The Issue is the iPhone – Apple (AAPL)

Five months ago Apple (AAPL) was the most valuable public company on earth and a darling of Wall Street. But after ending FY’12 down more than 24 percent from an all-time high of $705.07 that briefly pushed the co.’s market cap beyond $650 billion, the iPhone giant failed to make the cut in Citigroup (C)’s latest ranking of so-called ‘World Champion’ stocks.

And the list was pretty long. After nominating 185 companies, Citi Research, the analyst arm of Citigroup, narrowed its list to a final global basket of 50 stocks that included many of Apple’s tech peers, such as Amazon (AMZN), Google (GOOG), Microsoft (MSFT), and Qualcomm (QCOM). Apple’s ticker however, was no where to be found. So, is Apple too injured to play ball with the big guys?

Stephen Weiss, managing partner at Short Hills Capital, worries that it is.

In an interview with CNBC, he points out that while other companies that made the list, such as M’soft, don’t have better growth characteristics, increasing competition in the smartphone market and declining profit margins are two key elements that should be taken under consideration when analyzing AAPL.

“The issue is the iPhone,” Weiss said. “It’s a high priced device with more than 50% of profits at Apple coming from the phone. Margins are twice that of the competition.”

Weiss thinks with such strong competition in the smartphone space, once dominated by Apple, the company will have a hard time fighting the trend of profit-eroding price competition.

Trader Pete Najarian, co-founder of OptionMonster disagrees. He believes that with AAPL — currently trading at a very low P/E ratio of  10.20x current earnings and 7x net of the cash — pulling back from $700 to $450, at current levels the market will accept lower margins.

Jon Najarian,  co-founder of OptionMonster is of the same opinion. “The stock have gone through a 30% correction. At these levels, I see it as a value. I don’t understand why Citi doesn’t.”

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