A couple of months ago, I wrote about corporate spark plugs – those exceptional people that turn a company into an extraordinary success. I mentioned Steve Jobs as the spark plug for Apple.
Now Mr. Jobs is gone. Should you keep holding the stock?
In my opinion, no. There may be some upside left in the share price, but it's time to consider selling before sentiment starts to turn.
Sure, Apple is still growing at a tremendous clip and Mr. Jobs is rumoured to have left detailed plans for new products to be rolled out over the next five years. New CEO Tim Cook is an outstanding manager and Mr. Jobs'ss hand-picked successor. On top of all that, the stock is inexpensive, at a mere 12 times expected earnings.
This all sounds good – so why my negativity?
Simply put, now that Apple's spark plug is gone, so is the company's rosy future.
Mr. Jobs was the key to Apple's success. He monitored every detail of the company. Staff worked hard because of him, and the customers bought Apple products to be a part of the cult he headed. With him gone, the cult may soon dissolve.
Indeed, the company has already begun to stutter. The iPhone 4S release was a disappointment and the company missed hitting analysts' estimates for the most recent quarter.
In any struggle, a strong leader makes the difference. If the Duke of Wellington had died a day before the Battle of Waterloo, but had left battle plans for his hand-picked successor, would the fight still have gone the same way?
Probably not. Wellington wouldn't have been present to reform the broken British infantry squares, nor ride between bullets to urge his troops to chase the retreating French when Field Marshal Blucher's Prussians finally appeared behind Napoleon's army.
Nor, for that matter, would Blucher have driven his tired Prussians so mercilessly through mud all night, just because he had given his word of honour to Wellington.
Mr. Jobs was to Apple as Wellington was to the British army at Waterloo. Mr. Jobs's friends included movers and shakers from Bill Gates of Microsoft to Andy Grove of Intel to Larry Ellison, the billionaire chief of Oracle, who told Fortune magazine, "The difference between me and Steve is that I'm willing to live with the best the world can provide. With Steve that's not always good enough."
Even these driven executives would look to Mr. Jobs for approval. (One wonderful, although apocryphal story, says Mr. Ellison spent tens of millions constructing a Japanese-themed house largely to impress the Apple co-founder.) No wonder that Apple's employees were also willing to go to extreme lengths to impress their boss. Will these same people now bust a gut for Mr. Cook?
I don't think they will. With Mr. Jobs gone, Apple's glory days are over, just as Microsoft's were done when Bill Gates left his company in the hands of Steve Ballmer, a capable executive who stopped short of being a spark plug.
Mind, now: Mr. Cook is very good. But he's not a spark plug. He's merely a talented executive, not a super-gifted one.
We've seen this show before at Apple. When Mr. Jobs was pushed out of the company in 1985, the top job went to another executive that he had personally recruited – John Sculley, who had an excellent track record as chief of PepsiCo. Apple nearly went bust before Mr. Jobs returned to save the day. Without its spark plug, Apple was a very ordinary company.
But what about its supposedly cheap valuation?
Buying a technology stock because it's cheap is usually a mistake. Just look at Hewlett-Packard. When it dismissed Mark Hurd and brought in Leo Apotheker, many investors bought HP's stock because it looked inexpensive. Grave mistake: The stock price was soon halved.
Of course, Apple is not HP. But it's a mistake to own it just because the price-to-earnings ratio looks like a bargain. Old tech hands never buy low P/E tech stocks, especially when the spark plug is gone.
There's also the question of size. With a market cap of more than a third of a trillion dollars, Apple is now a part of nearly everybody's portfolio. Millions of investors, big and small, love the stock.
With Mr. Jobs gone, this love is already fading among consumers. If and when more misses follow, and shareholders grow disenchanted, some of this third of a trillion may be put up for sale. But who is left to buy it?
I'd consider selling now. There may be some gain left in the stock, but there is far more downside than upside.