Today’s first topic is Steve Jobs, Apple and AAPL.

Steve Jobs, of course, is the man at the head of the company.  Apple is the company itself.  And AAPL is the stock.

They are three separate entities.  But investors often make the mistake of confusing them, and that can be dangerous.

For example, the media in recent weeks have focused on Steve Jobs and his health (first there was pancreatic cancer and now there’s an unspecified “hormone imbalance”), and worried about the effect on the company should Steve’s health problems force him to step down.  Others have wondered how much transparency there should be about a CEO’s health in the first place, bringing into play the issue of privacy.  Still others (typically members of the cult of Apple) have said we should ignore the issue and just have faith that Steve, treated by the best doctors money can buy, will recover and Apple will continue to make “insanely great” products.

Me, I wish him a speedy recovery.  After all, he and I (and Bill Gates as well) were all born in the same year, and I hope all three of us have many more productive decades on this side of the grass.

But I’m not making the mistake of thinking that if Steve returns to good health AAPL will continue to be a fine investment.

As to the health of the company, I’m acutely interested.  I’ve been a devoted Mac user since 1987.  The Cabot office is 68% Mac-based, my home is totally Mac-based, and I love my iPhone, which currently holds 2,978 songs, 456 photos and a couple videos.

Also, I’ve attended every East Coast Macworld (2005 was the last).  At one early show I even won a raffle for a whopping 1MB of RAM!  And I followed Tuesday’s Macworld keynote speech online with great interest, happy to see the new features in iLife as well as the new pricing structure and removal of copy-prevention measures for songs in iTunes … but disappointed in the lack of hardware improvements.

Furthermore, we at Cabot have made great profits by investing in AAPL several times over the decades, most recently taking advantage of the iMac boom (1998-1999) and the iTunes store boom (2003-2007).

But I’m not letting my love of Apple products and services or our previous profits in the stock get in the way of my judgment as an investor.  And that judgment is simply this:

AAPL’s best days as an investment are over.  In fact, APPL is likely to underperform the market in the years ahead.  And here’s why.

AAPL–the stock–reached the point of peak perception at the end of 2007 when the iPhone was the hottest product of the holiday season and the stock topped out at 203 per share.  At the same time, the stock’s relative performance (RP) line–which measures the performance of the stock relative to the broad market–topped out as well.  Yes, the RP line did return to the same level in May, July and August of 2008, but to chart-savvy technicians, that long top only served to accentuate the message that AAPL’s positive momentum had ended.  (Note the continuing distinction between Apple and AAPL.)

Since then, competitors–most notably Research in Motion (RIMM)–have embraced the idea of the touch-screen phone, though none has executed it as elegantly as Apple.  More importantly, the growth rates of both Apple’s revenues and earnings are now decelerating.  Finally, I note that at the end of the second quarter, AAPL was owned by a whopping 885 mutual funds … all of which are now potential sellers.

Now, none of these, factors, individually, is the kiss of death, but when I see them all together, I conclude that it’s highly likely that the stock’s best days are over.  Not that it will never reach new highs … simply that there are far better growth investments available now.

Here’s the logic.

Remember, what makes a stock go up is the improving perception, by an increasing number of investors (especially institutional investors), of the company’s earnings power.  Back in 2003, when AAPL was trading at a split-adjusted 6 and the company announced the launch of the iTunes Music Store, critics carped that the prices for songs were too high, or that not enough music labels would sign on or that the copy-protection scheme was too limiting.  But they were all wrong, and as their perceptions improved about the ability of the iTunes Music Store (now called simply the iTunes Store) to earn lots of money, more people–both individuals and institutions– became buyers of AAPL.  Their buying made the stock go up.

Equally important, more people came to love Apple, for its witty TV ads, for its beautiful and functional stores, and for its elegant products, which have brought easy-to-use technology to the masses.  And as more individuals bought the stock, and more professionals bought the stock, AAPL went up, and up, and up.  (The gain from the 2003 low to the 2007 high was 3,090%.)  But at some point, every company reaches a point of peak perception, a point where the greatest number of people love it, and that’s the point at which the stock tops out.

For years, my father’s favorite example of this phenomenon was International Business Machines (IBM), which stopped outperforming the market in 1984 (the year Apple launched the Macintosh with its famous “1984″ television commercial during the Super Bowl).  IBM, of course, was so respected that there was a business axiom, “No one ever got fired for buying IBM.”

Before that he’d seen Eastman Kodak (EK) stop beating the market way back 1973.  That was far before digital photography built the company’s coffin; the stock simply collapsed after perception peaked.

More recently, I’ve seen other stocks follow the same chart pattern.  Cisco, Dell, Home Depot and Microsoft all have RP lines that peaked at the end of 1999.  Remember the perception back then?  These companies and their stocks were loved!  The future was going to be great!  And as a result, their stocks were trading at high valuations.  But when the future turned out to be not as good as expected, the stocks sold off.  Despite the fact that all four are still great companies and still growing, their stocks are dramatically lower.

Cisco (CSCO) is now more than twice the size it was in 2000, but its stock is off 79%.
Dell (DELL) is now more than twice the size it was in 2000, but its stock is off 82%.
Home Depot (HD) is now more than twice the size it was in 2000, but its stock is off 66%.
Microsoft (MSFT) is now more than twice the size it was in 2000, but its stock is off 63%.

Now, I’m not saying that AAPL is going to collapse from here; it may well rally if we get a supportive market.  After all, it’s already off 55% from its December 2007 high.  I’m just saying there’s no longer a good reason to own the stock.  I’m saying that Apple, which Fortune magazine named the most admired company in the United States in 2008, will now slowly become less-loved, and as a result, the stock will no longer be an outperformer, despite the fact that the company continues to grow sales and earnings.

Investors who bought in the past couple years and are sitting on losing positions will eventually get tired of holding a loser and they’ll sell, putting pressure on the stock.  Growth fund managers will slowly sell it from their portfolios, while managers who value stability will buy it … but only on dips.  And AAPL’s RP peak will fade into history.

At the same time, sales and earnings will keep growing, but they’ll be growing more slowly.  After all, Apple now brings in $32 billion a year, and increased size eventually translates into slower growth.

And it could get worse.  Consider what will happen if the current slowdown in consumer spending–driven by a trend toward reduced credit–continues.  Apple’s rate of growth could slow further.  Or consider what could happen if cash-strapped governments decide that taxing Internet purchases (like iTunes products) will help them meet their budgets.  That would be another bite out of the Apple.  Admittedly, these things are only hypothetical–but so is Steve Jobs’ return to health.

The most important thing for an investor in growth stocks to remember is that the market is always looking ahead.  Yesterday’s news is worth nothing; it’s next month’s news–and the news that’s expected six months from now–that matters.  And the actions of the stock every day (particularly a heavily traded stock like AAPL) reflect all the various opinions and perceptions about that future, all the time.

Today, while the market has rallied for six week, AAPL’s chart is still under pressure; the stock has failed to better its December high.  And buying volume is tepid.  Combined with slowing fundamentals and an awareness of public sentiment, it reinforces my conclusion that the point of peak perception has likely passed for AAPL.

Our job now is to find the next Apple … or at least the next hot stock.