Unfairly Punished Apple Still Fresh

Apple Inc. stock (AAPL) is starting to look attractive. The share price has come down significantly, valuation is more appealing, international Mac sales are accelerating, iPod sales remain strong, and the iPhone presents a significant growth opportunity.

Apple currently trades at around 27 times 2008 earnings estimates, which is well within their historical range of 23 to 39 times, and down significantly from the beginning of the year (Apple's stock price is down around 30% year-to-date while the Nasdaq is down less than 15%).

Apple's recent decline is largely due to lower-than-expected earnings guidance from management at their last conference call, and the general fear that a slowing economy will reduce spending on luxury items such as iPods and iPhones. Also interesting to note, Apple historically underperforms the market during the first half of the calendar year. Further, Apple was trading at a hefty premium and, in my opinion, was due for a correction.

International sales of Mac notebooks and desktops have been accelerating. In 2007, Mac grew unit sales by 45% in Europe, 60% in Asia-Pacific, and 30% in Japan. While Apple still generates 60% of total sales in the Americas, the non-traditional geographies accelerating growth is an encouraging sign (for reference, Apple generates about half its total revenue from Macintosh notebooks/desktops and half from iPod/iTunes).

Besides growing Mac notebook/desktop sales, Apple has other growth opportunities. Most notably, iPhones are expected to begin contributing significantly to Apple's revenues in fiscal year 2008 (iPhone sales should be around 6% of total revenues). Additionally, Apple's SDK and third party applications will add functionality to the iPhone and create more awareness and demand. Also, the maturing iPod industry will continue to generate strong revenues via higher-end iPods, replacement iPods, and video capability (80% of new iPod sales in fiscal year 2007 had video capabilities). Further, Apple has big plans for "AppleTV."

Overall, I believe investors have unfairly punished Apple due to lower than expected management earnings guidance and a jittery stock market. Apple historically provides conservative earnings guidance (they crushed analyst expectations every quarter last year), and they are still forecasting a sharp increase in revenue growth. It's surprising to me that Apple's stock has fallen as far as it has.

Disclosure: I do not own shares in Apple.

Comments

[Webster]

How about this headline Apple HACK?
"Who Patches Bugs Faster, Apple or Microsoft?" Oh it's NOT Apple HACK! news.yahoo.com/s/pcwor...;_ylt=AoHI5suij1lpAib1...

ANd how about this headline Apple HACK? - "Mac is the first to fall in Pwn2Own hack contest" yeah, that's right! Apple OS X was EASIER TO HACK INTO than Vista or Linux!!

This too - "MacBook Air hacked in security contest" .... guess the MacBook Air is so thin that you can hack through it the EASIEST!

" MacBook Air Hacked In Two Minutes" Oh boy, Mac made for stupid people and so stupid Hackers get in in TWO MINUTES!! - news.yahoo.com/s/cmp/2...

Oh wait, here's the best headline Apple HACK - "Security flaws found in Safari for Windows!" THE SHAME THAT APPLE IS SECURE IS BLOWN!! www.theinquirer.net/gb...

So nice PIMP article for Apple, how big was the "gift" they sent you?? The phonyness that is Apple is being exposed little by little and you media and anal ysts would be able to cover up for your sugar daddy in Cupertino any more.

[Camden]

Apple is STARTING to look attractive? Now when it's over $140 rather than a few weeks ago under $120?

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I think Webster must have stopped taking his meds. Sad.

[mjn185]

And I thought that Apple had fans. Wow Webster I am not sure what your issue is. Could it be that you are one of those individuals that have shorted Apple and are now feeling the pain? To the point that you are making about the Mac being hacked faster than Vista. If we ranted and raved about what computer was hacked faster or what operating system was full of viruses and blue screens of death I think you would have to be extremely ignorant to believe that Microsoft is a superior product. I saw the artcile that you are reffering to but I have no way of determining the validity of the testing and I am quiet sure neither do you. As someone who owns and always will own Microsoft based computers I have learned to live with the constant bugs, patches, and huge resource hog that is Microsoft. While I sit back and watch my girlfriend do her digital imagery on a Mac book never suffer a problem or a setback. I think instead of going whacko on one article one should probably look at the years of customer satisfaction with Apple.
As far as this article goes: Thank you sir for writing a wonderful article based on true analysis of historic figures. It is refreshing to see someone take their job seriously and not just opine about things way beyond their ability to quantify. I look forward to reading more articles from you on some other stocks.

[mjn185]

I did some research and here is what I found out about the vaunted article that you love to mention Webster. what you fail to state is that in the original article from WSJ you omit this important note:

“Nobody was able to hack into the systems on the **first day** of the contest when contestants were only allowed to attack the computers over the network, but on Thursday, the rules were relaxed so that attackers could direct contest organizers using the computers to do things like visit Web sites or open e-mail messages…”

(news.yahoo.com/s/infow...)

The article portrays a scene where the MacBook Air was penetrated in the *first* 120, when in fact it lasted the whole first day– an automatic, over the network penetration belays more devastating vulnerabilities in an OS vice tricking users. Besides, all virii/trojans/exploits reported so far are the kind that rely on social engineering to get an OS X user to install– more of a trojan horse rather than OS weak point. Whether the hacker’s technique was different or not from this vector is not revealed by this or any article covering CanSecWest.

[fauxscot]

You know, webster, the article was about business, not tech. Your comments were about tech, not business. Can you see the difference?

Can you dispute a single thing in this article? Can you do it without name calling?

Why so much energy devoted to the effort to pound down this article's contentions that all relate to business issues?

