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Saturday, March 31, 2012

the lone defender, GOOG

Over the past two months I have dished out my far share of Google criticism. Through out that time, the influential bloggers have been having a hard time adjusting to Google's new (and needed) strategy, and simply been beating up the company. But throughout this negativity, Google search held its own and important transitions took place (and are taking place) to better position Google to compete in the 'Post PC' or 'PC Plus' world.  So as core businesses remain intact, an investor can not simply be as negative as before.

The most important factor regarding Google's transition is that it is being proactive. It is not being reactive. And I think this is why the influential bloggers are having such a hard time adapting to the changes.  (If everyone was a visionary, change would not be so difficult. I am not a visionary, I just pay close attention to the data and trends.)

From a product stand point Google search and display businesses are still best-of-breed, and growing quite nicely. But there are also long-term threats that Google has been trying to address. Google's ultimate threat is that Search simply becomes a 'feature' due to the answer engine.  Google executives pretty much admitted this a few weeks ago, but they have been quietly positioning their current offerings to an answer engine for some time now. (The most obvious being Zagat and ITA, but they have other verticals as well which can become more pronounced if Google really was an answer engine.)

One of my major concerns was that Siri would be incorporated into the iPad. However, it was not.  The reason is probably because of the inconsistent quality of service. With this current inconsistency, Google should retain its mobile usage share. (Share becomes less of an issue as mobile/tablet ads mature and click through rates accelerate.)

(Just a quick anecdotal side note: I would never use the Google App on my iPhone. I would just use Google through safari because I found the app to be crappy and slow. But the Google App on the new iPad is pretty awesome. Its smooth, fast, flexible and voice command is really good. I do not type Google searches anymore when using the iPad. Its cool.)

But the point of this post, on this forum, is to highlight its current trading dynamic in relation to its technology brethren.

Since the end of 2011, for the most part, technology stocks have seen multiple expansion. The one company that has not is Google.  The below chart highlights the magnetite of multiple expansion seen from all these companies since 12/31/2011 to 3/30/12. (Using GAAP earnings.)

I could have included more names, but the above drives home the point.  Any price action that Google saw this quarter was not due to multiple expansion.

In fact, if we make two basic assumptions:

1. the market maintains a bullish sentiment
2. Google produces decent earnings

A baseline case can be made that GOOG should maintain its trailing multiple of 21 over the next few quarters. Looking out over two quarters, we can see where Google should be trading.

If Google's trailing multiple remains at 21, the stock should see a price of 682 and 702 over the next few quarters. This assumes a trailing EPS of 32.52 and 33.43, respectively. (Google's non-GAAP earnings are projected to be 9.64 this quarter and 9.99 for the next. GAAP and non-GAAP usually differ by mid12- mid14%, I am factoring in a difference of 14% for my numbers. So the GAAP numbers used are 8.29 and 8.59.)

Over the next few weeks, the obvious scenarios include:

1. earnings below analyst expectation - This would merit continued multiple contraction, probably toward 19. (I use 19 because this was the low-end multiple Google achieved after a poor Jan showing, and it was the multiple before the market pushed higher this quarter.

2. decent earnings - This should merit no multiple expansion.

3. good earnings - This would merit multiple expansion. In order for Google to be inline with its out performing technical peers, that would merit a multiple expansion of 10-20%. Translated to a trailing multiple of 23-25. (For the below assessment, I use a multiple of 23.)

Below are charts that highlight the ranges. The "1 quarter forward" is for this coming quarter, and what I am expecting from a stock price.  The "2 quarters forward" incorporates this quarter and the next. (Both use GAAP eps.)

Barring a disastrous earnings report, and market shock, I believe the above captures the potential down side and upside side over the next 3-6 months.

With Google trading around 640, the risk/reward does not seem that bad.  If Google trades toward 620 before they report earnings, that would obviously be a better risk/reward.

Given the new found disciplined cost structure, continued growth in overall search and positioning for the PC Plus world, I am expecting decent earnings.

Friday, March 30, 2012

Anatomy of a trade gone wrong, SLB

When I have a losing trade, no matter how small, (other than a hedge) it bothers me.  Because of the level of thought, and continuous analysis I devote to making that decision, a bad trade really really bothers me.

No trade has bothered me more than SLB.

In late December, as SLB reported solid numbers, in the face of declining natural gas prices and Crude near 100. The oil service stock was acting weak prior, but after they reported the stock, started to move.  In late January it tested its 200SMA, then started to break out.  After a pretty over bought condition, it consolidated at its 14SMA, then pushed higher. The action looked normal for a bullish stock in a bullish market.

