Anyone who thinks AAPL has no more room to grow is just wrong.
BCG was commissioned by Google to explore the economy of the web.
http://www.bbc.co.uk/news/business-16753902
The main point of the study:
1. To grow from $2.3tn to $4.2tn thanks to mobile internet access.
2. By 2016 about 80% of all internet users will access the web using a mobile phone.
3. In four years 3bn people will be using the internet, or nearly 50% of the world's population.
The most striking theme to growth is mobile. While mobile is important to Google, it's currently a source of slower growth, with a CPC at -8% for the quarter due to mobile.
But another company proved they are the best positioned for the mobile web, and that's Apple.
The majority of 80% growth in mobile web will come from lower end users. Apple, currently, is only addressing the lower end user with the 3GS. As the newer iPhones emerge, the iPhone 4 will be offered free, globally, across multiple carriers.
Even though the report was commissioned by Google, and Google will benefit from the trend, it will mostly benefit AAPL.
(apologies for the raw link, I'm writing this on my iPhone)
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Friday, January 27, 2012
Thursday, January 26, 2012
JCP - good risk/reward
Day two of the JCP meeting was a very interesting one. Management gave good details on the financial front, that gave a lot of certainty letting the stock to pop rather nicely.
The numbers:
JCP told investors a few important things:
1. Expenses (in relation to sales) will decrease to 27% by the end of 2015.
2. They will cut $900M in expenses over the first 2 years.
3. Traditional metrics (same store sales, guidance and quarterly sales) are thrown out the window. (Looks like all new management cares about is profitability. Also, with the mantra of merging online and brick-and-mortar sales, many traditional retail metrics are simply irrelevant.)
4. EPS for 2012 will meet or exceed 2010 GAAP 1.59 eps. (I am only going to focus on GAAP earnings for this analysis.)
5. Self funded transformation. ($800M in Capital Expenditures in 2012.)
Yesterday, I thought the street would react negatively with the $800M capital expenditure, but the cost savings initiative overwhelms the added costs.
Working out the numbers, I find myself impressed. Using 2010 numbers as the bases case, as management has done with respect to eps guidance (#4), its fairly obvious operational income is projected to grow nicely.
A few notes regarding the above numbers:
1. Conservatively assumes zero revenue growth. (This was done because from 2008-2010 revenue declined, hence a conservative measure is simply prudent.)
2. Operational Expenses in relation to Sales was spread evenly over the 2015 time period.
3. Gross Margins remained constant. (This is really conservative. GM will increase as $900M expenses are removed.)
4. With the lack of GM increase, the total $900M is not factored in. (Again, this for the sake of being very conservative.)
With very conservative estimates, Operational Income still increase significantly from 2012 to 2015. Applying these growth rates to a realistic EPS and trailing PE projections, JCP can potentially trade near mid 60.
The only thing that may hinder this year's eps is the $800M cap ex. expense, but they should do much better than 1.59 (or the 1.60 I modeled) for 2012.
A few notes regarding the eps figure:
1. Assumes base case operational growth rates will act as trailing PEs. (So that pegs the stock price to a very conservative base case.)
2. EPS growth is fairly significant.
For me, the above is a baseline case. When factoring in higher revenue growth and increased GMs, there is far more operational income growth.
Management:
What makes this a baseline case is the fact the management team is no joke. They help build the true integration of online and brick-and-mortar store, whose operations are the most efficient in the world, the Apple Store. (And I am speaking of efficiency, not demand for product or product driven sales.)
Management's performance history and the above numbers, allow an investor to have the benefit of the doubt. (And the market indicated this today.)
Dividend:
Another added bonus, is the $0.80 dividend, giving a 2% yield even with the recent sizable stock appreciation. I did not notice management suggest they will cut the dividend to fund the Cap. Ex. The Press Release did not mention it, so I will assume they will keep it.
Conclusion:
A base case model that suggests a stock price target of mid 60, and with a 2% yield to ride it out, seems like a nice situation to be in.
