Piper Jaffray analysts Gene Munster and Michael Olson have picked Apple as one of their top stocks for 2006. Along with Adobe and Avid, Apple made the list because of a healthy customer base, excitement over new and significant product introductions, and likely benefits from market and industry changes.
Although many analysts and investors feel that Appleis ride is over, Mr. Munster thinks there is still more potential in the computer makeris business. Where 2005 was the year of the iPod, 2006 will be the year of the Mac. iPod development will still be strong through out the year, but new innovations in the Mac product line, including Intel-based models and new form factors, should lead to several significant product releases.
Right now, Apple shares trade at 42.2 times CY06E EPS, and have the average multiple on NTM earnings has been 45x.
Piper Jaffray also says that a 0.5 percent gain in Mac market share for 2006 would add 10 percent to its estimated earnings per share for Apple. A 1.0 percent gain would add 18 percent.
2006 is expected to be a slow product release year for Adobe, but it will benefit from its purchase of Macromedia. Acrobat 8 is expected later in the year, and the Adobe Creative Suite 3 is expected some time in early 2007.
Avid is seen as the highest risk of the three, with more quarter-to-quarter volatility that Apple or Adobe. It is, however in a leadership position with its hi-def and post production systems that are in the middle of a multi-year industry upgrade cycle. Avid has major market opportunities based on upgrades from its existing customer base.
Despite Appleis phenomenal performance in 2005, it appears there is still room to grow. Expected innovations, like new iPods, PowerBooks and iBooks, along with Appleis push into digital media entertainment are likely keep consumers and investors interested for another year.
Apple is currently trading in the pre-market at US$74.99, up 0.24 (0.32%).