What the Latest Apple Earnings Report Means

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I’ve recently had to upgrade my five-year-old computer equipment, so I’ve been hanging out a lot at the local Apple store. And I’ve been struck once again by just how well designed Apple’s products are. Admittedly, the iPad seems like a solution in search of a problem – I’m still not quite sure what to do with the one I bought – but it’s a fine piece of work.

Obviously, I’m not the only person who feels this way. Apple’s earnings, reported on Tuesday, were so spectacular that some commentators couldn’t stop rhapsodizing. Others pointed out that Apple’s superb results weren’t necessarily a bellwether for the tech sector as a whole. Maybe not. But Apple is the third big tech company in a row – following Google and IBM – to report earnings that are significantly better than analysts expected.

(MORE: MacBook Air Review: Thin, Light and Utterly Mainstream)

I can’t predict whether future tech sector reports will be equally good. But I do believe that we are seeing confirmation of the thesis I presented a month ago. Many of the top tech stocks are cheap or moderately priced. Investor expectations are fairly low. And any surprises are likely to be on the upside, which would bolster share prices. If you’re conservative and you don’t want to gamble on a single tech name, consider the SPDR Technology Sector Fund (XLK), which holds a broad cross-section of the largest tech companies. The fund’s P/E based on projected earnings is under 15, according to Morningstar, and annual growth projected for the next five years is above 11%.

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