After an overbought condition (and testing the trend line), it started to pull back again. However, this go around it would be susceptible to outside forces. The 'Brazilian growth fears' caused the first collapse highlighted by the blue arrow. After a period of consolidation from the negativity, it started to regain its ground and push higher.  I thought this was due to its superior fundamentals and the fact that Oil prices were all above $100.

The red circle highlights were SLB was recapturing its bullish consolidation on the 200SMA.  At this point, I thought SLB would, at worst, chill on the 200SMA until investors realize the disconnect in valuation, as high oil prices would merit continued demand for their services.  Unfortunately, Baker Huges took down the sector, with their negativity. Obviously, the negativity continues.

Fundamentally, even I foretold of Natural Gas production cuts on 12/30/2011, and the market was already discounting the servicers (BHI and HAL) most leveraged to North American Fracking. Despite differences within the sector, SLB still got knocked. Because Baker Huge's warning was so big, SLB had to acknowledge the weakness in North American fracking too, a sector they are exposed to by less than 33%. (Its really less than 33% because of the liquids they are involved in along with NatGas.)

Prior to this negativity, I was  eventually expecting SLB to trend toward the low 90s because of oil's price, over the next few quarters.

Instead we got a wave of negative sentiment that is making SLB test its Nov low end range.


I have been waiting to start playing the fertilizers again for some time (specifically POT), but always held off because the potash market was going through a bit of a hiccup.  Too much supply for the level of demand.

A few things have contributed to this:

1. over supply
2. more efficient use

Because of these trends, the projected potash price, late last year, was to be relatively flat.  But as the market closes the first quarter, and producers are coming off forced shut downs of production. This may have facilitated a shift in pricing. (Not to mention a lower natural gas price that should help fertilizers in general.)

A cautionary note, Mosaic's recent earnings report, did not insight confidence to the macro shift. But when looking at POT specifically, I get the sense of a potential breakout.  To not mince words, it is still at its 150SMA resistance. The resistance is an important one because the 150SMA usually acts as long-term support/resistance.

If it breaks the 150, it can make a legitimate push toward 50.

Thursday, March 29, 2012

Market Thought... hmmm, CAT

One day certainly does not make a trend, but the subtlety of today's action I found interesting. Interesting enough to highlight it.  In my Market Thought post 'churning', I highlighted a few scenarios that may lead to a flat, down or up market.

The market turned around 12:30-12:40.

One can argue when the exact time could have been, but thats irrelevant. What I found to be pretty specific was that CAT, arguably, led the change upward (while the banks and technology were relatively flat/down).

(Another interesting subtlety were big oils like XOM, COP, SU etc, diverged from the price of oil. Hopefully that means their discount will start to be removed.)

The subtlety is suggesting the laggards (industrials, energy and materials) maybe seeing renewed interest. If there is a churning into these names as banks and techs remain flat, we will see a bid for this market.

I call this a subtlety because the current charts of the laggards are really really crappy. The one fundamental catalyst that will shake the big boys into accepting the above scenario is if/when China begins to ease. Or if the Chinese PMI shows better than expected numbers Sunday night.

(Either way, an initial play is being made here. I was hoping to pick up some CAT near 98 for the China easing/good PMI play, but after today, I do not know if it gets there. It may not break today's low. If I do play it, I will probably hedge the position with a few FCX puts. FCX saw a move today too, but it was much later, and not as fierce. Both will lose if China's PMI is weak and China does not ease. FCX should lose more as per the sentiment.)

Wednesday, March 28, 2012


Mahaney, you SOB! :) I kid, of course. He upgraded the stock today, and its up $10.  I completely agree with him. In fact, I think his price target might be $30 lower than where I expect it to go if they produce solid numbers this quarter, which I am expecting.

Thing is, without the upgrade Google should have seen its 8SMA today, to which I would have entered a light common stock position, to ride into earnings. (Then play earnings with a few call options, which I still plan to do regardless.)

He may have set the catalyst for it to see 670 before earnings, which will force me to nibble on it now. (I really mean nibble.)

Market Thought... the pattern

Wanted to write this last night, but I was a bit under-the-weather last night. Curled up with the chills around 9pm and woke up around 7am. (For an insomniac, 9pm is pretty early!)

Since the the rally began in 2009, the last two years we have seen a pretty obvious pattern, sell in May.

