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Sanford Bernstein’s Toni Sacconaghi wrote in a note to clients that Apple could use its huge cash balance of $24.5 billion to significantly boost next year’s financial results.

“We believe a share repurchase represents the best use of (at least part of) Apple’s $25B in cash; in our view, it would be more favourable to shareholders than the alternatives of either a major acquisition or a substantial dividend,” he said.

Sacconaghi estimated that Apple could increase fiscal 2009 earnings per share by around 4% if it spent $10 billion on buybacks, and by around 9% if it spent $20 billion.

Apple has not bought back any stock in more than five years and has repurchased only $217 million’s worth over the past decade. By contrast, Microsoft recently decided to buy back $40 billion of its own stock, on reason why its cash reserves now fall short<

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of Apple’s.

Apple chief executive gave no hints last week when asked what he plans to do with Apple’s cash pile, though he hinted that a he has other priorities than buying back stock.

“During the last downturn we increased R&D investments and created some of our best new products and businesses, like the Apple retail stores, for one. This downturn may also present some extraordinary opportunities for companies that have the cash to take advantage of them,” he said.

Sacconaghi said that while Apple shares have fallen about 45% so far this year they have been overly discounted and he expects the company’s financial position to remain “relatively healthy” despite economic weakness.

That opinion is shared by Andy Zaky, whose Bullish Cross blog is a leading source of analysis of Apple’s financial situation.

“Tech companies with solid balance sheets, large cash hordes and solid growth rates will fair a lot better in a market recovery than those whose valuations did not dramatically deflate over the past year,” he wrote. “Of the nine big tech companies I’ve reviewed, Apple stands out as being the most radically undervalued in the tech sector on an objective basis.”

Apples shares closed up 4.6% up at $104.55.