Apple's dream-stock status

Prescient because Big Blue's share price did fall to earthy levels long before the company went to the verge of collapse in 1992. Generic because the words have a wide application once you substitute the products and company name. Try it. "When PCs are as familiar as mainframe computers, Microsoft will sell at a much less romantic value." That works. How about the technology stock that took over from Microsoft as the world's most valuable company, Cisco Systems - "When routers are as familiar as electrical circuits, Cisco will sell at a much less romantic value". That's okay, too. So let's bring it up to the minute - "When tablets are as familiar as PCs, Apple will sell at a much less romantic value". Instead of 'tablets' we could insert 'smartphones' or maybe even 'cloud computing', but the result would be the same - Apple's share price would be much less lower than today's $573.

Mr Gutman was making a point about the way investors respond to new technology. When an innovation is still obscure they're not interested because they can't imagine its potential. But, he added: "There is a special moment when everyone sees that something amazing is coming out of the mystery and then they will pay a lot more to know about this strange new thing."

The implication is that we are in one of those moments as investors hyperventilate about the possibilities arising from the convergence of social media, cloud computing, superfast broadband and 4G mobile telephony. Apple retains a mystique if not a mystery and is perceived to be the biggest beneficiary thanks to its reputation for brilliant innovation. So currently Apple is not a growth stock, it's a dream stock. Not that we're complaining right now, since we advised buying it last year at $376. But the medium-term worry is not that the dream will prove to be illusory. On the contrary, the concern is that the dream will become real because that's when Apple's status will revert to bog-standard growth stock and its share price will be heading down.

Naturally, I am not alone in having these reservations. No less a luminary than US economist Robert Shiller - the author of the bestseller, Irrational Exuberance - went on US television last month to say that technology stocks may be approaching bubble proportions.

It's easy to see why. Between 1 January and 10 April, Apple's share price rose 57 per cent to $644, which is another way of saying that $222bn (£140bn) was added to Apple's equity value. That's about the same as the entire market capitalisation of the biggest stock on the London market, Royal Dutch Shell. At its peak, Apple's market value was $607bn, just $40bn short of the combined value of London's four biggest stocks, Shell, HSBC, Vodafone and BP. Since the peak, however, Apple's share price has slipped 11 per cent, equivalent to wiping out the entire equity value of BHP Billiton, London's ninth biggest stock.

My particular concern is that Apple's influence on stock market indices has become too great. At its current $540bn, Apple's value - and its weight in indices - is 1.3 times that of Exxon Mobil, the oil giant that is the US market's second-biggest stock, and 2.0 times that of Microsoft. So, if Apple slips up or - for reasons good or bad - investors fall out of love with it, then, as its price tanks, it will take the indices down with it.

That matters to me, because I was about to switch some of the Bearbull Global Fund's resources out of cocoa and a fund that tracks big emerging markets companies and into a tracker of the MSCI World Information Technology index. The trouble is that Apple comprises 17 per cent of this index, more than the weighting of Microsoft and IBM combined. That's simply too much.

If I put money into that index at current prices, I am not backing the potential for technology to generate above-average profits growth over the long haul - I am betting on investors' continuing love affair with Apple. Sure, the relationship could become more intense - following the launch of the latest version of iPad, who's to say? And it's not as if Apple's shares are inflated with a dot-com-style rating (remember those?). Currently, they sell for about 16 times earnings, and there's a huge cash pile. Even so, it looks increasingly as if a dispassionate assessment has deserted Apple's share price.

I'm not even prepared to back an alternative proposition - buy shares in RCM Technology investment trust. This fund has 'just' 8 per cent of its capital in Apple's shares in what looks like an interestingly idiosyncratic portfolio.

True, I may weaken, but the sensible course is to wait till the dream stock reverts to growth stock status. Given present trends in Apple's share price, that may not be too long away.

Bearbull Global Fund