Apple has 'fluff' in its price? No way!

Apple is a bona fide super growth story on many levels and is not overpriced. The fiscal year ends for Apple on September 30, 2007 and I estimate it will report total revenues of $24 billion and earnings per share of $3.55, which by the way, I have raised the estimates for the year after Apple's quarterly reports the last 4 quarters. I estimate for September 30, 2008 fiscal year Apple can generate revenues of $29.5-30 billion and earnings per share of $4.05-4.10 -- again estimates raised several times.

Yes, the stock has jumped around in its climb to $124. It had some down days, heck, down weeks ... but the fundamentals have not changed -- they actually have improved over this past year. The fundamentals have strengthened because of the iPod market penetration and market share gains: all in a growth market. The Mac has been revamped and also gaining market share along with attendant software sales. The iPhone is out June 29th and frankly my estimates call for a modest contribution for the September quarter, but more meaningful for fiscal 2008. Remember, Apple will recognize the revenues from iPhone over the 24 month initial contract commitment.

What iPhone does and many professional portfolio managers "get it" , is set up Apple for continued mega growth for the 2008-2011 period. It's going to be a 3-4 year phenom. These portfolio managers are not buying Apple for value -- it's a pure growth story. Period. It's a game changer, the leader along with Google (NASDAQ: GOOG) in the technology sector.

If you want a technology "value" name, look at Cisco (NASDAQ: CSCO) or Oracle (NASDAQ: ORCL) or even IBM (NYSE: IBM). They have all stumbled, smoothed out their respective businesses and are embarking on modest growth. But king of the mountains they are no longer.

The supposed geniuses were skeptical on Apple after the last 5-6 quarterly reports. "Oh, the stock is a sell here at $60. Too expensive". "Okay, now I am serious, it's a sell at $80-85 -- too expensive again". Then Apple hit the magical barrier of $100! " Now, it's really a sell. No way they can sustain, right?" Wrong again.

Folks, growth investing focuses on the simple metrics of revenue growth, earnings growth, market share position and/or gains, gross margins and operating margins elasticity, domestic and global addressable market size, product cycles and new releases, distribution methodology and the most important: the quality of senior management. Apple scores very high in all these areas.

So, can the stock rise to $160? Yes, absolutely. Professional portfolio managers are looking at fiscal 2008 earnings of $4.05, but are also understanding the clear pathway to $5.00-5.20 for Fiscal year 2009. Can the stock trade back down to $110? Sure, markets are never linear. But I believe Apple will see $160 some time over the next 12 months if not more. So why would I sell here and "hope" it falls back to $110? What if it doesn't trade down because the June quarter numbers are excellent with even better visibility for the September quarter?

If you want to trade around the fringes, my colleague Sheldon Liber makes a great point about factoring in capital gains taxes and transaction costs. I have been asked the question many times since $20: should I take some off the table? My answer is, do the math. The stock still has quite a way to go.

Georges Yared is the CIO of Yared Investment Research.