Is Apple’s Stock Yummy Again?

01/30/2008 12:00 am EST

Focus:

Beth Gaston Moon

, Schaeffer's Investment Research, Inc.

Beth Gaston Moon of Schaeffer's Investment Research says that even after a big recent drop Apple's stock still has too bright a shine among investors.

In this economy, things are tough all over, even for Apple (NASDAQ: AAPL). A messy global economy looks to make this year "less investor-friendly than 2007," according to an article in the January 24th issue of Fortune ("Apple Could Shock the Naysayers").

And Apple, which "became possibly the most talked-about stock on the planet" last year, more than doubled in 2007, but is now trading at an "after-Christmas bargain" price. In fact, the shares have lost [more than] a third of their value from their December 28th peak [above $200]. (The stock closed above $131 Tuesday-Editor.)

While the overall market backdrop is shaky at best, "there's also plenty of reason to believe Apple can innovate through this downturn like it did the last [in 2001]," the piece argues. Apple has room to recover thanks to stability (more than $18 billion stockpiled in cash), the promise of the iPhone, which is "gaining traction," and the "iPod touch," a full-fledged "wireless computer" that may be underestimated.

In closing, the article argues, "sales of the iPod touch and iPhone might just push the stock price higher again-and if so, Apple executives will relish the chance to tell the story of how investors, once again, underestimated Apple."

Here's the thing. Steve Jobs is a fearless, brilliant leader. The iPod, in all its incarnations, truly changed the music industry. The iPhone is a must-have gadget, Leopard has far fewer problems than Microsoft's Vista operating system, and overall sales continue to swell. Apple is a phenomenal brand, and it is almost hard to remember they were practically left for dead somewhere in the 1990s.

That said, there remains an air of untouchability around Apple. Although the Fortune piece claims investors are currently "underestimating" the company, expectations are in fact sky-high, and the pressure is on for the company to outperform. The slightest disappointment results in punishment, such as the 10% drop the stock swallowed [last week]. Apple reported its best-ever quarterly results, but was swatted lower because the iPod's growth wasn't quite as lofty as people were hoping (or any number of cited reasons).

AAPL shares are beneath support from their 200-day exponential moving average, a site of historical support. Options players continue to pile on the bullish call bets, short interest is moot and analysts continue to crowd the bullish bandwagon. Data from Zacks reveal 16 Buy ratings, four Holds, and not a single Sell. There's a lot of room for downgrades, and in this market AAPL shares may have to get worse before they begin to get better.

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