FWIW, I am a PC users whose spouse owns/uses Macs. I am in a damned good position to see who spends more time frustrated with the computer, and it's not she. Still, fundamentally, none of that has anything to do with this article, which just deals with stock valutation, growth potential, historical performance, etc.

The vigor, irrelevance, and name calling in your post presents a poor public image and if there is any worthwhile content in the post, not many people are going to consider it credible. It appears YOU have some sort of agenda, as opposed to the article's author.

You may want to consider that when you spend that much time assembling a post.

[Oracle]

Sorry fauxscot, you must have misunderstood something because websters post was also not about tech either.

I am the CEO of a telecom company that supports all platforms. making comparisons like the one webster made is like someone who only speaks English trashing Spanish.

Mac OS X (and Linux for that matter) is far superior to Windows in virtually every measure. But more than this, business wise, Apple has hit two or three "home runs" in the last few years (iPod, iPhone, OS X, iTunes).

Microsoft compared with Zune, Windows Mobile, Vista, and Zune Marketplace. In less than one year the iPhone alone has more Marketshare than all Windows Mobile Devices.

Webster's "post" wasn't about tech and it wasn't about business. It was about nightmares. Microsoft's

[samij]

you considered pretty nicely the potential upside compnents for apples stock. to be fair, you should also include the risk factors. foremost of those is the significant exposure of apple to the us economy, and the us economy doesn't look that good at all.

further, apple seems to have significant difficulties in achieving even the stated iphone goals (not to mention that we all know that apple gives conservative forecasts and is therefore expected to beat those easily).

10m 2008 doesn't seem feasible without significant price cuts on both the device and on the plans abroad, both of which have impact on apples profits. not to mention that apple needs to add functionality and update the existing features to keep anyone interested (3g, gps, 5mpix focusing camera, front facing camera etc).

[tom1234]

mark ---i have no problem with what you said ---in fact it was refreshing to read ---logical and informative

[JB Money]

Nice summary of Apple's potential. Even more appropriate when Apple was at 115, but I also believe Apple above 140 and holding the level well is showing signs of future rapid appreciation. The iPhone is still the main focus of the street even though it is going to be the Mac sales that surprise most everyone over the next few years. iPhone is just icing on the cake.

[pjdecor]

I am a novice user to my new Macbook. It was the right move...While my husband is busy getting thrown off his microsoft based laptop recently, I just log on with no problems! We actually have races to see who can surf the web the fastest! We bought Apple stock recently but alas had to place our order on E trade on my Mac because hubby couldn't log on....I am an Apple fan and with the customer service they provide...They can only grow bigger and better...

[sbjforever]

Webster Phreaky - you are aptly named.

[BobR]

10 Reasons Why CanSecWest Targets Apple>

[user 878974]

aapl reports and will do bte on margins, earnings, and revenue. will ultimately move back to 200 over this year.

[Jake2]

Webster Phreaky: Stick it in your ear.

[GroovyD]

My biggest concern about AAPL is their heavy dependence on Steve Jobs. From every indication I hear he is the spark behind the magic of Apple. What will happen when his time is through? I would like to think they will continue the tradition of innovative game-changing devices and software but gain in the 'opening' of Steve's sometimes close-minded approach to letting the customer really have what they want.

Not to say it is a good idea, but imagine what would happen if they started pricing Macs like Dells... or selling just their OS to companies like Dell to install on their machines...

[Mathue]

Wow, Phreaky!

Seriously, you need to have attended the cracking (yes, CRACKING, not hacking) contests of the 80's, where you had to break in and control a machine in another room via dialup. Installing an app on a computer by asking someone to install it isn't in the same league. I'll wait to point fingers 'tilI I find out just how the exploit is done. I refuse to drink in the current 'security' Cool Aid that the only secure machine is one that's not powered on. Driving to work is WAY more dangerous yet we do so without even a wince. Lets get some sense of scale here.

[Brewer]

Webster you mention the CanSecWest charade as if it had some merit. This publicity stunt was sponsored by Microsoft. Notice it made no headlines outside of the PeeCee press. Get a grip. They were unable to hack any of the systems until they were allowed to control the machines with the help of a friend at the keyboard (last year) and via installed remote control softaware this year.

It's pathetic, really. But if it makes you feel better about your platform of choice, that's fine. Just realize that Windows is going down fast.

Mac OS X is a far better platform, and always has been. This is why Microsoft copied Mac, right down to the very keystroke and menu commands. That is also pathetic.

[EvanA]

Good point about Steve Jobs, read an article recently that predicted the stock would drop 30% if he left, though I wonder if he's not grooming a successor.

I've worked on PC's for years, switched to a MAC and was blown away with it. It just works, I"m not trying to be a fanboy, but they do just run better.

As for Apple's upcoming performance, early indications are that they've been selling out of the MBA's and that they took 16% of the US PC market in February.

[mike sanders]

well at least only one loony among some very interesting posts, I own aapl and have been a user for 20 years I am 70 years old and all of my children and grandchildren have macs, we communicate worldwide through ichat, macs are essential to us being a global family. Jobs is the man but I am sure there will be a top successor. This will be the year of the iphone, I live in hong kong and there are already over 400,000 phones her without an agreement yet. Rock on APL

[Webster]

@mjn185 ... moron.
Shows how much you now about the stock market apparently. If I had "shorted" AAPL when it was at $200 (which I did) to say a $130 fall (which it fell far below), I would be a WINNER (which I was) with a big cash bingo (which I now have after I cashed out) .... you MORON. Go study how the market works when you "short", dope!

Ps. The MacBook Air WAS STILL HACKED FIRST, irregardless of your stupid quote ... you double MORON! Jesus, no wonder you moron AppleFUDs need Macs ... you ARE stupid.