iPods Could Transform Apple Computer

Apple shares peaked at $24.20 just before the company reported earnings on Jan. 14. But the stock shed 6% the next day and shares haven't yet recovered to their pre-earnings level, closing Wednesday up 11 cents, or 0.5%, to $23.92.

"The real earnings driver in the near term is really the creative professional cycle. That's got to bounce back," said Vinnie Muscolino, managing director at money manager David L. Babson, which holds Apple stock in its value portfolios.

Muscolino believes the latest edition of the PowerMac, which was introduced last year based on the G5 processor, should spur new purchases as the economy picks up. He finds the stock appealing on a price-to-cash ratio, noting "you can't find many tech companies trading at 2 times cash, and that generate cash."

Apple's quarterly net profit has steadily accelerated over the past year, from a $14 million net profit in the March 2003 quarter to December's $63 million profit.

But some investors want even more from Steve Jobs & Co. "The issue for us is, they need to start making [more] money," said Rhodes, who bought shares in Apple about eight months ago as a turnaround play. Now, he'd like to see that turnaround accelerate.

But for a change, longtime Apple watchers say the company isn't merely resting on its technological laurels with the iPod. This time it seems to be making savvy strategic moves to capitalize on the gadget's success.

"I've followed Apple for 20 years and usually they make boneheaded decisions," said Wolf, who has owned the stock in his personal portfolio since 1997. "But in the last two years they've grown up, starting with iPod and with iTunes for Windows."