Apple Inc (AAPL)

[clearsailing]

This guy says it is about time to sell aapl

http://www.smartmoney.com/stock-screen/index.cfm?story=20080513-souring-on-apple-stock&cid=1122

PIMPLES MAR A lovely face more than a plain one. Likewise, my iPhone's cleverness makes its handful of shortcomings all the more peeving. Web browsing is tragically slow when I'm not near a strong public Wi-Fi signal (in Manhattan, about as common as a clean public toilet). The phone took to my Gmail account like the two were old friends, but isn't on such good terms with my Microsoft-based account at SmartMoney.com. And while this is more of a wish than a shortcoming, I wouldn't mind downloading a newspaper before a flight or touching up my Donkey Kong skills on the subway — third-party software would help.
Apple seems likely to satisfy these gripes and more by summer. In March the company said it has licensed something called ActiveSync from Microsoft; for better or worse that will give most office workers constant access to email. It also announced a third-party developer program for the iPhone. The company plays coy about new hardware, but some Wall Street analysts say a new iPhone is likely already in production, perhaps for a June debut, and that it's equipped for speedy "3G" web connections.

That might help Apple to take share from Research in Motion (RIMM: 140.84, -1.13, -0.79%), whose smartphones have a 48% share of the U.S. market, compared with 17% for Apple. But what will help most is a price cut, believes Keith Bachman of BMO Capital Markets, an investment bank. The average price for a high-end handset in the U.S. is $233, notes Bachman. The iPhone costs $399 and $499, depending on the storage capacity. According to Bachman, Apple's "onerous" revenue-sharing terms for AT&T, its sole U.S. service provider, prevent the latter from offering subsidies on the iPhone. By his math, a $100 price cut might actually add around 20 cents a share to fiscal 2009 profit by driving higher volume.

Wall Street forecasts anticipate rapid sales growth with a slight sacrifice in margins. For the fiscal year ending Sept. 29 sales are seen surging 36% and earnings per share 33%. Lest we credit too much of that to the iPhone, note that unit sales of Apple's Mac computers jumped 51% last quarter vs. a year ago.

Numbers like those plopped Apple among the survivors of a recent search for stocks with upside earnings surprises and rising earnings estimates. Have a look at all eight companies the screen produced if you like, or run it yourself anytime using SmartMoney's stock screener and the full list of search criteria.

This column is meant for long-term holders and not fast traders, but Apple's stock is keeping me busy. Having recommended it at $84 in November 2006 I turned on it, purely because of valuation, at $198 at the start of this year. By the end of January it plunged to $130. I called that "an optimistic price, but not an unreasonable one" and recommended that those who had long coveted the stock "nibble" but take "a bigger bite if it falls another $15. It did, briefly, in late February.

Remarkably, the stock has since marched straight back to $190. Time, then, for fresh math. Best to ignore Apple's fiscal year and focus instead on quarterly earnings estimates. That's because in Apple's fiscal first quarter, which ended December, it produced a stellar 54% surge in earnings. That flatters the full-fiscal-year number even though growth has quickly moderated since then, to 33% in the second quarter and to an estimated 17% in the current third one, which ends June. Just looking at quarters, then, Apple has grown its profits by an average of 55% over its past four, and is forecast to grow them by 17% over its next four. Presumably, those numbers already anticipate new product launches.

Apple is perhaps doing better than those numbers suggest. It has a record of beating forecasts, if by a margin that has steadily shrunk from 28% to 8% over the past four quarters. And its slowing growth mostly reflects a challenging economy and the company's own glamorous past results, which make current comparisons difficult. The numbers still suggest to me that Apple is worth 25 times trailing 12-month earnings, or around two-thirds more than the average stock. And if we assume the company will continue to beat estimates at its current pace, I can see a case for closer to 30 times trailing earnings. But that puts the stock at $121 to $145 a share.

My guess is that the iPhone frenzy might soon push shares back above $200, but I'm more comfortable with a calculator than a crystal ball. My calculator says it's about time to sell again.