The 2010 'sell-in-May' was exaggerated by the first Greek bailout.  In 2011, we got a few geopolitical events and the Japan tsunami that played a role in the market consolidation. (Then in August all hell broke loose thanks to the SP US debt downgrade and the run on the EU structural issues coming to the for front.)

It makes sense to have some consolidation around the current levels, considering the move we have had since October. But August to November were anything but normal month, and those months produced such a discount to the market, that we are still working our way out of it.

Looking back, year-to-date, the markets are currently up only 4.4% from a year ago. As earnings continued to grow, despite the collapse in the market. The first quarter is ending in a few days, and we are now approaching the second quarter.  Based on my 'new numbers' for the SP500 the market can push toward 1460 in the second quarter assuming a trailing multiple of 15 and companies meet their earnings estimates.

If not, the low-end estimates (with a trailing PE of 14.4) have the SP500 chilling at current levels.  This would assume a general sell-the-news during earnings. However, we are not in a highly correlated market where one company can dictate the performance of another.  Unless your an energy stock. (For instance, we should see a differentiation in SLB. Even though they warned on their North American Fracking business, they said their liquids were still solid. Traders simply focused on the former, and proof will be in the numbers.)

I think we will see some divergences this earnings season, allowing for new out performers possibly putting a floor to any real corrections, as highlighted in my 'churning' post.

(And if there are sell offs this quarter, eager investors may pick up shares quickly.  For instance, I think Apple may sell off this quarter because of margin compression. If they sell off, I am sure I will not be the only one buying Apple if that happens.)

Tuesday, March 27, 2012


FIO is at an interesting set up. On its weekly chart, it pushed off of the 34 level.  That level appeared to be a head-and-shoulder resistance.

With the push back, FIO is now approaching support levels. On the weekly chart they are shown with the 20 and 32 SMA. On the daily chart the supports are near current levels and low/mid 27.

It can always go lower, with support near mid 22, if the company does not perform as expected. But FIO is a back-end play on big data, cloud computing and the increased mobile traffic via the changing dynamic within data centers and servers to facilitate the rapidly growing technology segments. All these segments require better and efficient data center infrastructure, to facilitate increased processing capabilities. FIO allows for this.  They took a hit on margins last quarter because they had increased client demands that caused them to add more costs into the quarter. (A supply issue I hope they were smart enough to work out this go around.)

If FIO begins to reflect the growth of cloud, big data and mobile traffic, and convert their offerings into profitability, FIO should breakout from its weekly head-and-shoulder pattern.

Currently I have an initial position at current levels. Will add at the 68SMA. Then wait and see how they do going into the quarterly report.

Just an FYI... until FIO begins to consistently make profits, this is a speculation play. High risk/high reward. If anyone does not like high volatility, don't play it.

Monday, March 26, 2012

SP500 w/out AAPL

The markets do not need Apple to rally.  So anyone who made (and continues to) separate Apple from the general market to make a bearish case do not seem to be correct.

 There seems to be general positive sentiment across the board.

Bernanke is acknowledging the positives

Speaking in his normal monotone self, he is acknowledging the positive within this economy. I suspect this confirmation of an improving economy is causing the futures to rise higher this morning.

Although the positives are being validated, he makes very clear unemployment is very much a concern, especially the long-term unemployment.

Friday, March 23, 2012

Market Thought... churning

A few weeks ago, I highlighted a Market Thought post that suggested a consolidation or cracks. Since then, the market continued to rally with brief corrections, while the specific sector consolidations took place.

The consolidation is frustrating because the oils, industrials and materials took bigger hits than I expected.  But banks and technology were enough to hold things together.

Based on the current dynamic of this market, we have a weak cyclical sector but strong enough secular sectors to keep the market a float.

The market is now in a situation where it will see a correction or more of a churn.

Current dynamic:

1. The banks and technology are overbought, but the macro fundamentals for the banks are good enough where they should keep consolidating around book value, until visibility in normalized earnings is seen. (Unless a new reason materializes for banks to trade below book value again.)

2. Technology should continue to do relatively well until earnings give investors an excuse to sell-them-off.

Potential dynamic - continued push higher:

1. Banks hold firm.

2. Technology at best trends higher or sideways.

3. Oil, Materials and industrials come off their oversold conditions as investors realize how inexpensive these names are. China growth fears ease as they continue to show their flexibility to grow their economy.

Potential dynamic - real 5% correction:

1. Banks hold firm.

2. Technology sells the news on earnings.

3. Cyclical names stay flat to down.

Considering the relative strength within the US jobless and jobs data, and Chinese flexibility, I am inclined to continue to believe in my 'new numbers' post.

