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Apple Earnings Preview: It's Not All Bad (Update 2)

Stocks in this article: AAPL GOOG

While that may come down in 2013 due to additional Android tablets, it's clear people still want the iPad and iPad mini in droves. Crowell, Weedon & Co. analyst James D. Ragan believes Apple will sell 19.6 million iPads this quarter, up from 11.8 million in the year-ago quarter. For the full year, Ragan believes Apple will sell 81 million iPads, a growth rate of 40% year-over-year.

Many have said that 2013 is a year to forget for Apple, as the smartphone market begins to mature, and Apple had tough year-over-year comparisons. Topeka Capital Markets analyst Brian White believes that 2014 will see a new product cycle, complete with low-end iPhone, an iWatch and a possible Apple television, that will stoke the top line growth. "Looking forward, we believe a new product cycle will ramp in FY14 that opens up new growth opportunities," White penned in his note. He rates Apple "buy" with a $888 price target.

There's also the question of what Apple does with its enormous cash hoard. At the end of last quarter, Apple had just over $137 billion in cash and equivalents on its balance sheet. That figure has prompted investors, including Greenlight Capital's David Einhorn, to call on the company to return more to shareholders. UBS analyst Steven Milunovich believes Apple could raise its cash return to shareholders to at least $65 billion over the next three years, up from $45 billion, thus alleviating some pressure from shareholders.

The way Apple has traded since the release of the iPhone 5, the stock has acted like the company is on its death bed. Shares have lost over 40% of their value, compared to a 1.8% gain in the Nasdaq. There is little faith the company can deliver the products customers want, and return to its growing ways. Options are pricing in a 6.3% move after the company reports earnings.

Hudson Square Research analyst Dan Ernst believes 2013 is a lost year for Apple. Ernst notes the company refreshed nearly its entire product portfolio in its fiscal fourth-quarter last year, and 2014 is where he believes Apple will innovate again. "If you're investing in Apple today, I don't think you're investing for the next one or two quarters. You can't invest for this year," Ernst said over the phone. "If Apple does all these whacky things, they won't impact earnings this year. The real driver of earnings from new products or categories would be next year." AAPL Chart AAPL data by YCharts

Over time, Apple has demonstrated that when its back is against the wall, it does its best work. The picture might be bleak now for the stock, but the majority of Apple's core leadership team, led by Cook, Jony Ive, Bob Mansfield, Peter Oppenheimer and others, are still there. It's not all bad at Apple right now; it just appears that way.

-- Written by Chris Ciaccia in New York

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