Lion's AppleWatch

	Wednesday, January 13, 2010

Apple: Eight Reasons To Buy The Stock Here
Apple (AAPL) sure did have a nice run in 2009, with a 150% run-up off the March low. So can the stock move up from here?

Oh, yes it can, according to Broadpoint.Amtech vice chairman Richard Prati. In a note to clients today, Prati wrote that the stock is likely to hit new highs throughout 2010, despite the recent its current level near its all-time high. Here are Prati’s 8 reasons to buy AAPL “here and now:”

iPhone is huge and numbers are way too low.

Under-penetrated international market is enormous opportunity. With iPhone in 90 countries via 140-plus carriers, available market is 1.736 billion subs, 511 million of them post-paid.

iPod Touch units in December quarter likely to top 7 million units.

Verizon distribution deal “will happen,” likely in second half 2010.

Accounting change - end to subscription accounting for iPhone - has not happened yet; when it does, P/E will look much lower.

2010 EPS numbers “are way too low,” ranging from $6 to $10. They see $11.75.

Tablet could add $1.50 in incremental EPS in CY 2010 based on shipments of 10 million units; model currently assumes 2.2 million units.

Apple has only 5% PC market share, “giving it significant room for upside.”

He advises investors to buy the stock ahead of the coming Tablet announcement, “as we believe it is going much higher.”

AAPL today is down $2.20, or 1.1%, to $207.91.
7:06:45 PM

Apple shipped 7M MacBooks in 2009, now ordering 1M per month
Apple shipped about 7 million MacBooks in all of 2009, and has increased its orders to one supplier to about one million per month -- a rate maintained during the typically slow span of January. 6:33:06 PM

Very interesting comment from Jason Schwarz here:
Apple: At Cheapest Level of Steve Jobs Era
I’ve written a few Apple (AAPL) articles in my time but none of them are as important to your portfolio as this one. Investors dream about finding obvious disconnects. Widespread misunderstanding leads to huge opportunity. We have such a scenario developing with Apple.
Although Apple is the most widely followed stock on Wall Street it is clearly the most misunderstood. The current perception among traders is that Apple is expensive because of its 150% rally off of the March 2009 lows. Seriously, if I polled 1000 traders I believe that 95% of them would look at the 33 p/e ratio on their screens and tell me that they’d love to own Apple but it is just too expensive. What they don’t know, is that the 33 P/E is about to drop significantly and will set up the opportunity of 2010.

Most of us have heard that Apple is about to implement a new accounting method that will allow them to account for iPhone sales immediately rather than spread the effect over a 24 month subscription period. A few analysts here and there have made an attempt to explain the implications of this change but most simply ignore it. Why?
Because they don’t understand the depth of its impact. I’m going to simplify the explanation so everyone can understand. On my first day in college, I’ll never forget my Accounting 101 professor (Norm Nemrow) tell me that the P/E ratio is the single most important number in the world. This number can make investors very rich if interpreted correctly.

Steve Jobs took over the company in 1997 and Apple has generated a profit each fiscal year since 2003. Since 2003, Apple has consistently traded at an average P/E ratio of 32.17 which is consistent with today's current P/E of 33. You can tell that traders have done their homework and are strict followers of the P/E valuation.
If you’re like me, you don’t care too much about current P/E ratios because they are calculated from past results. The number that really matters is the forward P/E ratio because it is calculated from future estimated earnings. Well, the average forward P/E ratio for Apple since 2003 is 22.48. Any guesses what it is now? Based on the new accounting rules soon to be put in place, and the 37 billion in cash that Apple has on their books, Apple’s forward P/E is below 13. This stock has not been priced this cheaply since Steve Jobs came back to Apple in 1997.

What should Apple stock be priced at according to its historical P/E norms? Based on expected earnings per share of only $11.70 in fiscal 2010 (many think earnings per share according to the new accounting standard will end up closer to $13) the stock should be priced at $263 today and should reach $376 by September 30, 2010. These prices do not reflect great years for Apple, they simply reflect the averages.

You want to know what a great year would look like on September 30, 2010? Let’s use the P/E ratio from just before the recession began in 2007. With the iPhone added to the Mac and iPod lines, Apple stock was soaring. Its forward P/E was 28.63 and its current P/E on September 30th 2007 was 39.05.
If we used those ratios in 2010 it would put Apple stock at $456 by the close of its fiscal year on September 30th.

Making a comparison between 2007 and 2010 is noteworthy because both are years of new product releases. On January 9th 2007 Steve Jobs unveiled the first iPhone and it went on sale June 29th. On January 27th 2010 Steve Jobs will unveil the Tablet and it should be available sometime in Q2. Both products are revolutionary but the Tablet arguably is more so because it will single handedly change the newspaper/magazine/book print industry as well as the mobile Internet and gaming sectors.
The iPhone was not nearly as big of a game changer in 2007. Are the future prospects for Apple better or worse than they were back in 2007? Today Apple has approximately $40 billion in cash on its balance sheet, it has 3 billion apps downloaded through the App Store, the iPhone’s international expansion is just taking off, and of course the Tablet is on its way. All of a sudden seeing Apple stock at $210 doesn’t seem very expensive at all.

As an investor, I have been known to take advantage of disconnects. I saw one in oil back in August 2008, I saw one in Bank of America (BAC) back in February 2009; this disconnect in Apple is bigger than either one of those. Eventually the market will get it right as it did with oil and BAC. The same thing will happen with Apple. 3:48:08 PM

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