Thanks to space age, cutting-edge design, an enigmatic CEO and rabidly devoted customers, Apple (Nasdaq: AAPL) can sometimes give off the aura of a cult. After all, people line up at God-awful hours of the night/morning to buy the company’s shiny little gadgets the first day they hit the market — despite the fact that they have a two-year-old version of the same product in their pocket.

But what’s not to worship? The iPod and iTunes revolutionized how we buy and listen to music. The iPhone changed the way we communicate via wireless. And as far as investors are concerned, a stock that has returned a compounded 96.4% annual return in the past five years seals the deal. But the chorus arguing that Apple’s stock can no longer continue its rocket ride is growing.

#-ad_banner-#You rarely hear of analysts downgrading the stock. If you dare to publish a “You know, I don’t think Apple’s that great” article, be prepared for massive fanboy backlash. I speak from experience. But to expect continued returns of 96.4% annually for five years is just plain naive. Apple is a well-run, innovative, profitable company. But the stock just won’t keep pace. Here’s why…

1. Steve Jobs’ health
I’ll get the most unpleasant part of the discussion out of the way first: Apple CEO Steve Jobs’ mortality. Some believe Steve Jobs is Apple. Based on legend and history, that’s kind of true. A recent profile of Apple in Fortune portrayed Jobs as brilliant and focused, but also as a quintessential micromanager, with direct input on everything from how staircases in Apple’s retail stores should look to what’s served in the company cafeteria. This may or may not be true, but that’s the myth.

Apple is Jobs’ baby and he’s done a great job of raising it into adulthood. But, there’s no delicate way to put this, his tenure is especially finite based on his health.
 

The same thing happened to Microsoft (Nasdaq: MSFT), sort of.

 

In January of 2000, Bill Gates stepped down as CEO and assumed the role of “chief software architect”. At the time, Microsoft was at $48 a share. By the time the tech bubble officially popped in the spring of 2000, the stock had already given up 30%. The same happened in June of 2008, when Gates retired completely from active duty at Microsoft to go hang with Bono in Africa.

Apple’s iFanatics will respond by saying the company has a deep bench. I’m sure Chief Operating Officer Tim Cook is a highly capable manager. But he’s not Steve Jobs. It’s like Justin Beiber going on after the Beatles.

2. Apple’s market share isn’t as huge as you think it is
Since the epic “1984” commercial that introduced the world to the new, cutesy, boxy little Macintosh, Apple established itself as one of the best marketers if not the best marketer in the high tech space.

Suppose you landed on Earth today from a galaxy far, far away and knew nothing about the earthling culture. Let’s say you spent a week just hanging out and absorbing all kinds of media somewhere, a place like New York City for instance. After a couple of days, you’d be convinced that the name of this strange planet was “iEarth” and the only electronic devices available were the ones made by the shiny company based in California. That’s called branding, and Apple’s great at it. But clever branding doesn’t always translate into market share dominance.

Below is a table from market researcher Strategy Analytics. Apple had a great 2010 selling iPhones, increasing sales 89%, from 25.1 million units in 2009 to 47.5 million units. These are big numbers. But it was nearly a 10th of what global leader Nokia (NYSE: NOK) moved out the door.

Those numbers translate into Apple having a 3.5% share of the global handset market in 2010. Granted, that encompasses all wireless phones, smartphones and not-so smartphones.

Apple makes a high-end product. That’s fine. Higher end products mean higher prices, which mean higher sales, which mean higher earnings. That’s its business model. But in the longer run, what would you like? It’s like birthday cake at a kids’ party. Do you want a little piece of cake with a lot of frosting and maybe a candle on it or would you rather have a big ol’ honkin’ piece of cake? Give me the big ol’ honkin’ piece of cake.

3. Apple “doesn’t play well with others”
It’s ironic. For all of his LSD-fueled genius, love everybody, hippie ideal grooviness, the reality is Steve Jobs doesn’t like to share. Very uncool, baby…

Sure, the objective is to make a buck. But it seems that in the technology business, there’s a certain degree of sharing and openness that contributes to success. If there wasn’t, Windows wouldn’t be on 80% of the world’s computers. Apple, like any good cult, has always kept things close and in the compound.

Sure, the Mac operating system isn’t as susceptible to viruses as Windows. But that’s because, proportionately, fewer people use it. If you were a home-schooled only child, you probably didn’t get chicken pox like the rest of the kids in the neighborhood. Apple may have a better operating system, but it missed the boat (an even more billions of dollars in royalties) many years ago because of that mentality, and in the long run that works against you.

Most of their products are way too expensive. There’s a mid-level consumer that the company could capture, keep and upgrade for life. But because of the snob appeal, Apple seems unwilling to do that. Then there’s all of the creepy data-tracking issues concerning the iPhone that have come to light recently. That’s just wrong and weird. Leave that kind of stuff to the government.

Action to Take –> Is there more life in Apple shares? A bit, perhaps. But for the most part, the company has likely seen its highs.

Take partial profits if you’re just so emotionally attached to the stock that you can’t let go of the whole position. Options strategies like covered calls or protective puts aren’t a bad idea, either. Consumers and the market have been sipping the Apple Kool-Aid for quite a while. After Steve Jobs, it will be a different company with a cheaper stock price. Who knows? Maybe it’ll lower prices on its shiny little gadgets as well.

P.S. — If you’re looking for quality stocks with high yields, you should take a look at this one. It pays a 19.2% dividend yield. It borrows cheap, gets paid handsomely and then pockets the spread. You’ll get the full story on this cash machine and others like it in this video.