Of course, this is a show me story, but with a management that has already shown the street what it is capable of, the street will give it the benefit of the doubt, and will give the stock a richer multiple.
Technicals:
(I consciously put the technicals below the conclusion :) JCP is at a two and a half year high, so their maybe some sort of push back. But JCP is morphing into a new company so technicals prior to the last two day maybe irrelevant. I will use the last two days as the "new company" bottom (between high 30s and 40).
If JCP sees high 30s, or where ever the stock decides to consolidate, I will look to enter an initial position.
The numbers:
JCP told investors a few important things:
1. Expenses (in relation to sales) will decrease to 27% by the end of 2015.
2. They will cut $900M in expenses over the first 2 years.
3. Traditional metrics (same store sales, guidance and quarterly sales) are thrown out the window. (Looks like all new management cares about is profitability. Also, with the mantra of merging online and brick-and-mortar sales, many traditional retail metrics are simply irrelevant.)
4. EPS for 2012 will meet or exceed 2010 GAAP 1.59 eps. (I am only going to focus on GAAP earnings for this analysis.)
5. Self funded transformation. ($800M in Capital Expenditures in 2012.)
Yesterday, I thought the street would react negatively with the $800M capital expenditure, but the cost savings initiative overwhelms the added costs.
Working out the numbers, I find myself impressed. Using 2010 numbers as the bases case, as management has done with respect to eps guidance (#4), its fairly obvious operational income is projected to grow nicely.
1. Conservatively assumes zero revenue growth. (This was done because from 2008-2010 revenue declined, hence a conservative measure is simply prudent.)
2. Operational Expenses in relation to Sales was spread evenly over the 2015 time period.
3. Gross Margins remained constant. (This is really conservative. GM will increase as $900M expenses are removed.)
4. With the lack of GM increase, the total $900M is not factored in. (Again, this for the sake of being very conservative.)
With very conservative estimates, Operational Income still increase significantly from 2012 to 2015. Applying these growth rates to a realistic EPS and trailing PE projections, JCP can potentially trade near mid 60.
A few notes regarding the eps figure:
1. Assumes base case operational growth rates will act as trailing PEs. (So that pegs the stock price to a very conservative base case.)
2. EPS growth is fairly significant.
For me, the above is a baseline case. When factoring in higher revenue growth and increased GMs, there is far more operational income growth.
Management:
What makes this a baseline case is the fact the management team is no joke. They help build the true integration of online and brick-and-mortar store, whose operations are the most efficient in the world, the Apple Store. (And I am speaking of efficiency, not demand for product or product driven sales.)
Management's performance history and the above numbers, allow an investor to have the benefit of the doubt. (And the market indicated this today.)
Dividend:
Another added bonus, is the $0.80 dividend, giving a 2% yield even with the recent sizable stock appreciation. I did not notice management suggest they will cut the dividend to fund the Cap. Ex. The Press Release did not mention it, so I will assume they will keep it.
Conclusion:
A base case model that suggests a stock price target of mid 60, and with a 2% yield to ride it out, seems like a nice situation to be in.
Of course, this is a show me story, but with a management that has already shown the street what it is capable of, the street will give it the benefit of the doubt, and will give the stock a richer multiple.
Technicals:
(I consciously put the technicals below the conclusion :) JCP is at a two and a half year high, so their maybe some sort of push back. But JCP is morphing into a new company so technicals prior to the last two day maybe irrelevant. I will use the last two days as the "new company" bottom (between high 30s and 40).
If JCP sees high 30s, or where ever the stock decides to consolidate, I will look to enter an initial position.
some notes... CAT, AAPL, data
1. CAT produced some good numbers. Very interesting to me was their projection of 3.3% global GDP for 2012. That should translate to around a $105 SP500 eps.
2. I was thinking about selling the aapl common, and just wait for an opportunity to re-enter, but I noticed something that stopped me. The data feed to the trailing PE is wrong on Wolphram and Yahoo Finance, which means the many funds that rely on automated computer models have incorrect data. The real trailing PE is in the high 12s. That's just too low.
