Experts say Apple well-insulated against market chill; AAPL is a steal

“Usually, on days when Apple Inc. (AAPL) reports earnings, giddy investors have a chuckle about the company’s famously conservative forecasts and proceed to load up on the stock—confident that Apple’s closely guarded pipeline of new products will keep sales and profits on the rise. But in a reflection of the gloomy mood on Wall Street over the prospect of a recession, investors found little to laugh about in Apple’s latest forecast. After the company said earnings in the March quarter would come in 14% below analysts’ expectations, the share price fell more than 11%, to $137.93,” Peter Burrows reports for BusinessWeek.

“Yet on closer inspection, there are signs that Apple can not only weather an economic contraction but emerge stronger than ever. Most important is the strength of its Mac business. Sure, Apple sold a few million fewer iPods than analysts expected, but Mac sales were scorching—particularly the desktop iMac, whose sales grew 53% in a market that expanded just 10%,” Burrows reports.

Burrows reports, “There’s little question how Apple executives feel about the company’s prospects. During a conference call for analysts and shareholders, Chief Financial Officer Peter Oppenheimer said: “I couldn’t be more confident in what we’re doing.”

“Strength in the PC business is much more of a positive than slightly disappointing iPod sales are a negative… There’s a silver lining in the iPod sales numbers as well. While the 22.1 million units were 2 million to 3 million shy of consensus expectations, Apple met Wu’s revenue target for its famous MP3 line. That means the shortfall was mostly for Apple’s cheapest, least profitable product, the iPod Shuffle, says Wu. So while consumers normally opt for cheaper models in nervous economic times, Apple’s customers clearly see the value in the company’s swankiest products. That’s good news for Apple’s well-rehearsed iPod strategy: Bring out a headline-grabbing gizmo at a high price and spend the next few years milking demand by maintaining that price for new high-end models while bringing out cheaper models to reach thriftier shoppers,” Burrows reports.

Burrows reports, “Apple is likely far more prepared for an economic downdraft than most other tech companies. Sure, many consumers may put off purchases of the latest iPod or iPhone if the recession hits hard, but Mac sales should hold their own, says Harvard Professor David Yoffie: ‘Apple sells to the least price-sensitive part of the market. While no company is immune from a recession, Apple is a little less vulnerable.’ Needham & Co. analyst Charles Wolf puts it another way: ‘I think this is an outrageous buying opportunity. It’s not a cheap stock, but you’re getting a company that can grow at 25% a year for who knows how many years, at 25 times earnings. To me, that’s a steal—recession or no recession.'”

Much more in the full article here.

[Thanks to MacDailyNews Reader “PhillyMac” for the heads up.]

37 Comments

  1. “Having 18.7 billion in the bank is a wonderful hedge against a recession.”

    Yeah, that is what I was thinking too. Combine that with being debt free and they are in the best position to ride out any recession.

  2. I’m still trying to work out what parallel universe I’m living in where a forecast (at around 8:40 of yesterday’s conference call) of 29% sales growth ($5.264 billion growing to $6.9 billion) is considered weak, especially when the growth between Q2 ’06 and Q2 ’07 was only 20.76%.

    We appear to now be in a situation where the level of expectation on Apple is becoming totally unrealistic: they could have announced that Apple had solved the problem of cold fusion yesterday and the bears would still have found a reason to cause havoc.

  3. Apple stock took a beating yesterday despite the best quarter in the companies history. Why? Well if you read between the lines there are not going to be any major new products this year from Apple and there will be no new software for OSX. Leopard is it for 2008 although there might be updated patches with minor improvements. This is what happens when you become more of a media company then a computer company and should send up a warning flag to all Mac users.

    The Mac has been gaining in market share over the last 12 months and why not? Windows Vista is a major disappointment and a lot of people are switching to Mac’s rather than upgrading their PC’s. Leopard was released late primarily due to lack of resources as Apple concentrated on the iPhone. That should have been a major warning alarm to the people at Apple but it now seems that the next major release of OSX will not happen in 2008. This of course is great news for Microsoft as it gives them a chance to play catchup with the new Windows OS which is due in 2009. Leopard may see some minor updates but it seems that there is no major update planned at all for 2008.

    True the iMac’s were just updated with a new look and slim keyboard but if Apple is to continue to make inroads into the PC market share then they are going to need to continue to innovate and that means that OSX will also need to continue to evolve. I guess I was expecting a new OSX every year but then that would have required resources and a devotion to the Mac base rather than to the studios and AT&T;. I read this morning that one analyst, after a call with Apple, now feels that there will not be any new additions to the MAC product line this year or to OSX for all of 2008 and early 2009. “We expect upgrades periodically to Leopard but we don’t see any major upgrades to OSX within the next 14 months….

  4. In a bad bear, Apple is not insulated from anything: it will fall as hard as any other stock. There are many reasons why “good” stocks are sold in a bear market. But, when the market turns up, AAPL will be among the first to skyrocket.

    For those getting giddy about buying AAPL now because it is a “steal,” just be careful: to paraphrase, “if it looks like a steal now, imagine how great a steal it will be when it’s at 100.”

  5. That only proves that numbers have nothing to do with it.
    Brokers manipulate the market and they need an excuse when someone asks why did you dump Apple shares. They wait till stock gets high, then dump it to cash in, no matter how good company does, then they come up with excuses, oh, outlook is bleek, oh, analyst expected more, oh, housing market is bad, oh, my ass itches. Then they wait for all that got scared to dump their shares and they buy back really cheap. F$#@ bastards.

  6. Exactly. Apple will do very well when the market legitimately turns up. But it’s the old adage of catching a falling knife.

    IF this really is the beginning of a bear market, AAPL has further to fall; there may be rallies, but there’s still a LOT of downside potential to this market.

    Look, I owned the second Mac model ever sold — the 512K Mac released in 1984; I’ve only bought Macs ever since; I bought a Macbook last month, and I just ordered a Mac Pro with a 23″ cinema display, so I’m hardly an Apple basher. I’m just saying that we are in a very weak market now, possibly a longer term bear (not the mention the horrendous mismanagement and appalling state of our economy), and where the market goes, so goes the vast majority of all stocks.

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