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Sunday, January 29, 2012

GOOG+MMI needs to improve

Now the quarterly results are in for MMI, GOOG and AAPL, here is a look at their respective margins.

The combined GOOG+MMI will have lower operational margins than AAPL by almost 12 basis points. Apple is trading at a PE of 12.5, Google is trading at a PE of 19.5.

Google has the potential to increase its margins if they take better control of MMI.

The most important thing they can do is to take from Apple's play book. Drastically reduce the number of offerings. Motorola currently has 27 product offerings, 27!!! A taste of what I would like to see from GOOG:

1. Cut the phone offering to 3 or 4. (Offer high-end, mid-end and low-end)

2. All offerings to be the latest Android OS. (All to have the ability to sync to the latest OS version. Remove fragmentation via the Motorola phone.)

3. Make all the Motorola phones (the 3 or 4) IT friendly for enterprise adoption. (Which also means #2 is very important.)

(Ideally, I would love for GOOG to re-engineer Android from the ground up, to prioritize the software for touch screen, but that maybe asking for too much.)

Everyone has their opinions of what Google should do with Motorola, as an investor, I want to see them make an effort in properly positioning the combined company to better compete with AAPL. The above three loose guidelines facilitates that. (Because they speak to production efficiency and greater user experience.) If they can not, Google does not deserve a high multiple. (They can still offer the Android on multiple carriers and try to mitigate the fragmentation issue, but from a company perspective, they need to improve margins and increase sales.)

I am currently actively looking to go long GOOG. It got the bounce off the weekly 50 SMA, but I am waiting for the market to react to the less than stellar numbers from the combined company. Hoping that allows me to enter around 550-560.

Current weakness is from a bad earnings report (in relation to the street's expectations), and some maybe from the crappy acceptance of the Google+ search results by techies and influential bloggers.

Apple stock seriously discounting

If you hear anybody say, Apple's stock is priced for perfection or is about to hit the "laws-of-large-numbers", call bullshit, because the stock is already being discounted for a ton of negative things.

Everyone knows Apple continues to see very impressive growth, and the best way to show it is through a graph. plotted the Net Sales and Earnings growth rates over a 5 year quarterly basis.

A stock is suppose to trade with a reflection of its growth. Looking at the below chart, Apple clearly is not.

Using the above data points, the trailing PE is incorporated below.

Despite all of Apple's growth, the market has been systematically discounting the stock.  However, from what we know of stock ownership, AAPL is still pretty heavily owned except from the value boys.

The above chart, with the market mechanic info of ownership, simply means new money is not being put to work within AAPL. 

Will the reduced multiple thesis change? I am betting it does.  Below 13, even without at a dividend Apple is just too inexpensive to ignore considering the potential of the mobile web.

In order for AAPL to see a trailing PE more in line with large cap stocks, it will need to offer a dividend, as other large cap stocks do, or develop a solid subscription service.

Apple has tremendous flexibility with a dividend. If Apple was to offer a 2% dividend at 450, and with 941M shares outstanding, it would be giving about $8.47B a year to share holders.  And if the value boys recognize the strong reoccurring revenue stream for the company, they will be far more inclined to participate. (A reoccurring revenue stream will allow them to believe the 'stickiness' of Apple's products, and the 'bubble' argument gets thrown out the window.)

Friday, January 27, 2012

Apple has room to grow

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.

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)

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.


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.)


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.


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.


(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.

Wednesday, January 25, 2012

fortune cookie

Got this tonight :)

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.

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.


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.)

Tuesday, January 24, 2012

wow AAPL crushed it

EPS of 13.87, and pretty much just crushed every other metric and guidance. wow.

To have a trailing PE of 13, after this report, AAPL needs to trade at 456!. wow.

Note on FIO - FIO beat and beat future guidance, but the street is not treating it well. Unfortunately looks like it wants to maintain the 68 SMA resistance. But the numbers were very good.

earnings play - FIO

If anyone has the speculation bug, FIO should be an interesting play. They report today after the bell.  The strength in IBM and EMC may translate into a benefit for FIO.

