Apple Computer, Inc. – Monitoring the Bears

When you like a stock, as we do that of Apple Computer, Inc. (AAPL), it is always wise to monitor the arguments of the bears.  You should always be willing to re-evaluate conclusions and positions, testing your own ideas.

Here is a typical bearish argument from 24/7 Wall Street, a good source for thoughtful commentary.  Take a look and then come back for our take.

Link: Weekend Edition: More Flies On Apple’s iTunes.

Stocks: (NWS)(RNWK)(SNDK)(AAPL)(MSFT)

Our analysis rests upon the fundamentals, where we look at estimated earnings including the current cash holdings of the company.  Since that is the basis for our price targets, we are not too interested in statements about where the stock is trading versus past highs, etc.

Whether new competitors can move effectively in a space where millions of consumers already have IPods and ITunes and look for upgrades is something worth monitoring.  Personally, I would not change without seeing a major advantage.  That is the edge of the first mover.

It seems to us that the competitors are chasing a rapidly moving target.  The story on 24/7 Wall Street does not discuss downloadable movies, overall home entertainment, or new products like a cell phone.  The music is just the entry point.

Most importantly, we are following the so-called "halo effect" where people go into an Apple store and discover the computers!  A small increase in market share has a big impact on earnings.

Conclusion:  Watch the bear case on competition, but not much of the story is really reflected in the current stock price.

And as we have said before, this commentary is designed to illustrate methods, not as a specific recommendation of a stock.  Investments must be geared to individual suitability.