Apple Should Begin Taking Significant PC Market Share: Barron's (AAPL)

Excerpt from our weekly One Page Barron's Summary (receive it by email every week by signing up here):

Mac Attack - Beyond the iPod By Mark Veverka

Summary: Following its remarkable 3-year runup of 10x gains, Apple stock's recent plunge is largely a reflection of concerns that iPod sales are finally starting to cool off. But investors seem to be discounting the resurgence of Apple's desktop and notebook PC lines, now outfitted with fast Intel chips and the ability to run Microsoft Windows. Apple Macintosh PCs, aimed primarily at the high-end market, should begin to win over more students and business customers as the so-called 'halo effect' (the iPod's positive impact on Mac sales) finally begins to take hold. The iPod now provides Apple with over half of its $17.3 billion in yearly sales, but growth should slow to about 60% this year, down from 213% in 2005 and 469% in 2004. Valuation: Apple stock is currently trading at a 'reasonable' 25x this year's earnings, down from an average of 61 P/E since the beginning of 2004. The balance sheet is 'pristine', with more than $9/share in cash. While there could be more downside for Apple stock following July 19 earnings, encouraging news could also emerge then. The success of Apple stores and a new distribution deal with Best Buy are two more reasons to believe Apple can command a much larger market share in the PC arena, and jumpstart its stock price in the near future.
Quick comment: The upbeat, optimistic tone of Veverka's piece should give Apple stock a boost Monday morning. Two things to consider, however: the article mentions Microsoft's newly-announced MP3 player only in passing, but others believe it's an outright iPod killer. And Dell's new ad campaign and 'personalized' marketing effort will exert more pressure on Apple at the very moment it leans on the Mac for new revenue growth.

Comments

[Tom B:]

A 25 P/E is a bargain for a stock with this much potential. I have seen plenty of "internet stocks" with multiples of 150 or more with FAR weaker business models than AAPL. I think next time the market is feeling "heatlthy", we'll see a big run-up, unless unforeseen circumstances intervene.

2006 Jul 17 08:48 AM

[Faisal Laljee:]

I agree with Thomas. Anyone who believes that Microsoft has an Ipod killer is kidding himself. Microsoft has never produced hardware that has killed anything. Besides, people hate Microsoft for their software. I expect Mac's to gain a lot more market share a lot quicker than predicted by Barron's. In fact, I believe they will have 10% of the PC market share by 2008 (as opposed to 15% in 10 years as prediced by Barrons).

2006 Jul 17 09:32 PM

[CrossProfit_:]

In June 2006 we posted a downward revised evaluation line for AAPL depicting a buy below and sell above $72 signal.

At the time everyone thought we had lost it.

Numerous articles were written and posted (on SeekingAlpha as well) calling for the demise of APPL. We stuck with our fundamental analysis platform. Job’s gadgets as we like to call them are just an insurance policy for a possible slowdown on big ticket items for two quarters in 2007.

The long term prospects for the PC market are intact.

We agree with Thomas Barta.
We agree with Faisal Laljee regarding Microsoft not being a major threat.
We agree with Barrons.

Disclosure: This comment was written by a CrossProfit analyst and does reflect the official opinion of CrossProfit.com.
www.crossprofit.com

2006 Jul 21 05:10 AM