This Apple's Still Cookin'

Computer sales are sluggish. And the near-term outlook for retailers and other electronics vendors suggests that the next two quarters could be particularly tough for Apple AAPL. Nevertheless, I am convinced that over the next year, the shares have some serious upside potential.

But before I delve into why, let's first consider some parallels with last year.

Last December, the sell side was extremely bearish on Apple. The outlook for PC/Mac sales was very uncertain heading into the New Year, and few thought the Christmas selling season would give sales a boost. Not surprisingly, this pessimism spilled over into the minds of retail and institutional investors. Before you knew it, the stock had dipped under $14, and most investors thought the company was washed up.

But let's look at what happened after that.

Even after a huge first-quarter loss, excitement about the company's Titanium PowerBook G4 Notebook, its iMac product lines and its OS X operating system began to mount. People began to realize the company still had some tricks up its sleeve. Then some institutions, including Scudder and Dreman Value Management, jumped on board. Before you knew it, retail investors were clamoring for stock. As a result, the share price shot up to more than $21 by early February 2001.

I think history is going to repeat itself.

Tons of investors have already dumped this stock for a tax loss, yet the company's fundamentals remain pretty much intact. And like last year, it has several new products that should get good press, including the iPod, a portable MP3 player that can store 1000 songs; iMovie, which allows Apple users to make professional-looking movie clips; and several OS X upgrades that are on the way.

Oh, and don't forget about the company's balance sheet. Keep in mind that Apple has huge amounts of cash and no real longer-term debt to speak of. In other words, it has the means to wait out this industrywide slowdown.

There's no doubt that competitive or macroeconomic forces could put a damper on Apple's near-term outlook. But Apple's balance sheet and proven ability to develop quality products lead me to believe that not only will the company be here for a long time to come, but that its shares may be seriously oversold at this point.