Is Apple Ripe for a Comeback?

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Investors turned on Apple (NASDAQ:AAPL) in the lead up to the holiday shopping season, resulting in one of the most impressive sell-offs since the Great Recession. After reaching a record high closing price just north of $700 in September, shares began their quick descent to a near-term low of $507.99 on Friday, November 16. But many analysts still remain bullish on the stock, which is now trading at an attractive discount.

Piper Jaffray’s Gene Munster, who has an Overweight rating on the stock and a $900 price target, wrote that Apple’s 2013 will have “somewhat less fanfare” than this year offered, but that it will “set the stage for bigger changes in the product lineup in CY14 and beyond.”

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Munster believes a rumored Apple radio service will debut in the early part of next year, along with an updated iPad mini with Retina display and perhaps a new version of Apple TV.

But that wasn’t enough for investors who pulled back after their euphoria Monday sent shares up 7 percent. With analysts saying now is the time to buy in cheap, it seems many investors took the opportunity to get Apple at a discount, but the pullback on Tuesday shows that concerns about the company’s future growth prospects are still very real.

Barclays Capital’s Ben Reitzes tried to lay some of those fears to rest on Tuesday, arguing that, “given the recent sell-off in shares, we believe that there is still room to surprise investors with holiday sales momentum at Apple.”

In a note to clients, Reitzes reported that his “checks” with individuals in the Asian supply chain suggest Apple’s production of the iPhone 5 “is getting better,” though delivery orders are still looking at a 2- to 3-week wait.

Reitzes now believes iPhone builds could support unit sales of over 50 million this quarter, higher than his earlier estimate of 43.5 million units.

Production of the iPad mini is also “improving slightly,” according to Reitzes, who thinks manufacturers are prepared to produce 8 million units this quarter, which might lead to sales of 6.5 million units.

Reitzes isn’t all warm and fuzzy on Apple, though, acknowledging the dramatic increase in competition from products made by Amazon (NASDAQ:AMZN), Barnes & Noble (NYSE:BKS), and Microsoft (NASDAQ:MSFT), among others.

Greater competition could result in steeper holiday discounting.

We believe we may see some significant discounts on competing tablets in the days surrounding Thanksgiving,” Reitzes said in his note. Samsung (SSNLF.PK) has been advertising $70-off the regular price of a 7-inch Wi-Fi only Galaxy Tab 2 with 8GB of storage, and $100-off a 10-inch version with 16GB of storage.

Apple will also be facing competition from its own partners.Wal-Mart(NYSE:WMT) online is offering the iPad 2 for $399 with a $75 gift card, and is offering fourth generation iPod touches for $195 versus Apple’s $199. Best Buy (NYSE:BBY), which also carriers Apple products, will make its Black Friday Door Busters deals available online on Thanksgiving day.

The sheer number of viable iPad competitors has grown significantly since the last holiday season, when Apple’s only real challenger was Amazon’s new $199 Kindle Fire. The tablet’s low price made it popular quickly, and did impact iPad sales momentum a bit, notes Reitzes, but this year more companies are throwing their hats in the ring. Google’s (NASDAQ:GOOG) Nexus 7, Samsung’s Galaxy 10.1, and Amazon’s refreshed Kindle Fire lineup are all competing with the iPad and iPad mini.

In the third quarter last year, Apple held 60 percent of the tablet market as it headed into the holiday shopping season. But this year, Apple’s share was down to about 50 percent in the third quarter, fueling existing concerns about Apple’s growth going forward. But instead of joining the bears, Reitzes is staying positive, and he’s not alone.

“We believe with the refresh of the iPad to include the A6X chip and the introduction of the iPad mini, Apple can regain share throughout the quarter, even at premium prices,” Reitzes wrote to clients.

Topeka Capital analyst Brian White also remained bullish on Apple Monday, citing the company’s “new blockbuster products,” among other things.

White, like Reitzes, believes the time is ripe for investors who may have “missed Apple or been under-weight” to buy shares before sentiment again turns positive for the company in the traditionally strong holiday quarter.

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