Apple Stock: Still 35% Off at a Broker Near You

| About: Apple Inc. (AAPL)
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Apple's stock has been yo-yoing lately and is 35% off its high. What gives? What's next?

The longer term stock collapse (past three months) has been due to 1) the collective realization by Apple fans that the company is operating in the same weakening economy as everyone else, 2) the iPod growth cycle is over, and 3) the iPhone may not be quite the gangbuster sales engine every thought during the euphoric December quarter last year.

The gyrations over the past two weeks, meanwhile, have been caused by more disappointing iPod news and a growing skepticism about the iPhone's 2008 prospects.

On Monday, two analysts cut their Apple (NASDAQ:AAPL) price targets. One of them, Banc of America analyst Scott Craig, also lowered his March quarter sales estimates for Apple's iPod (from 11 million to 10 million units) and iPhone (from 1.6 million to 1.2 million units). This followed a similar prediction by Piper Jaffray's Gene Munster, who said January iPod sales data from research firm NPD Group suggested Apple would sell between 9.5 million and 10.3 million iPods this quarter.

Craig also said Apple would only sell 8 million iPhones this year, short of its prediction of 10 million. But analysts have long been skeptical about Apple's goal. Last week, Morgan Stanley's Kathryn Huberty predicted Apple would sell 9.3 million. The week before, Bernstein analyst Toni Sacconaghi predicted Apple would sell 7.9 million.

The good news is that last Wednesday, Apple COO Tim Cook said the company had "really good confidence" that it would hit its 10 million phones target this year. And Steve Jobs re-affirmed the projection today at the company's annual shareholder meeting. Assuming Apple makes some changes to the phone -- many of which are already in the works, like more sales markets, '3G' Internet access, third-party software, better support for corporate email -- we think they can meet their goal.

Most importantly, the company's real growth engine -- Macs -- is still cranking. Apple's computer business accounts for more than 40% of its revenue and grew more than 40% year-over-year last quarter. Apple's new MacBook Air, meanwhile, is reportedly flying off store shelves.

So, in our opinion, Apple's long-term growth story is still intact. How the stock will fare if the recession deepens is anyone's guess (probably not well), but the long-term looks as good as it ever has. So Apple fans who complain that Apple never discounts its products should enjoy this 35%-off sale while it lasts.

Disclosure: none

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