Apple's Core Fans Keeping the Faith

Investors seem willing to overlook the light outlook.
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Apple Computer

(AAPL) - Get Report

offered a disappointing earnings outlook on Wednesday, but don't expect investors to throw in the towel quite yet.

Wall Street seemed willing to excuse the company's guidance -- which was significantly below the Street's earnings and revenue targets for the current quarter -- as simply an example of management being conservative. In recent quarters, the iPod maker's results have consistently topped the company's own outlook and Street expectations, most notably in its

just-completed holiday period, when Apple's results exceeded sales guidance by more than $1 billion.

"I'm taking a five-year view," says one portfolio manager at a major financial services firm who is long Apple. "Each miss to me looks like an opportunity

to buy the stock," the portfolio manager adds.

Not that the market didn't seem to have some reservations about Apple on Thursday. In recent trading, the company's stock was down $2.32, or 2.8%, to $80.17.

But that represented a rebound from the after-hours session on Wednesday night, when the stock was down as much as 7% from the close of regular trading that day.

And the betting by many on the Street was the stock would rebound further in coming weeks and months. The portfolio manager, for instance, predicted Apple's stock would hit $100 a share by the end of this year.

In their reports today, sell-side analysts generally reiterated their optimistic ratings on Apple. Piper Jaffray analyst Gene Munster's reaction, for instance, was typical:

"We would be buyers of AAPL shares on the pullback today as we believe March-quarter guidance will prove to be conservative given that Apple's strategic plan, competitive position, new product roadmap and market opportunity remain unchanged," Munster wrote, reiterating his outperform rating on Apple shares and his $103 year-end price target. Piper Jaffray has not done recent investment banking business with Apple.

Setting aside the outlook, Apple has certainly given fans reason for the faith of late. Thanks to the growing popularity of the iPod, the company's earnings were 19 times higher in its last fiscal year than they were two years before.

And the company continued its string of successes in its holiday quarter. iPod sales came in at 14 million units, at the top end of Wall Street's expectations. Meanwhile, overall sales were up 65% and earnings up 92% from the same period a year earlier.

But Apple forecasts that things will slow down in the current first quarter. Company officials predicted that sales will be 7% and earnings 13% below analysts' estimates.

The company blamed the disappointing outlook on a seasonal slowdown in iPod sales and potential softness in shipments of its Macintosh computers. Apple recently updated two of its computer lines with chips from

Intel

(INTC) - Get Report

. However, one of those lines won't ship until sometime next month and the company indicated that it may not be able to meet demand for either of the two Intel-based lines in the short-term.

While some analysts dismissed the guidance as an example of Apple trying to set a low bar, others thought it may be indicating legitimate concerns. In their research report on Thursday, Goldman Sachs analysts David Bailey and Laura Conigliaro said this is the first time in three years that Apple has declined to update its iPod line.

In the last two years, the company's iPod sales have gotten a boost in the first calendar quarter thanks to the iPod mini and then, the iPod shuffle. Without a new product this year, there's uncertainty about the extent to which Apple's iPod sales will suffer a seasonal decline, they said.

Coupled with the ambiguity about demand for its computers during the transition to Intel processors, "Apple faces more legitimate uncertainties than it has in many quarters," said Bailey and Conigliaro, whose firm has done investment banking business for the company in the last year.

Still, they reiterated their in-line/attractive rating on Apple, saying that the company's results had room for upside from gains in share in the computer market and potential new products.

But not everyone is convinced that Apple's best days are ahead. Invictus Funds recently sold off its long position in Apple, and partner David Schamens is looking for the right opportunity to short the stock.

The company's guidance is the first indication that things are slowing down at Apple, Schamens said. While acknowledging the company's recent success, Schamens argues that its computer and iPod sales are both going to "hit a wall."

Corporate computer users have standardized on Microsoft's Windows platform, and Apple is going to have a tough, if not impossible, time cracking that market, which will limit the amount of share the company's computers can claim, he says.

In the meantime, consumer spending is likely to slow down this year, with rising interest rates and the decline in mortgage refinancing-enhanced spending. If consumers do cut back, companies such as Apple that cater to consumers are likely to be hurt, Schamens says.

"Once somewhat bad news comes out, you can bet there's more bad news to follow," Schamens says. "I love Apple and its products, but you've got to be realistic about where the world's going."