An Apple a Day...

06/23/2006 12:00 am EST

Focus:

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Despite expectations for continued market volatility, Mark Skousen says, "Some shares have gotten battered so badly that a few great opportunities have developed. I think Apple is one of them." Here’s his review of this play on Macs and iPods..

"Fed chief Ben Bernanke seems to be having a tough time telling the markets what's on his mind, and that's causing stocks to gyrate wildly. I have a feeling more volatility is just ahead, since the market doesn't like uncertainty. However, we traded Apple Computer (AAPL NASDAQ) last year for a 155% gain in just over five months. We now think the stock is again offering opportunity.

"Apple, of course, is ‘the other choice’ for consumers and businesses looking for a personal computer. Rather than being Windows-based, like nearly 95% of the world's PCs, Apple builds computers that run on its own Unix-based software, Mac OS X. This has one substantial advantage. Apple computers are essentially immune to the nasty viruses circulating on the Internet. This is becoming a major selling point, along with Apple's sleek industrial designs.

"Of course, Apple also has a big hit with its iPod digital music players. Consumers can use them to download thousands of their favorite songs in a digital format. And they can do it directly from the Apple Music Store, which offers downloads of millions of song titles at the appealing price of 99 cents each. Yet despite these positives, Apple has dropped nearly 40% from its high of $86.40 in the first quarter.

"Traders point to the lousy market and the pending introduction of a new digital music player from Microsoft. But the selling is overdone, in my view. Apple's computersthough a bit pricierare clearly superior to the competition. Users tired of battling Internet-based viruses are rapidly switching. Microsoft's new music player is unlikely to hurt Apple much either. The iPod already has competition from Sony and Samsung, yet neither has managed to make a dent in Apple's sales.

"The one sound objection to Apple computers, traditionally, has been that the Mac operating system is incompatible with MS-DOS, which most of the world uses. But the company's new machines will run software designed for either system. I see continued high growth in sales and earnings here. Apple looks significantly undervalued at the current level. So pick up some shares at market today and place a protective stop at $46."

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