By J. Royden Ward, Cabot Benjamin Graham Value Letter

Apple (AAPL) has a unique ability to identify what customers want, produce easy-to-use products, and launch unique marketing campaigns to create demand.

The company’s revolutionary iPod digital music player, iTune online music store, and iPhone helped sales to increase 33% per year during the past five years, while earnings per share surged 70% per year during the same period.

Sales soared 66% and EPS catapulted 83% during the past 12 months, aided by the success of Apple’s iPad tablet computer.

In addition to gaining market share in the computer, smart phone and tablet sectors, new product launches, such as the iPhone 4S, will keep Apple ahead of the competition.

The death of Steve Jobs, co-founder of Apple, is upsetting; Mr. Jobs will be missed. But the company’s strong management team and innovative spirit will continue to thrive.

Apple’s sales and earnings slowed a tad during the quarter ended 9/30/11, because smart phone buyers held off new purchases until the new iPhone 4S was launched on October 14.

Consumers gobbled up four million new iPhone 4S smart phones during the first weekend, a record for any phone!

The highly successful launch will lead to record sales and profits in the current quarter ending 12/31/11 and could send AAPL’s stock price to a new high ($426.70) within the next two months.

We expect Apple’s earnings to grow at a rapid 22% pace during the next five years. At 11.6 times our one-year forward EPS estimate of $33.00, AAPL shares are clearly undervalued.

The development of exciting new products portends continued rapid growth in future years.

AAPL shares will likely advance to our Minimum Sell Price of $655.71 within the next two to three years. We consider AAPL to be a very low risk investment.

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