I Love Apple

From Barrons -

SELLING APPLE SHARES in January has become an established trade. After all, the heavy breathing over Apple gizmos has peaked with the MacWorld conference and holiday sales. Last week, Apple gave nervous investors more reason to book their very hefty profits when, besides issuing its customarily cautious forecast, it reported shipping just 22 million iPods last quarter. That brought year-over-year iPod growth to just 5%, the first quarter of single-digit growth. To hear the bears tell it, it was the day the music died.

The selling took Apple down 35% in a month. At 130, shares trade at 20.7 times forward earnings -- the cheapest in a while. Stripping out its big cash stash, the stock trades at about 13 times free cash flow.

While the Street frets about slowing iPod sales (or how everyone on earth might already have one), it's easy to forget Apple's (AAPL) range. Mac revenues grew 47% last quarter. Unit sales are expected to increase at a pace more than double the industry's 11.6%, and Apple continues to gain share in the computer and phone markets. Investors moaning about the four million iPhones sold so far forget that Apple had no mobile-phone presence just a year ago.

Margins near 35% should improve with cheaper component prices, and Apple is rolling out its new operating system and iPhones overseas. In fact, Apple's knack for packaging aspiration and creating things people feel compelled to own will stand it in good stead in a spending slowdown. The new "MacBook Air," for instance, has inspired lust among existing laptop owners, and the buzz among young media types means consumer magazines will pant after it in print for months to come.

If history holds true, profit taking in Apple will exhaust itself about 21 days after the earnings report (as was the case last year). Last week, Citigroup analyst Richard Gardner called the sell off "overdone." Deutsche Bank analyst Chris Whitmore has a 225 price target that is 73% higher than where shares trade today.