Why Apple will hit $250 by December 2008?

Apple Inc. (NASDAQ: AAPL) is one of the Top 20 Innovators of The Innovation Index, and the number one innovator.

Here are five reasons on why we believe Apple stock will be worth $250 by December 2008:

1. Apple is grossly undervalued. Apple stock has declined much faster relative to the overall market. Once the market rebounds, Apple stock will also appreciate, albeit exponentially. We believe such a rise in Apple stock will begin in Summer 2008.

2. Apple is on track to sell at least 10 million iPhones in 2008. This we believe is on the low end of the estimate. Once Apple reduces iPhone pricing further (we believe this will happen in Summer 2008), Apple will sell closer to 12 million iPhones in 2008. Apple will also innovate the tap keyboard tool on the iPhone and provide an automatic landscape view to type in emails and text messages. This would create a bigger following for iPhone. Finally, Apple iPhone software will get better for corporate emails.

3. Apple iPod sales will build momentum in Summer 2008 and second half of 2008. With the base iPod shuffle now available for only $49, Apple iPod sales will jettison. The bold drop of $30 in price of the base iPod will create a jump of at least 15% to 20% in iPod sales in 2008 - higher than what the analysts are expecting.

4. Apple MacBook Air will be a runaway winner in laptops in 2008. Apple is poised to increase its growing marketshare in the PC business with the new MacBook Air, and the new MacBook and MacBook Pro models will also help. Before Summer 2008, Apple will reduce the entry prices on all their laptops to create hyper growth in laptop sales. On the other hand, the Mac business will come onto its own in 2008.

5. Apple iTunes Movie Rental business combined with the American Idol music are your dark horses for 2008. Apple will show sustained growth in the movie rental business, and we believe this will begin to show top line difference towards late 2008. Next generation Apple TV and iPod Touch should also help drive more sales iTunes Movie Rental.

Apple stock will be worth at least $150 by Summer 2008, will pick up steam and rise to $200 by Fall 2008, and close out the year over $250. The only caveat is the overall health of the retail economy worldwide.

Disclaimer: Innovation Index Group, Inc. invests in Apple and Top Innovators of The Innovation Index.