Apple Could Soar

Much has been made of Apple's (AAPL) reduced guidance and reduced profit margin of 32.9%, down from last year's 37.1%. I believe the concern is misplaced.

The stock blew past the whisper numbers and delivered a 43% jump in sales and 36 % jump in profits (see earnings call transcript). Yet the stock remains more than $20 below its 52-week high of $202.96.

I expect the stock to climb for several reasons.

• According to the Seattle Post Intelligencer, the company has a cash balance of $19.5 billion. The balance is $14 billion more than the company's balance just 4 years ago. This financial cushion somewhat immunizes Apple from the current credit crunch, and provides Apple with the ability to invest in bargains that emerge in the current financial climate.

• According to Apple's quarterly 10Q Statement, Apple's retail performance rose 74% YOY, its desktop sales rose 37% and its laptop sales rose 61%.

• The company is expected to release a 3G iPhone with more features and a reduced price sometime this summer. According to reports, the release could come as early as June 9. The iPhone will further be rolled out in Canada through Rogers Communication. Apple also plans to release the iPhone in Latin America, and Bloomberg reports that it may do so without using exclusive franchises. In the recent earnings call, the company reaffirmed its guidance of selling 10 million iPhones by the end of this year.

• According to the Wall Street Journal, Apple was among the money flow leaders last Friday as investors bought the stock on weakness.

• Apple acknowledged on April 3, 2008 that it was now the top music retailer in the United States. The iTunes platform continues to grow, and will now make movie downloads available for purchase on the same day they are released on DVD.

The strong earnings increase across several product lines (desktops, laptops, iPods, iPhones, iTunes) and imminent new product launches make the stock attractive. I believe it will soon get back to its 52-week high.

Disclosure: Author is long AAPL.

Comments

[Bill West:]

Great summation of the latest APPL buzz. IPhone and the Ipod continue to be the "gateway" to the Apple experience.

Long APPL

2008 May 06 08:13 AM

[tech man:]

Steve jobs is the man.

2008 May 06 10:07 AM

[Neil Anderson:]

Lots of upside to come for Apple's stock. Looking forward to the iPhone launch in Canada.

2008 May 18 02:51 PM

[Charlie Grugan:]

Steve Jobs has a knack for creating a lot of drama and suspense. This added excitement to already world changing products is a great combination to encourage people to buy the products and makes the company look attractive to potential stock buyers.

Steve Jobs is doing an incredible job at creating hype around apple. This is hype that is not undue. i believe that we will continue to see apple grow, (especially now they we see them expanding iPhone sales to 70 countries).

Now is the time to buy!

2008 Jun 10 12:16 PM