Technically, it is sitting on its 68SMA resistance, but may want to push toward 34. The trade from 29-34 is the easy trade. A move to 34 will give it a head and shoulder. If it breaks 34, technical indicators will flash on many screens and the momentum whores will push it higher. If not, it will consolidate.

Fundamentally, the stock is pretty pricey. But this is a tremendous growth into the Solid State Device Storage, and the processing efficiency the company provides.

This trade is not for the faint of heart.


Today's weakness in VZ is bringing the stock to oversold territory. So I stated entering the stock.

The first position was at the 50 SMA. A heavier position will be between 36-37.

I am not a fan of the traditional cable companies for 2012 because I truly believe a disruption is coming on the TV Content delivery side of their business via a user friendly a la carte model. But Fios is started from a much lower base, and seeing double digit up take. Basically, the Fios growth should mitigate the disruption effect. (I also think VZ is in a position to add value added services to those who have FIOS and Verizon Wireless, but that remains to be seen.)

realistic on AAPL

Last night, Cramer gave two sides of the Apple story. A pure technical assessment, and his fundamental assessment. The issue I have with the pure technical assessment, is that it is lacking. Looking at the  pure price action pattern is wrong this go around because of Apple's valuation.

When I highlighted the potential downside to Apple, I was just trying to be a good risk manager. But the realistic scenario is that AAPL will trade around a trailing PE of 14 after earnings.  A multiple of 14 is where it has been trading for the better part of 6 months.  (Also, the price action that led to trailing multiple of 13, under the current product growth trends, suggest a bottoming of the multiple at 13.)

Around 14 is the highest probability multiple the market will assign Apple.  If AAPL produces an eps of 10.07 its trailing eps will allow for a stock price of 437. If AAPL produces an eps of 11, its trailing eps will allow for a stock price of 450.

Basically, translating the above gibberish talk, Apple should see a price action between 437 to 450 after they report.

1. Also, keep in mind, AAPL should have never seen a run up into earnings, but the assisted negativity from the media, allowed it to see an exaggerated decline. Basically its been flat for 3-4 months.

2. Looking at a stock via its multiple is no different than a statistician looking at data points through a different perspective to find the valid pattern in a large data set.

Sunday, January 22, 2012

Market Thought... cautious

From my last Market Thought post 'conflicted', we saw the market push with slightly higher, while the 10yr yield has pushed higher.

The attempt to breach from the SMA should let the yield test 2.1-2.2. (Maybe 2.3, but I do not know if the market has enough juice for that just yet.)

The rise in yield corroborate the lower volatility we saw Friday.  But the decline in volatility is entering a patterned area of complacency. Combining the overbought condition across the board, and the subtlety of weakness from the industrials (which led this rally) and oil on Friday, the equity market maybe setting up for a consolidation next week.

If we are to assume the current market action is an extension of the March 2009 rally, then we are at the top-end of the "cautious" mark, with some wiggle room for the Vix to decline further.

The subtleties are present, but the obvious earnings positives and nice yield rise should keep the market afloat until a catalyst is present that tells the big boys enough is enough.

A the most obvious catalyst to a consolidation is the FOMC Meeting announcement. Maybe we see a blowout top when the Fed indicates the economy has strengthened, then an intraday reversal which would trigger the market consolidation.

At the moment I am not sure to the severity of the market consolidation. Maybe between around 1260-1280, but I am fairly confident the SP500 will not break its 360SMA (near 1240).

Regardless to the above assessment, this past week showed the market correlations are being broken. Stocks with positive stories will trade based on their stories.

Saturday, January 21, 2012

AAPL - potential downside

On Tuesday Apple will report their earnings.  Given the product trends and the lower analyst expectations I am comfortable with the stock going into earnings.

Apple has grown its computer share as the industry declined.  The iPhone has grown its share as the mini computer is adopted by multiple carriers. These gains in share took place with consistent price points.

Last quarter Apple beat their own estimates by 28%, but everyone (wall street and bloggers) pegged their estimates higher than 28% to Apple's estimates.  This go around all estimates are not that high. Wall street estimates have been trending higher over the past few days reaching $10.07.  This is 8.27% higher than Apple's estimates ($9.30).   Blogger estimates are around 11.30 (although these estimates are a few weeks old and I have not seen updated estimates). This is 21.5% higher than Apple's estimates.

