Why I Sold Apple

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When I bought Apple (NASDAQ: AAPL) in early 2012, the stock was in the midst of a remarkable rise. Anticipation built that it would soon pay a dividend for the first time since 1995. 

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Apple shares would nearly double in the year following Steve Jobs' death in October 2011, in large part because the company was expected to begin paying dividends, which Jobs had long opposed. Back then, the world seemed to be Apple's oyster. The company was flush with cash, posting giant margins; fanboys eagerly awaited the latest phone releases, and excitement swirled around the next transformative product to come out of Cupertino.

Five years later, Apple is still a profit machine, but much of the brand halo and innovation that used to surround the company has evaporated. I sold most of my stake in the stock before the iPhone X announcement, but the news typified many of the reasons I dumped my shares. The market's reaction, sending the stock down two days in a row, was a natural response to the boring incrementalism that has typified the Tim Cook era.

I've had my fill of this era of Apple, here are a few reasons I sold shares.

Missed opportunities

For years, investors have waited for Apple to break into its next big market, following its dominance of smartphones. Sure, it launched a smartwatch, but sales are too low for the company to break them out on their own, and discounts on the product are common. Rumors that Apple would make a play in television or automobiles, but years have passed with essentially nothing coming out of Cupertino, despite efforts to do so.

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In the meantime, Apple's would-be rivals have run circles around it. Netflix (NASDAQ: NFLX) has expanded its streaming service around the globe and is producing 1,000 hours of original content this year. Five years ago, originals were a brand-new thing for the company, and its international expansion was just beginning.

Tesla Motors (NASDAQ: TSLA) has become the Apple of the automotive world, with sleek, coveted products that have garnered rave reviews and high demand. Rival Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has become the leader in autonomous-vehicle technology.

And Amazon.com (NASDAQ: AMZN) has carved out a leading niche in voice-activated technology with its Alexa software, which is widely recognized to be better than Siri, the voice assistant that Apple introduced nearly six years ago.

Apple makes more money than any other company on Earth and should be able to afford the R&D or acquisitions necessary to compete in any of these industries, if not dominate them, but instead the company has fallen behind.

The stock's done well, but...

Shares of Apple are near an all-time high, which made it a good time to sell the stock. While the stock has done well this year, Apple's underlying performance has not been as strong. Revenue and profits are growing but are still down from records achieved in 2015, when sales spiked thanks to the phablet iPhone 6 Plus.

Apple is hitting a ceiling in smartphone growth, which is a problem, as the iPhone makes up the majority of its sales. The once-revolutionary product has reached maturity, as global smartphone shipments fell 1.3% in the most recent quarter to 341.6 million.  Apple may be able to coax customers to open their wallets a little wider to buy the $999 iPhone X, but for a tech company to spend all its effort on a mature market seems like a mistake.

Meanwhile, Apple's valuation has ballooned to its highest level in the past five years. It now trades at a P/E of 18, well above the low double-digit multiples it was at in early 2016. For a company struggling to grow profits and sales, that could lead to a pullback in the stock.

Between years of fruitless efforts to break into a new market, last week's middling product launch, and a valuation at a multi-year high, the stock looks ripe to sell. Apple just ain't what it used to be. 

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Apple and Netflix. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Netflix, and Tesla. The Motley Fool has a disclosure policy.