The Wealth Advisory APPLE COMPUTER INC. Our Recommendation 07/23/2009. Buy, Sell, or Hold (AAPL:NYSE) INVESTMENT GRADE.

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1 The Wealth Advisory An Angel Investment Research Publication Buy, Sell, or Hold July 23, 2009 (AAPL:NYSE) APPLE COMPUTER INC. D INVESTMENT GRADE Our Recommendation 07/23/2009 BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- F+ F F- Chart pattern indicates a possible reversal If you are long, sell current postion Up/Down volume pattern indicates distribution The 50 and 200 day moving averages are rising and bullish Stock is not a good candidate for a short postion Current Share Price: $ Stop/Loss: $ Mo. Target: $ in This Issue Company Overview...Page 2 Key Statistics...Page 2 Recent Company Highlights...Page 2 Technical Outlook...Page 3 Historical Values...Page 3 Analyst sentiment...page 3 Industry Overview...Page 5 Peer Review...page 5 Growth Estimates...Page 5 Income Statement...Page 6 The Bottom line...page 7 Corporate Information Apple Inc. Investor Contact P. Oppenhiemer (408) Address 1Infinite Loop Cupertino, CA (408) Fax ( Address investor_relations@apple.com Officers: CEO: Mr. Steven P. Jobs COO: Mr. Timothy D. Cook CFO: Mr. Peter Oppenheimer Sector: Technology Founded: 1977 Employees: 35,100 The Wealth Advisory Page 1

2 Company Overview Apple, Inc. designs, manufactures, and sells personal computers, portable digital music players, and mobile communication devices, as well as related software, services, peripherals, and networking solutions worldwide. The companys products include desktop and notebook computers, server and storage products, and related devices and peripherals; Mac OS X operating system; and ilife, a suite of software for creation and management of digital photography, music, movies, DVDs, and Web site. In addition, it provides music products and services comprising ipod, portable digital music players and related accessories; online music services, third-party music, audio books, music videos, short films, television shows, movies, podcasts, and ipod games through its itunes stores; and portable and desktop speaker systems, headphones, car radio solutions, voice recorders, cables and docks, power supplies and chargers, and carrying cases and armbands. Further, the company sells peripheral products, including printers, storage devices, computer memory, digital video, and still cameras, as well as various other computing products and supplies. Additionally, Apple, Inc. offers various software products and computer technologies comprising Mac OS X operating system software; server software and related solutions; professional application software; and consumer, education, and business oriented application software. The company also provides Internet software and services comprising Safari, a Web browser; QuickTime, a multimedia software; Mac, a suite of Internet services. In addition, it offers wireless connectivity and networking services. As of June 18, 2008, the company had 215 retail stores. Apple, Inc., formerly known as Apple Computer, Inc., was founded in The company is headquartered in Cupertino, California. Recent Company Highlights Q Apple earned $1.23 billion, or $1.35 a share, on revenue of $8.34 billion. During the comparable period a year ago, Apple earned $1.07 billion, or $1.19 a share, on $7.46 billion in sales. The results beat the estimate of analysts surveyed by Thomson Reuters, who on average forecast earnings of $1.17 a share on revenue of $8.16 billion. Gross margins as a percentage of revenue rose to 36.3% from 34.8% in the year-ago quarter. According to the company, results were led by sales of 2.6 million Mac computers -- up 4% from last year s third quarter -- and 5.2 million iphones. However, sales of the company s ipod totaled 10.2 million units -- down 7% from the same period last year. The quarter ended June 27 is the best nonholiday quarter in terms of revenue and earnings for Apple--a mark that had just been set last quarter. Apple provided conservative guidance for the fourth quarter of 2009, saying it expects revenue between $8.7 billion and $8.9 billion on earnings per share between $1.18 to $1.23. Key Statistics AAPL:NYSE Index--S&P W Range P/E Forward P/E PEG Ratio EPS (ttm)-- $5.56 EPS next Year-- $5.72 Income B Shs Outstand M Market Cap B Shs Float M Book/Sh Cash/Sh Profit Margin-14.90% ROE % ROI % The Wealth Advisory Page 2

