A Stock Flying High on Apple’s Tailwinds

As you probably know, Apple 's (NASDAQ: AAPL ) earnings last week were a rare
disappointment, thanks in large part to lackluster iPhone 4 sales. Well, no
kidding. Would you have bought an iPhone 4 in the past month or two if you knew
the latest, greatest version was going to be released in October? A lot of
people did, of course, which is one reason Verizon 's (NYSE: VZ ) earnings
were so strong. But a lot of people decided to wait, too. That's why, on the
first day of the new iPhone 4S launch, Apple registered more than 1 million
pre-orders, blowing away the previous record of 600,000. And in the first three
days after launch, more than 4 million 4S phones were sold, more than doubling
the previous record set by the iPhone 4. Investors apparently weren't
convinced, though, as AAPL fell 5.6% the day after releasing results. So the
stock must be a screaming buy, right? Well, not so fast. There's a better way
to play the iPhone's game-changing success. Let me be clear: I'm not saying
that buying AAPL would be a big mistake. During the past 10 years, Apple has
changed the way we live, work, play, listen to music and communicate. It has
been able to out-innovate, out-think and outmaneuver every other competitor on
the planet, and I fully expect it to remain one of the dominant forces in
consumer technology for years to come. But with success comes expectations, and
it's getting harder and harder to keep up the torrid 45% to 82% year-over-year
growth rates investors have come to bank on. As Apple's devices and their
markets mature, it will be increasingly difficult to consistently add new
features that wow people enough to upgrade to the newest version immediately.
Even a slight slowdown in the upgrade cycle impacts growth. It also will become
harder to differentiate the iPhone from the competition as much as before, so
Apple might need to lower prices to try to undercut competitors another
potential drag on growth. And speaking of pricing pressure, let's not overlook
the recent introduction of Amazon 's (NASDAQ: AMZN ) much cheaper tablet, the
Kindle Fire, which has real potential to eat into the phenomenal growth of
Apple's other blockbuster product, the iPad. Apple will be just fine, but with
challenges to its extraordinary growth mounting, I see better opportunities out
there with more upside potential.