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March 27, 2005

A Visit to an Apple Store Keeps Me Bullish

The following entry is cross-posted from Street Insight. As some clients and friends of Northlake Capital Management know, I write a brief daily commentary for StreetInsight.com, the professional version of The Street.com. Street Insight is an expensive service targeted at money managers. Along with another two dozen money managers, I contribute commentary on the stock market and individual stocks. The following comments on Apple Computer were posted last week...

I've been long Apple Computer (AAPL) since mid-January following the pullback after the company's blowout fourth quarter 2004 earnings report. After my Sunday afternoon visit to the Apple Store in Skokie, Ill., I plan to stay long through the first-quarter earnings.

I walked in with my daughter whose 10-month-old 20GB iPod had jammed. The place was mobbed. I am certain there were over 100 people in the store, with every product area covered with people. The line for the cash register was easily 20 customers deep. Virtually every person in line had either an iPod or an iPod shuffle. Many also had iPod accessories.

We signed up for the Genius Bar (in store technical help) and learned that the hard drive on the iPod had gone bad. We waited about 30 minutes to get help, but once we were served, the problem was diagnosed within five minutes. The iPod is still under its one-year warranty, so we received a replacement. My daughter just had to go home, attach the iPod to the Mac and download her library of a couple of thousand songs. Ten minutes later she was right back where she started, jamming to the Clash, the Cure, and to make her Dad happy, the Grateful Dead and Bob Dylan.

While the "genius" who was helping us was filling out the online paperwork, I asked about sales of Mac minis and shuffles. He said both were selling well. He also said Mac Mini sales were fairly evenly split between PC owners. (Mac people call Windows machines PCs and Apple machines Macs). Among Mac owners the genius said most Mac mini buyers were looking for a second Mac and adding extra RAM.

I know AAPL is an expensive stock, but I'm willing to stick with the momentum until proven wrong. I took some profits when the stock crossed $45 as I want to keep the position from growing too large. AAPL's run will end some day, and I expect the end to be a spectacular decline. Thus, controlling position size and taking profits on the way up is important. The biggest risk the shares face is that expectations are so high for the coming quarters. Anything short of great numbers is unlikely to satisfy the market. However, based on everything I read and my experience Sunday, I think another great quarter is in the cards.

Posted by Steve Birenberg at March 27, 2005 07:24 PM in AAPL