Both blogger and wall street estimates are lower than Apple's percentage beat in the pervious weak quarter.

The macro conditions have aligned to give an earnings beat a high probability. (With a relatively strong product pipeline for 2012 including iPhone 4S in China, iPad 3, LTE iPhone 5 and Apple TV prospects are still pretty solid.  I have argued an Apple TV subscription service will be enough to increase Apples multiple as it will usher in the Value Boys in mass.)

For this exercise, lets ignore the above. Lets just assume a realistic potential worse case scenario.  But first, we have to establish Apple's trading dynamic for the last few months.

The last three months for AAPL we have seen a trailing PE ranged from 13-16. (PE data from WolframAlpha)

Despite Apple's continued growth, the 2011 multiple compression was to be expected due to Apple's size. The last three months of the year, the compression was exaggerated as AAPL did not beat analyst guidance by over 28%, and the world economy was in threat of collapse due to EU debt issues, AAPL saw a trailing PE of 13.

So if we assume Apple simply meets wall street's expectations and gives us an EPS of $10.07, its trailing eps will be $31.31. If the market gives Apple's stock a PE of 13 on earnings of $31.31, the stock price will be $407.

Is a trailing PE of 13 justified when AAPL still has revenue growth and eps acceleration? No.

The above assessment is all predicated on a realistic negative extreme, discounting the positive data we already know.  The truth is, AAPL should produce an eps greater than 10.07, and maintain a PE closer to its large cap technology peers, which is around 14-15.  But that is for the market to decide.

Friday, January 20, 2012

13:15, AAPL

I am guessing some big boy decided to unload today.

The sizable decline started at 1:15pm.  The stock goes from zero volatility for the day, to a sharp decline. Looks like someone wants to minimize a position or get out before earnings.

Today is option expiration, maybe that may have something to do with it too. Maybe an effort to wipe out value of some of the call options.

I do not know the specific reason, but I do know a few things.

1. In a 3 month time frame, AAPL has been flat. (The stock is where it was when it reported last quarter. So the market is saying, AAPL generated ZERO value within the three month time frame it has gained market share from Android.)

2. Apple has generated value in the last three months.  It has grown its computer business while the industry has shrunk and increased iOS market share against Android while maintaining high price points.

Despite the volatility within the stock, at 420, the market is ignoring the value generation. (As for future prospects, iPhone 4S just started selling in China, iPad 3, iPhone 5 LTE and Apple TV on deck for 2012.)

Google showed progress

Although the pure GM decline, else where the company seems to have been trimming expenses.

These numbers are preparing for the MMI merger, which is something I wanted to see. (In the previous post highlighting the potential 10% margin decline 'The Motorola Effect', I forgot to include Sales and Marketing expenses w/in Google's numbers, I included them here.)

From a GAAP earnings perspective GOOG will see a trailing multiple of 19 around 565. Curious to see what MMI produces.

From a technical perspective, the 590 area is the first level of support via the 85sma.

Other levels of support, for the more conservative trader is near 570 and 550.

I will look to 570 and 550 for entries.

Thursday, January 19, 2012

ouch GOOG (opportunity AAPL), nice IBM

GOOG taking a hit AH. (Not surprised. I understood its trading dynamic pretty well this go around.) The stock is starting to look attractive again with this level of decline, but I will dig into the numbers, and gain a proper assessment.

IBM is fairing much better. The market already discounted poor results, so the in line results are being treated nicely by the market. (They had a nice revenue beat. Looks like currency fluctuation did not hurt them this quarter.)

ps... don't tell anyone, but wanted to pass along some info on AAPL.  If Apple produces the streets estimates of $10 (which is reasonable, as it is 7.5% north of Apple's estimates) here is where it can trade:

It should trade to 437 with a trailing multiple of 14 (which is below its current trailing PE of 15.44).

