As 2006 began, I penned an article in which I was reluctant to say, "Buy Apple (NASDAQ:AAPL)." I'm relieved to report I was also reluctant to go on the record saying, "Don't buy Apple." I had learned a valuable lesson over the course of the last couple years. Apple's valuation often looks too high -- but the company's got amazing momentum on its side these days.

I'm a longtime fan of the company -- I have never used a computer at home that wasn't a Mac, and I've been an easy sell on multiple iPods and accessories -- but I never did have the courage to buy the stock. However, in June, I rated Apple an "outperform" in our community-intelligence database, CAPS, and it's been one of my best picks, up 37% so far.

Red delicious Apple
Growth investing tenets apply in Apple's case -- find solid, well-run innovators that address large market potential and hold them for the long term. If you're correct in your assessment (and that's the key, of course), it's quite likely that what looks pricey today may look downright cheap in a couple years as the company exceeds expected growth.

Indeed, over the last five years, Apple's stock has appreciated 715%, and I'm sure all along the way there were plenty of people reluctant to buy because it seemed overvalued and risky, or who sold shares because they thought it couldn't go any further. Compare Apple's return to Microsoft's (NASDAQ:MSFT) 12% decrease and Dell's (NASDAQ:DELL) 8% drop; it also dwarfs Hewlett-Packard's (NYSE:HPQ) 82% increase over that same time frame.

True, the iPod's success has been the prime driver of Apple's amazing growth -- and you could argue that comparing Apple to those three companies isn't exactly an apples-to-apples comparison. But then again, the iPod has opened up many other avenues. The Mac is no longer seen as a cultish computer for artists, hipsters, and prima donnas. In fact, Mac sales, as has been predicted for a while, have been increasing, no doubt in part because of the iPod's success -- and the way it's drawn customers into Apple retail stores and fired up their desire for all things Apple.

Shiny opportunity
I believe that Mac sales will continue to grow, outpacing the rest of the industry (in fact, recent data from Gartner showed that Mac is taking market share from Windows machines). Many of the old barriers to widespread consumer adoption of Macs are gone. With Intel (NASDAQ:INTC) processors and Boot Camp software that allows Mac users to run Windows, compatibility concerns are alleviated. Furthermore, Boot Camp makes it easier for hardcore gamers to play on Macs -- just one example of a new niche being filled, since the video game industry has historically been geared towards PCs. Considering the small market share Macs have now, the opportunity could be very exciting, since there's room for tons of growth.

Sure, there's still price. However, Apple has always been good at providing a system many people find more elegant and user-friendly than Windows and communicating the perception that to get a better product, you pay a higher price. (There's no rocket science there.) I think Apple's stubborn refusal to compete much on price is finally going to work in its favor. Consumers are infinitely more tech-savvy than they were, say, 10 years ago, and less intimidated by technology. They want high-powered machines that work well, and they are willing to form more emotional connections with their technology -- the iPod is a perfect case in point, where the player has proved to be much more than a commodity. I'd say Mac's time has come.

Although I recently wondered if Apple's latest announcement was underwhelming news, the one thing I did find interesting was the coming iTV. That could most certainly be the piece of equipment that suddenly ties it all together in the digital living room -- consider the boost to Apple's keiretsu of products then.

Sweet success
Of course, the company must continue to fire on all cylinders in order to live up to investors' admittedly high expectations. However, given recent buzz, it certainly doesn't sound like the iPod is losing its luster for this year's holiday season, despite the fact that it's been one of the stalwarts for several years running -- there are still plenty of iPod models in the top 20 bestsellers on (NASDAQ:AMZN), for example. Given the current trends, and the promise of interesting new (perhaps even revolutionary) products early in 2007, Apple's still got room to run.

Further Foolishness:

Wait! Think you're done? You're not! Go back and read the other arguments, then vote for the winner of this Duel. and Dell are Motley Fool Stock Advisor recommendations. Microsoft, Intel, and Dell are Motley Fool Inside Value picks. Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy is sleek and lightweight.

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