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2006-12-27 :: Apple Falls Off Tree

Apple share have soared higher on better and better earnings. We purchased a small position when they dipped below 90 based upon increased earnings expectations. Then, it was announced that Apple was being investigated for options backdating. The price dipped a bit more and we added some to accounts that hadn’t participated in the initial purchase. Today, its off 5% and we bought some more for the accounts that participated in the initial purchase, around 78. Today’s dip is based upon speculation that CEO Steve Jobs, so closely associated with Apple’s success, might be in serious trouble.

This is one of those situations where a good company with strong earnings is being sold off on rumors, and we are able to buy shares at an artificially low price. Situations like this happen from time to time, and the price can languish at an artificially low level or even fall further before returning to Wall Street’s target price. In Apple’s case, based upon estimated earnings for 2007, the target price is 120. It won’t get there anytime soon, but given that you are buying it at such an undervalued level, the big gain potential justifies holding it as the rumors and speculation batter the share price.

This will be the last post of the year as I am headed for St. Petersburg (see photo above) and New Years in St. Catherine’s Square with a million vodka-loving Russians.

Happy New Year, and cheers to a great 2007!

Mark