Intelligent Speculator

Apple, the darling company in the tech industry announced very strong earnings today after the close of the markets, coming up with numbers much better than expected from analysts. The profit rose 26% mostly because of an outperformance in the sales of the much hyped “Iphone”.

The profit per share came in at 1.26$ per share. Assuming flat growth in profits, that comes out to a P/E ratio of over 20 (using the after-hours price of 103.61$).  In 2007, Apple had saw an important rise in net income in the fourth quarter as it profits from the back to school buying, thankgiving and christmas buying, and I think it’s fair to assume that it will still profit.

The major question of course is how much the recent economy struggles as well as the depressed consumer confidence will affect their buying of what are often seen as luxury items such as ipods and iphones. Our best estimate and from the numbers we’ve been seeing is that it will not affect their numbers as much as the market has anticipated in recent months with the stock being slammed from its 52 week high at over 200$. We still expect a 1.76$EPS for Q4, a little over the street estimate and well over the very conservative estimate from AAPL which came out in a 1.06-1.35$ range.

Apple has a lot of growth opportunities as its handsets and devices become more global. The Iphone for example is now available in over 50 countries and we believe that the device will continue to perform very well. It has already exceeded Apple’s goal of 10 million handsets sold by 3 months and now provides a steady cash flow for Apple to use in other products as they have proved to do in the past. We also belive that Apple will reduce its prices as it becomes even more agressive for market share in the smart phone market, especially in the US.

Apple has already sold more devices in the past quarter than major rival RIM’s blackberry, an impressive feat after only one year in the cell phone market. It is already #3 in the world revenues for phone makers. “Who knows what the future will be given the worldwide economic slowdown,” Jobs said. “But we ranked as the third largest mobile phone supplier in revenues. Not bad for being in the market for only 15 months.”

Earlier this week we profiled GOOG and still believe that between the two, Google is the best buy, but would still advise to go long AAPL with a 120-130$ target within one year.