Take Another Bite of Apple

03/20/2007 12:00 am EST

Focus:

Jon Markman

Editor, Trader's Advantage

Ticker symbol AAPL

Jon Markman, editor of Jon Markman's Strategic Advantage, thinks Apple is at the beginning of a series of powerful new product cycles that will drive the stock much higher over the next couple of years.

Apple (NASDAQ: AAPL) is down 6% from the all-time high level reached in January and has been a rock of stability in the past few weeks.

Last September, I told you that I valued Apple for its remarkable ability to regularly shock consumers and skeptics with ideas, products and merchandising-generated emotions that are perceived as new. I noted that its ability to create a warm and positive buzz about its products-and fulfill them with solid quality and service-creates value and merits our attention. At the time, I told you that I wanted to add it to our portfolios if it fell to $65 in the ensuing weeks. But it never did.

Now it's around $90, and there's no reason to delay any longer. I think Apple shares have an opportunity to move to around $130 in the next 12 months, and to double over the next three to four years. Despite a forward-growth rate that should clock in at around 20% to 24% through the rest of this decade, shares are trading at around 18X my 2008 earnings estimate. That's very attractive if you believe, as I do, that the growth is achievable.

Apple is on the verge of five major new product cycles whose value to this one company has become a bit lost in the recent focus on sub-prime mortgages, Chinese industrial might, inflation and Washington politics.

Product-cycle investing is very powerful, and very long lasting. It's the reason that we have done so well in Allegheny Technologies (ATI), and earlier this year, in Titanium Metals (TIE) and Century Aluminum (CENX), which were highly leveraged to the new, multiyear aircraft-production cycle at Boeing (BA).

Some of Apple's upcoming products include:

  • The company's first television product, called Apple TV
  • A new operating system, called Leopard
  • A new set of Mac Pro computers designed to help professional media designers take advantage of a long-awaited new software suite by Adobe
  • A new wireless phone called iPhone
  • A full-fledged video iPod
  • And a new flash-memory powered "ultra-portable" notebook computer with the speed and lean qualities of a Motorola Razr but the toughness of a typical Apple product.

I can't think of any company in technology, or any other sector, that has so many concurrent product cycles that can drive upside in revenues and earnings. As these new products complement its already powerful product portfolio that includes the iPod franchise, iTunes and the current Macs, I think earnings will swell and lift Apple into the highest ranks of global industrial, technology and media titans.

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