If the eps comes in closer to the blogger estimates: (The real number is around 11.30, which is about 21% higher than the company's estimates. Not unrealistic considering previous beats by Apple and the market share gain of the iphone.)

the stock will trade around 450 with a trailing multiple of 14.

If AAPL declines because of GOOG, that may provide an opportunity to enter AAPL before it reports.

CHK - soon, but not yet

The decline of natural gas is making CHK look very interesting. I wrote about the potential set up a few weeks ago.  US natural gas is now trading near a decade low, but there does not appear to be a capitulation in sight.

Fracking has done wonders to increase supply, and keep prices depressed. (Can't say the same about the local environments. But progress has been made on the environment front.)

Recently, the Department of Energy approved a plan to convert a Louisiana Nat Gas hub for export of liquified natural gas. Where there is one, there will be many.

Natural Gas is about to become one of America's greatest exports, and the natural gas plays will benefit.  There is a great arbitrage to take place, if not one of the greatest in history.  European and Asian natural gas trade over 3 times as much as the Henry Hub price.  Once America begins to export, the spread will shrink.  But those who can capture the arbitrage will make a fortune.

If there is one commodity company that can take advantage of financial engineering and price arbitrage, it should be CHK. (McClendon is not shy when it comes to playing markets. Its also one of the reasons I am cautious on CHK too.)

Retrofits of hubs do not take place overnight, and in the mean time an opportunity will arise to get CHK at a very attractive level.  Last time nat. gas was testing these levels, CHK tested high 17/low 19. This time around should be no different, considering the level of negativity in the commodity.

I plan to take on positions when CHK enters the high 17/low 19 area.

Wednesday, January 18, 2012

Market Thought... conflicted

Now that we are in the 'earnings rally', I find myself conflicted as to market direction. Here is the situation, as I see it:

1. A systemic risk removed. With a credit event taken off the table, the market was able to rally due to company (ie earnings) fundamentals. The market beautifully pushed past 1300. Great.

2. Earnings growth.  The Global GDP is now projected to be 2.5%. Slower growth.  The SP500 will most likely witness a trailing earnings of 95-97eps after the numbers are reported this quarter.  With a systemic risk off the table, a trailing multiple of 13.5-14 can be justified.  Simple math gives us a target SP500 of 1282 to 1358.

The market has not traded with a trailing multiple of 14 in MONTHS! And with a global GDP of 2.5% SP500 earnings growth will be muted. Conservatively we have to expect 0-5% earnings growth for the year.  Assuming an eps of $100, the market should trade between 1350-1400 as 2012 ends. (There are a lot of days between now and the end of the year.)

Combining 1 and 2 highlights our potential upside, for now.  The above chart and the impressive move in capital market banks suggests the market can test around 1340.

Adding support to the 1340 thesis, is the set up in the 10yr treasury yield. The yield looks like it wants to go up.

A yield rising will give further justification to the 'real' big boys (I am still not a big boy:) to be bullish on the market. (They will say, "managers are selling bonds to buy stock", stuff like that.)

The indicators suggest further upside here, but I am generally cautious due to the potentially limited upside.

(Just not possible to stay as bullish as I was when the market was near 1200 with this macro-economic back drop. I am not like the other momentum whores out there, I will step in when others will not and walk away when others get caught-up whoring.)

muzzlling santelli and SOPA

If only the muzzle actually prevented him from at least shouting in the AM. (I'm just that kind of guy that does not like crazy loud morning talk.)

If you are a relatively-angry well-to-do pro tea-partier, I am sure his words resonate well.

The dynamic of the SOPA debate is so fascinating. Many politicians allowed the bill to get to a certain point, but when many of the tech influencers saw it had a legitimate chance at passing, it took the web less than weeks to effectively kill the bill.

The cost dynamics are also fascinating. Think about how much the content providers spent on lobbyist and basically buying politicians and former politicians to bring the bill to almost passing.  Then compare that with the actual cost of killing the bill. (Hundreds of thousands of dollars vs about $0.)

JPM, and capital market banks

The morning action in GS and JPM are simply impressive. There is consistent buying going on.

