RF's Apple Case

I got a quick minute and just want to discuss one of my recent purchase Apple (AAPL). Many are trying to get bearish on the stock; however, the stock is the KEY market leader in my view. Their case is that the consumer will weaken due to high unemployment and simply put, the weaker consumer cannot afford $3,000 Mac computers. My answer back is quite simply, if we are truly in a "depression" how in the world is Apple earning more money this year that last year? That too me is beyond incredible, we have unemployment at 9.8% (if you add in discouraged workers it's 16.7%) and Apple will make more profit this year, than last! Here is what I am seeing (and like): 1. The Iphone is the key product driver. The app store is driving revenue and the iPhone only has a 4% market share. The amazing thing is that it has a 4% market share, with only 1 carrier, that being AT&T. If the go to a Verizon network, the volume in iPhone shipments can double, if not triple. Let's talk facts: Last year the firm's revenue was $32.4B and iPhone Revenue was $1.8B. 2009 estimates, total revenue is looking to be $35.7B and Iphone revenue to be $6.7B! That is huge! 2010E revenue is to be $13.3B for the iPhone alone! And we haven't even started getting into China or North Korea with the phone, talk about amazing. Currently with 0% share in China and only 4% share in the USA, Apple can definetly grow. Also, another big kicker here - exclusivity expiration is soon. The AT&T exclusivity is not only in USA but they have exclusive agreements globally in Canada, Germany, Spain, and Japan. So if Apple picks up new carriers, they "could" do this globally, which could boost sales and profits dramatically! 2. The New Ipods are very good, the question is how well they will sell. It's tough to say and we need to see the quarter first - however, I believe with the relatively cheap price point for what you get (Video Camera, Podometer, Radio, like 4,000 songs of memory) the value is good - I just bought one last week and really enjoy it. 3. Great balance sheet. Apple has over $47 in net cash per share, so anotherwards, 25% of the current stock price is just cash alone. That being said, it has the growth to move higher. 4. New Products: There is a rumor that Apple will be revealing a new "Tablet" computer that acts as a Netbook and should be released by March. From my sources, the price point will be $800 and have touch screen capabilities. The innovation put into this device, could draw professional services, like hospitals due to the small size and easy computing. New Macs are supposed to debut soon as well. 5. Estimates seem low - The consensus is around $10 EPS adjusted for FY 2010. These numbers do not include possibilities of: 1) mulitple carriers 2) new products like the Tablet or MACS 3) new products from the APP store 4) any new iPhone 6. There are some cost reduction schemes also in play: 1) the new GAAP accounting rule changes the way Ipods and Iphones are valued, which will raise both revenues and profit. Secondly, they are working on strategies to reduction iPhone hardware and service plans. All of this will can help improve gross margins. All in all, I will be in and out of the name but this will be my top position going forward. It is a tad rich but the dips must be bought and i will post all of my Apple trades. The risks include: 1) Steve Jobs health 2) Competition from RIMM, PALM, and MOT. 3) Being able to meet demand 4) staying with only one carrier. I think the company can earn $11 to $12 EPS next year (analysts are looking for $9.70-$10). If you use an historical average PE multiple of 25x earnings you get (11 x 25 = $275 Price Target). This is all my opinion and $11-12 is extremly agressive and they will need to catch a few of these catalysts. However, the risk is the consumer. Unemployment is a high risk and consumer spending could crush the stock down to the $120-$150 range if spending is very weak. This is strictly my opinion, not recommendation advice, all rights are reserved by RF.