This One Thing Could Bring Down the House of Apple... (AAPL)

So you own Apple (Nasdaq: AAPL)? You feel pretty good. You’ve seen the stock rise through the roof... $200... $300... $400... $500... and now $600.

You made the right call. You think you can rest easy sticking to your guns on the stock and have ample reasons to support this view:

1. The Apple Halo - Everyone you know has an Apple iPhone or iPad and they love them. You know, like yourself, they will be repeat customers, maybe skipping a refresh here or there, but they are big time Apple fans.
   
   
2. Valuation - The stock is still cheap compared to the market. Heck, Apple is trading at a multiple below the market yet grows faster than any company on earth. If Apple shares were to trade at the same multiple similarly growing company's stocks traded at, the price would be north of $1500.
   
   
3. The Cash - Apple has nearly $100 billion in cash, or over $100 per share. Some of this money could be coming back soon in the form of a dividend or a share buyback.

Your thesis is solid. In fact, StreetInsider.com's price target on Apple is $800.

Yet there is one ugly truth that could break the back of Apple and the stock...

...the carrier subsidies.

You know that iPhone you bought for $200 from AT&T (NYSE: T)? Well that actually cost a ton more. In the first quarter, for example, the average selling price for the iPhone was $660. That's right... the carriers are eating most -- and in some cases -- all of the cost of the popular iPhone.

Illustrating how big an issue this could become, and what a major red flag for investors it should be, Apple updated a risk factor in its latest 10K on October, 26 2011 entitled "The Company’s future operating performance depends on the performance of distributors, carriers and other resellers".

The risk factors update added the words:

"Carriers providing cellular network service for iPhone typically subsidize users' purchase of the device. There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company’s agreements with these carriers or in agreements the Company enters into with new carriers."

When the carriers take some of the power back it could kill margins and the stock.

Will this happen anytime soon? That is not clear, but with most of the carriers now carrying the phone they can get in cahoots to pressure Apple.

So yes, you can continue to own Apple. Just be very wary of this major red flag.

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