fiscal fourth quarter have helped fuel the stock's run.

But Buckingham is worried because Apple has quickly become the hot momentum stock du jour. He pointed out that several Wall Street analysts have recently come out with aggressive price targets on Apple, most notably a $100 target from Piper Jaffray.

"The thing that's scary about Apple is the price target game. People call a $100 target and that's the reason the stock goes up," Buckingham said.

Don't chase momentum

Others are concerned that sales and earnings expectations for Apple are just too high now and that even the slightest disappointment could trigger a violent sell-off.

 
Click here to look at the iPod and other gadgets in our Holiday Tech Gift Guide.

For Apple's fiscal first quarter, which ends this December, analysts are forecasting earnings of 45 cents a share, a 181 percent increase from the same period last year. And sales are expected to increase by more than 50 percent, to $3 billion.

If Apple meets those targets, it would no doubt demonstrate that the company is doing extremely well. Who could quibble with a nearly three-fold increase in earnings?

But since Apple beat earnings estimates by 50 percent in its fiscal fourth quarter, Wall Street is expecting another big upside surprise. So it might make sense to wait to make a move until after Apple reports its latest results.

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"I'm convinced Apple's still a great story but at this price we need more evidence about how strong the December quarter will be. Give the stock a little time and in January we'll know how good Christmas was," said Richard Skaggs, co-manager of the Loomis Sayles Growth fund.

With that in mind, Skaggs said he sold some Apple stock earlier this week after it hit $68 since his cost basis in the stock was about $35. But it's still a top five holding in the fund, he said.

And another fund manager who has owned Apple since the beginning of the year, when it was trading in the low $20's, said that even though he still loves the company's outlook, he thinks it is too late to be buying Apple at current levels.

"You've missed it. You're chasing momentum. The iPod story isn't exactly news anymore," said Henry Hewitt, manager of the Light Revolution fund.

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Hewitt said Apple is still his fund's top holding but he said that he sold about a third of his position in the stock earlier this week.

Don't get me wrong. I'm not trying to suggest that Apple is going to have a bad quarter or that the iPod is a fad that's about to peak.

But if you've been fortunate enough to make some money from a stock that has more than tripled in less than a year, the smart thing to do is to take some profits...just like the pros are doing.

"Apple has been very good to us," said Buckingham. "But I'm not that greedy. I'm content to let others fight over the last 10 to 15 bucks of upside."


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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.