3 Technical Outlook BHistorical Book Value Moving Average Analysis 10-day UP 20-day UP 50-day UP 200-day UP Volume Analysis Avg Daily (00 s) MO Chg (%) -9.3 OBV Neutral UP/Down Vol. Down Technical Analysis RSI (14) Beta 1.65 MACD ST Bullish MACD LT Bullish BHistorical Earnings Notes: Stock is currently overbought even as it has broken through resistance at the $150 level. In our opinion this has given APPL shareholders the chance to sell their shares at a premium. Additonally, since bouncing off the bottom in March, the stock has gone too far too fast and is a risky buy without a healthy correction. That being said, we wouldn t be buyers of AAPL until its price fell to 18X earnings or roughly $102/share. 21 Technical Score BHistorical P/E Ratios 5yr avg Analyst Sentiment 27% 8% 35% 12% 19% Ratings Distribution Strong Buy Buy Hold Sell Strong Sell Below is the breakdown of the 26 analyst ratings for Apple Computer (AAPL) By averaging these ratings investors are given insight into the consensus opinion of the independent research com- 07/22/09 06/30/09 05/31/09 04/30/08 03/31/08 Strong Buy (Rating=1) Buy (Rating=2) Hold (Rating=3) Sell (Rating=4) Strong Sell (Rating=5) AVERAGE RATING: The Wealth Advisory Page 3

4 Industry Overview The fundamental outlook for the computer industry in 2009 is decidedly negative. Recent estimates have concluded that the global unit sales of personal computers will increase only 1% in 2009, reflecting the recent economic turmoil. This would be a dramatic departure from 2008 where unit sales growth came in at 11% after fading fast over the last half of the year. Moreover, price competition and a growing demand for smaller notebook computers will likely lead to a decline in the order of 8% in global PC revenue. The netbook, also known as the mini-notebook, is likely to be the fastest growing PC segment in The momentum behind netbooks should grow, with new models offering better processors and improved hard drives. Although netbooks have the potential to threaten PC and other subsectors margins, careful market development and expanded applications offer significant opportunities as well. PC manufacturers should consider the market for premium netbooks, with producers of operating systems developing products designed specifically for netbooks. Other technology companies should take advantage of the inexpensive, low-power central processing units (CPUs) of netbooks, with home-media systems, digital video recorders and game consoles capitalizing on the new CPUs. Already, wireless carriers are looking to subsidize netbooks as a way to lock in wireless data subscribers. Netbooks can also be used by office workers instead of conventional PCs and even replace field force worker s clipboards or PDAs. As a result, the long-term fundamentals in the computer industry remain attractive, due to the increased equipment investments of the business cycle and the introduction of new and existing products--which AAPL is famous for. Peer Review Price/Earnings APPL: Peer Avg: Compared to its peer average, AAPL is trading at a P/E premium. Additionally, AAPL is trading far above the P/E s of DELL (13.17), HPQ (13.17), and MSFT (14.28). Price/Sales AAPL:4.15 Peer Avg:.2.73 Compared to its peer average, AAPL is trading at a P/S premium. Additionally, AAPL is trading far above the P/S ratios of DELL (0.46) and HPQ (0.82). Price to sales ratios are how investor value each dollar of sales. Price/Projected Earnings AAPL Peer Avg Compared to its peers on this metric AAPL is trading at a premium. This can signify the stock is overpriced. Price/Book APPL: 5.98 Peer Avg: 5.38 Compared to its peer average, AAPL is trading at a book value premium. A lower P/B ratio could mean that the stock is undervalued. It is calculated by dividing the current by the latest quarter s book value per share. Price/Earnings Growth AAPL: 1.52 Peer Avg: 1.20 Compared to its peer average, AAPL is trading at a premium PEG ratio. PEG is a widely used indicator of a stock s potential value. A PEG ratio of 1 indicates the company is fairly valued. Price/Cash Flow AAPL Peer Avg Compared to its peers on this metric AAPL is above average. P/CF is a measure of the market s expectations of a firm s future financial health. In theory, the lower a stock s price/cash flow ratio is, the better value that stock is. Growth Estimates Sep 2009* Sep 2010* Past 5 Years Next 5 Years Forward P/E PEG * AAPL % 14.50% 85.30% 17.60% Industry % 26.70% % 10.80% S&P % 19.80% -2.70% 0.00% Fundamental Score *year ending The Wealth Advisory Page 4

