Apple Profit Could Beat Estimates This Year

DALLAS (TheStreet) -- Jonathan Lamensdorf, manager of the Highland Long/Short Equity Fund (HEOAX), expects Apple (AAPL) to beat analysts' estimates this year as consumers buy new iPhones and Mac computers.

The fund, which can take both long and short positions in stocks, has returned 18% during the past year, outperforming 76% of its peers, according to Morningstar (MORN). During the past three years, the fund has gained 4.6% annually, on average, outpacing 91% of competitors.

Welcome to TheStreet's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks in five fast and furious questions.

Are you bullish or bearish?

Lamensdorf: Our philosophy is to buy stocks that are undervalued with improving fundamentals and short stocks that are overvalued with weakening fundamentals. As of the end of November, the Highland Long/Short Equity Fund was about 43% net long on a beta-adjusted basis. Normally, the fund maintains a net long bias of between 20% and 60%.

What is your top stock pick?

Lamensdorf: The largest long position in the fund at the end of November was Apple. We believe that the consensus estimates for fiscal 2010, which ends in September, are too low. We believe Wall Street is underestimating the unit growth of iPhones and Macs, and that investors are also underestimating the amount of gross margin expansion that will occur from the continuing mix shift to the higher margin iPhone.

Based on our estimates, we believe Apple is trading at 12 times fiscal 2010 pro-forma earnings per share (excluding cash on the balance sheet), an attractive price for the leading company in the rapidly expanding smartphone market.

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