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Apple Stock a Temptation to Resist

Stocks in this article: AAPLMSFTHPQIBM

Apple (AAPL) should feel proud because Microsoft (MSFT) will be emulating its hugely successful chain of retail outlets.

But as is the case with companies dependent on the diminished spending power of consumers, Apple's stock is still best approached with a healthy degree of caution.

Even the continuing popularity of Macs, iPhones and iPods won't provide Apple immunity from the current economic contraction, analysts warn. The consensus estimate is for Apple's per-share net profit to dip to $5.20 this year from $5.26 in fiscal 2008 (ended in September) before recovering to $5.97 next year. As can be seen in the accompanying table, Apple's net for the 12 months ended Dec. 31 was $5.39.

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With Apple's growth prospects muted by the worldwide economic downturn, TheStreet.com Ratings' quantitative model evaluated the stock's price-to-earnings ratio of close to 20, based on this year's estimated net, and its recent level of nearly four times book value per share, and assigned the stock a "risk grade" of D-plus.

However, Apple's ability to remain profitable during the recession and its anticipated return to growth next year prompted the model to give it a "reward grade" of B on its grade scale that ranges from A-plus to E-minus. The stock's overall grade from TheStreet.com Ratings is a C-plus, which equates with a "hold" recommendation but remains just one notch away from "buy."

Concerns about the health of Apple's iconic CEO, Steve Jobs, remain a factor influencing the firm's stock price. Last month, the visionary leader announced he was taking a medical leave until the end of June, saying health-related issues "are more complex than I originally thought." Jobs added, however, that, "as CEO, I plan to remain involved in major strategic decisions while I am out."

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