I have been patiently waiting to enter a light position in JPM, but discipline prevents me with such overbought intraday conditions. There will be a point when the major buyer(s) stop purchasing for the day, and will be allowed to properly consolidate. When that happens, I will enter a light position.

I like today's action because I think today started the move that the capital market banks will revert to book value. (This is not an earnings story!)

This will be an initial position because I am still expecting a hiccup when the Greek "default" is announced, and will enter the rest of the position on that hiccup.

The daily chart suggests JPM want to break out of the 200SMA sooner-rather-than-later.


If there is a broad based sell-the-news effect after MSFT or IBM reports, I am looking to enter ADBE.

I really like the technical set up, but it is overbought, and I am concerned of the sell-the-news on earnings.

Also, ADBE is positioned very nicely for HTML5. HTML5 should see a major push this year as greater processing power in the handset and LTE gains traction.

LTE should gain much more traction this year, especially if iPhone 5 (LTE version) is released and battery life concerns (in general for the technology) are alleviated.

Tuesday, January 17, 2012

Market Thought... 2:30pm

Something happened around 2:30pm that caused the markets to decline and the VIX to spike.

Anyone can make up any particular reason for the market coming off its highs, but I could not find a definitive explanation.  I could argue the stock that led the market decline was DD, and can extrapolate from there w/respect to its industry, but nothing concrete. (DD's decline started at 2pm, before the hoard.)

I saw certain intra-day weakness, and took on a light short position prior to 230, normally I would cover (and I one point I did) but I do not like the current VIX/SP500 set up (and put the protection back on).

Every time I see the VIX being up as the markets are up, I get cautious as it usually is a sell signal.  Something may have happened at 230, that most of us are not aware of, corrupting the VIX. But regardless, the set up still merits caution.

I am going to keep combing the chatter to see what could have happened to spark a sell off.

trade GOOG into earnings?

When I look at Google's current situation, I find myself hesitating to take a position into its earnings report.

From a pure technical stand point, its 'blah'.

Superficially, its not overbought and supported by its 50SMA, but there is a weakness present. (I am not the only one with the hesitation.)

Google, excluding MMI, should produce good numbers, facilitating a pop.  When Google announced the MMI acquisition, they indicated the results will be combined around this time of the year.  If they start reporting the combined numbers, I fear the street will negatively react to the stock if Google's results could not make up for the MMI drag down effect. Especially with a relatively high trailing multiple on Google.

I find it more prudent to not play it, and see what kind of plan Google has to increase MMI's hardware margins.

If the street ignores it, an opportunity may arise shorting GOOG waiting for the street to recognize the effect. (Unless there was a ton of behind the scene action that was completed to improve margins over the last 3-6 months.)

If the street does realize the effect, an opportunity may arise to enter GOOG at a better price or at least with more information (aka certainty) as to how they plan on leveraging android via MMI.

(I would not mind entering GOOG with a trailing multiple around 18-19 considering the MMI effect.)

Monday, January 16, 2012

AAPL still looks too cheap

There is more evidence that AAPL's earnings will reflect the bullish estimates of the bloggers.

I already discussed the iphone market share gain. Because Apple controls so much profit from the mobile space, market share gain translates to a sizable profit gain.

Last week there were numerous reports regarding Apple's PC gain (excluding iPad) against an industry decline.  However, if iPad is included into these numbers, Apple is now the largest PC vendor. (image from

There is an argument to be made that iPads should not be included into this number, but as iPads disrupt PC usage the argument gets diminished. Common sense dictates that PC usage is being replaced by iPad usage, and the numbers should be combined. But for the sake of data supported justification, IDG published a report that 12% of enterprise iPad users no longer use their laptops.  IMO, the above is a better representation of computer share.

Apple is in a situation where it has gained mobile and PC market share this quarter, making the blogger estimates of +11 eps far more realistic than wall street estimates.  If we assume Apple will be allowed to trade with a trailing multiple of 14 (which is lower than the current multiple of 15.17), and a eps of 11 for the quarter, AAPL will trade at 450.