5 Income Statement (Non-Cumulative)-Previous 5 quarters Revenues Cost of Revenues Gross Income General & Admin. Expenses Research & Development Ebitda Depreciation & Amortization Operating Income Interest Expense Income Taxes/(Credit) Minority Interest Other Income Q2 03/09 Q1 12/08 Q4 9/08 Q3 6/08 Q2 3/08 8,163,000 10,167,000 7,895,000 7,464,000 7,512,000 5,020,000 6,635,000 5,022,000 4,747,000 4,922,000 3,143,000 3,532,000 2,873,000 2,717,000 2,590, ,000 1,091, , , , , , , , ,000 1,839,000 2,126,000 1,576,000 1,509,000 1,431, , , , , ,000 1,667,000 1,968,000 1,442,000 1,392,000 1,315, , , , , ,000 63, , , , ,000 Net Income From Continuing Operations Net Income From Discontinued Operations 1,205,000 1,605,000 1,136,000 1,072,000 1,045,000 Net Income From Total Operations Other Gains/(Losses) Total Net Income 1,205,000 1,605,000 1,136,000 1,072,000 1,045,000 1,205,000 1,605,000 1,136,000 1,072,000 1,045,000 Fully Diluted EPS: $1.33 $1.78 $1.26 $1.19 $1.16 The Wealth Advisory Page 5

6 The Bottom Line We rate APPLE Inc. (AAPL) as a SELL. This rating is supported by a the company s overall business prospects which do include better revenue, and increased earnings. However, even though AAPL continues to provide simple and superior products, the macro-economic picture will likely cause the short-term demand for Apple products to moderate. These prospects will likely leave the company facing rising operating expenses and shrinking margins over time. And while the company does remain debt-free and has a strong liquidity position the declining economy will likely weigh on share price. Moreover, higher cost structures for new products, a greater competitive environment for the company s digital products and increasing competition for the iphone 3G will likely also pressure the top line. And as always, the health of CEO Steve Jobs remains an issue, even though Jobs recently received a successful liver transplant in April. Analysis of the share price based on our proprietary quantitative model is as follows: Stock... APPL Earnings per share... $ yrs EPS Growth Rate %... 15% Perpetual Growth Rate %...2% Benchmark Return...10% Non-risk adjusted price......$ Risk-adjusted price...$79.00 Investment Report Prepared by: Steve Christ, Investment Director of the The Weath Advisory 48 Total Score Wealth Advisory Research Methodology: The Wealth Advisory s proprietary stock model projects a stocks total return for a 12 month forecast. While our pricing model uses primarily objective elements to arrive at our BUY, SELL, or HOLD ratings, subjective analysis influences the final recommendation. These and many more other data points are then combined, ranked, weighted, and tested to create a total analysis of a given stock. The result is a system that combines both fundamental and technical analysis in a disciplined method of selecting stocks. This material is based upon information that we consider to be reliable, but neither Angel Investment Research nor The Wealth Advisory warrant its completeness, accuracy, or adequacy and it should not be relied upon as such. Assumptions, opinions, and estimates constitute our judgment as of the date of this material and are subject to change without notice. Neither Angel Investment Research nor The Wealth Advisory are responsible errors or omissions or for the results obtained from using this information. Past performance is not necessarily indicative of future results. This material is nor intended to as an offer or solicitation for the purchase or sale of any security or financial instrument. Securities, financial instruments, or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice and only correct as of the stated date of the issue. Prices, values or incomes from any security mentioned in this report may fall against the interests of the of the investor and said investor may get back less than the amount originally invested. The information contained in this report does not constitute advice on the tax consequences of making any investment decision. This material is not interned for any specific investor and does not take into account your particular investment objectives, financial situation, or need and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this report, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Copyright 2009, Angel Publishing LLC, P.O. Box 84905, Phoenix, AZ All rights reserved. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law. The Wealth Advisory Page 6