Apple Gains Need to Be Digested
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After Monday's 2-for-1 stock split for
Apple Computer
(AAPL) - Get Report
, it may be time to book profits and move on to another computer maker.
The question is, which one?
Dell
(DELL) - Get Report
?
IBM
(IBM) - Get Report
?
Hewlett-Packard
(HPQ) - Get Report
? H-P may not qualify as a candidate for a long-term tech portfolio according to my screening methods, but it's the best choice of the four right now.
Doubting Downloads
The key for Apple is the sustainability of the momentum in music downloads, and I think there are compelling reasons for skepticism here. On Friday, Dell announced product upgrades, including MP3 players, that are easier to take on the road. Dell announced a new 30-gigabyte Digital Jukebox music player that costs $299 and can hold 7,500 to 15,000 songs, depending on the quality of each digital file.
The announcement came a day after Apple debuted a 30-gigabyte iPod for $349. Through Napster, customers can download all the songs they want for $14.95 a month, but they must continue to pay the subscription fee to keep access to the music files. Apple's iTunes does not provide a subscription service (it sells songs for 99 cents each), and the iPod does not work with other music-download services.
Can Apple maintain its cult status on the strength of iPod sales? Perhaps for a while, but I'd suggest booking profits as Apple's weekly price chart has gone parabolic with a price pattern similar to five years ago. Sure, Lehman Brothers raised its 2005 earnings estimates for the company from $73 to $94 per share on Monday, but the brokerage maintained its equal-weight rating on the stock. If the good news is built in, why not recommend booking profits?
I think Apple and music downloading in general has the risk of losing market share in favor of the portable satellite radio offerings, such as those from
XM Satellite Radio
(XMSR)
. Product cost is lower, the monthly fees are lower and there's a wide venue of music selections with limited user interface.
As far as IBM goes, the company has become a computer service bureau with potential accounting issues. On Friday,
Kyodo News
reported that IBM will revise its 2004 sales downward by $210 million as improper in-house accounting practices by some employees has been found at IBM Japan Ltd., the Japanese unit said Friday.
Hewlett-Packard is the best of the four computer manufacturers profiled in this column, as the fundamental discussion below shows. H-P does not qualify as a candidate for a long-term technology stock portfolio because it's not at least 40% undervalued by my fundamental screening method. But if I had to own one of the four, H-P would be the choice. Let me show you why.
Through Friday, my fundamental screening shows that Apple shares are 77.87% overvalued on strong momentum over the past 12 months. The weekly chart pattern with the all-time high set at $45.44 on Feb. 17 is reminiscent of the tech bubble five years ago. The 12x3 weekly slow stochastic is extremely overbought, with the five-week modified moving average at $38.76.
My fundamental screen shows Dell only 8.86% undervalued through Friday, following a gain of 20.72% in the past 12 months. The weekly chart pattern is negative, with declining 12x3 weekly slow stochastic and weekly close below its five-week modified moving average at $40.49, which indicates risk to chart support around $37.
IBM was 19.40% undervalued through Friday's prices in the wake of a 3.10% loss in the past 12 months. The weekly chart pattern is negative, with declining 12x3 weekly slow stochastic and last week's close between the five-week modified moving average at $93.73 and the 200-week simple moving average at $91.01.
Finally, there's Hewlett-Packard. My fundamental screening shows that these shares are 36.98% undervalued following a loss of 7.77% over the past 12 months. The weekly chart pattern is neutral, with a flat 12x3 weekly slow stochastic. But last week's close was above the five-week modified moving average at $20.56 and above the 200-week simple moving average at $19.92. Between Aug. 13, 2004, when the
Nasdaq Composite
tested support, to Feb. 11 of this year, H-P outperformed Dell by a wide margin. H-P rose 30% while Dell posted a 16.9% gain.
Richard Suttmeier is president of Global Market Consultants, Ltd., and chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in lower Manhattan. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to
richard.suttmeier@thestreet.com.