If 450 is too unrealistic for anyone, even looking at Apple's trading dynamic via its ex-cash multiple the stock should trade near 430. (This is a bit more complicated, bare with me.) Over the last few months, AAPL has traded with a ex-cash multiple (removing the cash hoard from the stock price) between 10-12.1. If we give Apple an ex-cash multiple of 10.5 as they report 11eps (with an assumed $5B cash addition), this still gives Apple a stock price of 430.

The above all assumes a low multiple for AAPL will still remain, despite the kick ass performance, making right now a good entry point for anyone interested in being exposed to the risk.

However, over the next few months investors will see Apple's plans for TV.  These plans can expose Apple to 1 of 3 things:

1. increased revenue and earnings from hardware sales via the +$100B television market

2. a sizable subscription revenue stream, which the under invested value boys will love, expanding AAPL's multiple.

3. a combo of 1 and 2.

Sunday, January 15, 2012

some thoughts... BGCP, GS, IBM

BGCP - looks to want to form, at the very least, a head-and-shoulder pattern, which would suggest a move to 6.55-6.60. However, with bank pressures easing this should facilitate the stock to breakout from the pattern, and cause a bullish leg up. (BGCP does not hold gov debt, they only help sell it. As sovereign yields decline, this removes downward pressure from BGCP.)

GS - is very interesting here.  The daily chart continues to support a bottoming, with a bias to the upside. The weekly chart still highlights the SMA resistance.  The play, imo, is to purchase on weakness as the weekly will soon confirm the long-term bottoming process. Also, something interesting, GS has not been overbought via the weekly for the entire year. Its itching to get overbought on the weekly.

IBM - continues to test its support levels as it pushes downward. If anyone has the risk appetite, mid 177s is an interesting entry point. The crappy technicals on the daily chart would merit waiting until the low 170s, but the positive SAP results can counter the crapy chart.

Near the 200 SMA I plan entering multi-day/week positions.

(Some venting, if you do not day-trade, you will not care about this... I did not see the SAP news until it was too late. Gave me some frustration on Friday.  I entered some IBM call options in the AM on its thrust downward near 178. I planned on holding the calls more than just a day. But as the market pushed higher late morning, I saw an opportunity to short the SPY intra-day.  Thinking IBM would act in sympathy to the market and I could buy it back cheaper, I sold the IBM position as I shorted the SPY. IBM did not act in sympathy. If I saw the SAP news I would not have done this. The SPY short worked out, the IBM trade was basically a wash, no gain/loss, other than the frustration.)

Friday, January 13, 2012

Market Thought... catalysts

The market has handled the French downgrade fairly predictably.  The market pushed toward the 14SMA, as highlighted in the previous post, and is now chilling.

In the short-term, we may see two major developments.

1. China eases. With their FX reserves declining, and taming of inflation, we may see something out of China very soon. This should be very positive for equity markets, obviously.

2. Greece involuntary restructuring. This will trigger the CDS', and the US capital market banks should take a hit from this. But the hit should be temporary, and an opportunity.

Basically, there is a potential short-term hick-up, but overall things still look okay.


I will look to enter a position in JPM near its 68 SMA. Technically, its an interesting level that has acted as resistance (in conjunction with the 200SMA in July), and I think it could act as support, especially if the banks see a brush of negativity with any 'involuntary restructuring' from Greece.

I will enter via the common stock.

Market Thought... the downgrade

Consumed with all the drama of an EU debt downgrade, along with today being Friday the 13th :), the markets are down.

We have a situation where two of the three largest rating agencies (Fitch and Moody's) already stated they will not downgrade French debt this year.  That leave the Standard and Poor's. In Nov they accidentally issued a downgrade on their website, but quickly retracted the statement.  However, rumors are floating around that now, they will do it today.  Okay.

The CDS market was already pricing in a debt downgrade since September. (see CDS)

I am not trying to make light of the situation, but if anyone was paying attention to the chatter, this is not a surprise.  Even Sarkozy started shrugging his shoulders to a downgrade.

From a technical perspective, the market may decline to the 14SMA with this negativity.

However, a look at the 10yr yield would suggest the market was expecting this for some time, and is at a base line support.  

Could it go lower? Sure, but the higher-probability-scenario is that it does not.

