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Wednesday, August 29, 2007, 08:00 am PT (11:00 am ET)

Shares of Apple rise on Goldman recommendation

Shares of gadget maker Apple Inc. rose $5.08 or more than 4.0 percent early Wednesday morning after investment bank Goldman Sachs issued a research note to clients, recommending they stock up on the company's shares ahead of next weeks' planned media event.

"Coming at least a week ahead of our expectations, the almost certain launch of a new family of iPods next Wednesday, September 5th, creates another opportunity for upside in the back half of the year and provides another reason to own Apple shares," analyst David Bailey explained.

Bailey said Apple's product announcements are likely to include a full line-up of revamped iPods with significantly greater functionality at current price points, including the much-anticipated full screen video iPod.

Early indications coming from the analyst's supply chain checks lead him to believe that the new full screen video iPod will be capable of fueling an accelerated upgrade cycle on the part of consumers, which could create upside to his 10.5 million and 19.8 million iPod unit sales estimates for the September and December quarters, respectively.

In the meantime, he said, Apple's redesigned iMac, stronger-than-expected retail traffic, a virtually complete revitalization in education, and the impact of Adobe’s CS3 in the commercial space should continue to drive robust Mac sales and higher market share.

"Together, we see the Mac and iPod product cycles as strong enough to generate higher volumes and upside to our current earnings estimates," Bailey wrote. "As its product cycle story unfolds, we continue to recommend that investors buy Apple shares, especially on company-specific or broader market pullbacks, as new product announcements and higher earnings should keep the stock moving toward our $165 12-month price target."