3. Good Durable goods number and okay jobless number.
2. I was thinking about selling the aapl common, and just wait for an opportunity to re-enter, but I noticed something that stopped me. The data feed to the trailing PE is wrong on Wolphram and Yahoo Finance, which means the many funds that rely on automated computer models have incorrect data. The real trailing PE is in the high 12s. That's just too low.
3. Good Durable goods number and okay jobless number.
Wednesday, January 25, 2012
JCP - Johnson is impressive
Ever since Johnson moved to JCP, I like many, have been following JCP. After this interview, where he gives us a taste of where he plans on taking JCP, its hard not to like him.
I especially like his continued theme of merging online w/brick-and-mortar retail.
I am not ready to enter JCP at current levels. His vision is a process, and there will be a lot of restructuring and added costs until the finished product is ready to shine. Looking at a weekly chart, JCP will start to get interesting near 28. But I will have to dig into its financials, along with the potential increase in brand power and the potential of the department store model he briefly touches on to get a better idea where the stock could go before the transition.
I especially like his continued theme of merging online w/brick-and-mortar retail.
I am not ready to enter JCP at current levels. His vision is a process, and there will be a lot of restructuring and added costs until the finished product is ready to shine. Looking at a weekly chart, JCP will start to get interesting near 28. But I will have to dig into its financials, along with the potential increase in brand power and the potential of the department store model he briefly touches on to get a better idea where the stock could go before the transition.
Market Thought... light protection
I have some relatively light protection. Interesting intra-day action. The market started climbing around 12:20.
The equity rise should have correlated with the treasury 10yr, but it did not. Around 11:30, the 10yr started to collapse.
Seeing this type of action does not inspire confidence, at least to me.
Superficially, the SP500 chart is still very much intact.
I have already expressed my cautiousness, and I am lightly protected (via a light SPY put protection and EUO).
The market could always see a blow-out top, reaching 1340-1350, and any decline should be in the range of 3-5%, but I am patiently waiting.
Superficially, the SP500 chart is still very much intact.
The market could always see a blow-out top, reaching 1340-1350, and any decline should be in the range of 3-5%, but I am patiently waiting.
AAPL
Congrats to those who held the stock! Now that the enthusiasm is out of the way, lets be realistic. Here are some interesting valuation facts:
1. Below 454, AAPL is trading with a trailing PE below 10, if cash is excluded.
2. Below 456, AAPL is trading with a trailing PE below 13. (At 446, its making a new low w/respect to trailing PE. Here the anticipated price band if AAPL is to trade between a PE of 13-14.
3. AAPL's tone regarding their cash is very different from the past. Seems like they will do something soon.
4. Subscription revenue growth (via iCloud and TV).
Assuming Apple plays its cards right, like issuing a +2% dividend, the above three things is a powerful combination that will facilitate the value investors to come into this stock. This should allow the multiple to trade in similar fashion to other large cap stocks.
As for how I traded AAPL today, I unloaded all options in the AM due to the volatility the spike caused, but still own the common. I simply can not sell the common with # 1 and 2 (listed above) in play.
(I don't care that it spiked, its still just too inexpensive. The stock should be trading near 490, but I am willing to unload near 460.)
1. Below 454, AAPL is trading with a trailing PE below 10, if cash is excluded.
2. Below 456, AAPL is trading with a trailing PE below 13. (At 446, its making a new low w/respect to trailing PE. Here the anticipated price band if AAPL is to trade between a PE of 13-14.
4. Subscription revenue growth (via iCloud and TV).
Assuming Apple plays its cards right, like issuing a +2% dividend, the above three things is a powerful combination that will facilitate the value investors to come into this stock. This should allow the multiple to trade in similar fashion to other large cap stocks.
As for how I traded AAPL today, I unloaded all options in the AM due to the volatility the spike caused, but still own the common. I simply can not sell the common with # 1 and 2 (listed above) in play.
(I don't care that it spiked, its still just too inexpensive. The stock should be trading near 490, but I am willing to unload near 460.)
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