Thursday, January 12, 2012

IBM in sympathy

All of IBM's major competition has come out and used Europe as headwinds.  All of them (ACN, ORCL, and INFY) has seen 8-10% declines when reporting the news.  Since IBM hit its all time high (195), the stock is off about 8%.  When Oracle reported their short-fall IBM was near 187.  Using 187 as a base, an 8-10% decline 187 is 172-168, respectively.

Technically, there is support below 187, and strong support near the low 170s via the 200SMA.

Looks like IBM can not escape the industry negativity, and is slowly discounting a potential short-fall.

Assuming IBM sees the low 170s suggests the market starts discounting sector negativity from 187. If we assume macro negativity was being discounted from 195, anyone of the above supports can be used as an entry. (I am conservative, so I used the 187 number.)

AAPL short-term trading dynamic

AAPL looks to want to chill here until they report. From a short-term trading dynamic perspective AAPL will be chilling between its 5SMA and 10SMA.

It bounced off its resistance trend line, quite beautifully, and now it is just looking for an area to base. The SMAs have been moving upward at a pace of around 1.5, so that would place the 10SMA around 418 tomorrow, near yesterday's low.

Basically, outside of the trading jargon, an entry can be made around 418-419. It will most likely have an upward bias prior to reporting on the 24th, but upside should be capped near 427. 

Based on the macro trend affect on earnings and low multiple assumptions, AAPL should trade near 450 after they report.

Wednesday, January 11, 2012

involuntary restructuring

If there is a involuntary restructuring on Greek debt, the capital market banks may take a sizable charge.  They should be able to withstand it, fairly easily due to their capital cushions, but it may lead to a hick-up in their stock as more certainty arises.

From my data base of info originally established on 11/16/2011 via a Bloomberg article:

"Guarantees provided by U.S. lenders on government, bank and corporate debt in Greece, Italy, Ireland, Portugal and Spain rose by $80.7 billion to $518 billion in the first half of 2011, according to the Bank for International Settlements."

The numbers are absolute terms, and will not be nearly as much because corporates debt should not be affected.

The above is why banks in capital markets are trading below book value. As they appreciate toward book value. Weakness from the above I would view as a buying opportunity. (I just do not know yet at what price that opportunity will be. I am using GS as my trading vehicle for this, but JPM may be better as its retail operation will benefit from the US economic strength and housing bottoming.)

MA - not just about Europe

Goldman may have used Europe to downgrade MA, but the more concerning aspect for the processors is the increased competition.  There has been a few major competition announcements in the last few days:

1. Online payment systems entering the brick-and-mortar locations. (PayPal) The approach is interesting, and potentially very dangerous to the Big Two.  PayPal is using a 3rd party (AJB Software) to manage the relationship with the retailer.  This is not an exclusive deal, and potentially allows other online payment systems to enter this space fairly easily.

2. Europe lowering the barriers to entry.

I am more concerned about the above effects on growth rates and ability to increase pricing, which will merit a lower multiple going forward, then a slowdown in Europe. (Although a European slow down is a concern.)

With the technical breakdown via the daily chart, the momentum players are out of this name. (Unless some fundamental news develops that eases the above concerns. 320 looks like an interesting level.

Fundamentally, a move to 320 is possible, as MA has see a trailing PE near 16 over the past 2 years. But with a trailing multiple of 16, imo, that more than discounts the above concerns.

Tuesday, January 10, 2012

Market Thought... the juice

A few key stocks, that I believe are indicative of their sector, highlights the underlining strength of the market.

CAT, ETN, GS and the semi index broke from their negative trends.

The key industrials, financial and semi index show the underlining strength of this market, and makes one hesitate shorting this market. 

From an earnings perspective, as companies begin to report, and if they continue to outperform estimates, earnings for the SP500 should come in around $95-97 eps.  This allows the market to trade to a 1300 level. 

The above bullishness may facilitate an SP500 push to 1300 into earnings season.  I will look to take on SPY protection, as the SP500-Vix overlay indicates me to do so. (I would look to cover those puts near the 14SMA of the SP500.)