Frager Factor

Tuesday, September 25, 2007

Apple (AAPL): A breakout buy

Driving the security in today's trading was a note from a Citigroup analyst boosting the brokerage firm's target price from $160 per share to $185 per share. What's more, Citi also reiterated the shares with a "buy."

"Apple (NASDAQ: AAPL) is hot," says breakout specialist Leo Fasciocco. The editor of The Ticker Tape Digest notes, "With a breakout above $147, we are now targeting a move to $170.

Fasciocco explains, "We have seen extremely strong accumulation in Apple since late on Friday and a nice gap move higher on Monday on the breakout. Our momentum indicator on the stock is also bullish and the accumulation - distribution line is in a solid up trend."

The advisor notes, "This fiscal year -- ending Sept. 30 -- AAPL should post a big 61% jump in net to $3.71 a share from $2.31 a share a year ago. Next fiscal year 2008, AAPL's net should rise 17% to $4.35 a share from $3.71 a year ago."

The past three quarters AAPL has surprised big on the upside, he observes. It topped the consensus by 21 cents, 24 cents and 36 cents a share the past three quarters. Says Fasciocco, "We see chances for an upside surprise."

He adds, "The stock's valuation is high, with the shares selling at a 40 price-earnings ratio. The key will be to see if AAPL can come up with another big winning product. Thus, a lot will depend on the firm's forecast of earnings and product development news." For now, the advisor has set an intermediate term target of 170 and recommends a rotective stop near 140.

Indeed, based on the expanding markets for the PC/digital world, he believes we will see an "unexpected surge" in iMac sales.

A long-term follower of Apple, the advisor recalls that the company's share of the PC market dwindled to 3% at its low a few years ago. He now points out that "regaining a mere 1% of the market from those levels represents a growth rate of 33%."

He states, "I do believe that there are a number of forces coming together in the world of the digital consumer that suggest it may be possible for Apple to recapture perhaps as many as 4 to 8 percentage points of PC market share in just a couple of quarters."

He says, "I believe we are still in the early stages of a massive uptrend in Mac sales for the company. Yes, I think 40% year-over-year is 'on the horizon."

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