Monday, October 16, 2006

Apple of our eye

Apple has been a good stock for the Finance Wonk picks. If you invested alongside my call you've made about 30% in a few months.

But as a highflying stock that is priced very close to what I calculate as the true present value of the company it pays to be watchful. Wednesday AAPL will be reporting earnings for the most recent quarter, so NOW is a good time to review how Apple is doing. If we predict bad news, we can get out before the crowd.

Planning ahead, what a novel concept, eh?

ChangeWave Research does a regular survey on the buying habits and intentions of computer buyers. (Their role is similar to the TechnoMetrica survey I quoted here in what turned out to be an accurate prediction on Apple.) In June Changewave found 19% of people were planning or interested in buying Macs, and that quarters results showed a significant increase in iMac sales. This time they found a startling 37% were "more likely" to buy iMacs (report). This is in an industry (PC sales) where a 1% market shift is $2 Billion in sales!

In my original call on Apple (really worth reading and not even very out of date: here) I showed that a bit of an uptick in computer sales would look great on Apple's earnings. Apple has been doing a great job of advertising since then (Who's a Mac, and who's a PC?). The rule of thumb for advertising is to wait 6 months for full traction, and guess what - the time is this quarter and the next when we can expect to see some significant payoff.
Who's the Mac and who's the PC? I bet you already knew, didn't you.

So with the Mac gaining traction over the holidays, what else is there in store? Well, we finally have some credible stories of the iPhone surfacing (link). If the phones are well done the company moves into a whole new category. I know that I, for one, would want an ipod/phone combo that worked well - and I'm not nearly as much of a gadget buyer as most.

Frankly we have a good story here, solid reason to expect growth in current PC business that would justify the stock price, and the possiblity of a whole new product area opening up next year. It looks like this stock may have some room to go higher, and I will be holding on.

Invest Well,

FW
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