On a side note: Anyone who thinks Iran is currently priced into the price of oil was kinda proven wrong today. We got a hint of how much Iranian oil was cut off of the market, and oil spiked. That is a commodity trading with out an Iranian discount.

Wednesday, March 21, 2012

the bath water, the baby and SLB

SLB has been acting as a money pit as of late. Every time there seems to be a push higher, something drags it down.

Back in early March SLB took, what I thought to be an unmerited hit in sympathy with industrials due to Brazil. Two days ago, SLB seemed like it was going to break from its pullback and push toward high 70s, low 80s.

 Yesterday seemed like a normal push back from its attempt to push higher, facilitated by a decline in oil (the commodity).  Today, Baker Huges (BHI) issues a warning on its profit margins. In sympathy, the sector is in decline.

Okay, I get the sentiment, but is a uniform decline really merited?

BHI has about 50% of its revenue coming from North America, and a lot of that comes from Nat Gas. Obviously with US Natural Gas at record low prices, and oversupply, there is an obvious reason for under performance. Everyone knew nat gas production was going to be cut, which would affect natural gas heavy servicers.

On the flip side, SLB has about 33% of its revenue coming from North America and a bunch of that is related to liquids and off shore drilling.  The rest of the 67% of its revenue is specific to areas of the world where natural gas prices are north of $13-16/btus and with Crude well north of $100 for WTI and Brent. With these conditions in place, I scratch my head wondering why SLB is being taken down in sympathy with BHI (a known under performer).

I know there were concerns about profit margins, and that concern is across the entire sector, but with the macro fundamental back drop (especially globally and higher WTI oil price for the US) SLB seems very well positioned to continue to benefit.

Tuesday, March 20, 2012

MSFT divergence

Interesting MSFT action today. After its huge run, the rally 14 SMA support is breaking. Today MSFT looks to be breaking from that trend.

Its easing from its over bought condition, but it has some consolidating to do before it is oversold. (The consolidation could be near the 50SMA, but I am not sure right now.)

Even though the recent rally was telegraphed, I have not been a fan of MSFT's reaction culture.  The culture makes the stock an interesting dividend play, but until they play offense to truly compete with Apple, they will continue to deserve a low multiple.

CAT ceo still optimistic

The video of CAT CEO interview is interesting. Gives a good update on global economy.

From the video Middle East and Africa is booming, China and Latin America are great long-term stories (code for chugging along at the moment), and Europe is blah.

I don't think this is anything new, but confirms the current status.

Monday, March 19, 2012


I have been actively trading BGCP for some time now.  Like many financials it was very overbought, but with a thesis that the financial markets are firming up, Friday's decline got me very interested in the name again.

I was hoping to enter a full position near 7.20 or near the 20SMA, however an intra day reversal made me enter a position this morning. (I do not plan on selling the current position until the below target is seen.)

With the financial markets firming up, BGCP is simply too inexpensive here.  A history of its dividend yield suggests, under relatively calm financial markets, its dividend should be yielding around 6-7%. (chart courtesy of wolframalpha.)

If the pattern holds up, and I do not know why it should not barring a financial shock, BGCP should appreciate to $10-11.  (BGCP currently has a $0.68 dividend. With a target of a 6-7% yield, the stock should trade at 9.7-11.33.)

If further consolidation is seen from current levels, I am prepared to add.

Saturday, March 17, 2012

Market Thought... new numbers

A couple of days ago I wrote about a transition taking place within the market. If this thesis in correct, new SP500 price targets have to be established.  Ever since the March 2009 rally started, the market generally has been trading with a trailing multiple of around 14-15. (The exceptions to this come when the market feared a systemic issue, primarily the EU bank failures.)

If the market enters a period of a trailing multiple around 14-15, then the current market expectations are way too low. Below are graphs I created, from my models, to highlight SP500 target expectations with current SP500 eps estimates, and then a lower eps estimate.  Current EPS estimates are expected to grow about 8% this year. I took the liberty to reduces these estimates for a 5% growth expectation. (Even though current earnings have been pretty solid.)

Both charts show the eps for each quarter, and based on these estimates, along with a trailing PE of 14.4 and 15, a target range for the SP500 for each quarter.  The first chart is estimates only a 5% eps growth. The second uses current estimates.

As you can see, the current estimates justifies a rising market, with the breakout we saw a few days ago.  In fact, the current estimates fit nicely with the monthly SP500 chart to have it retest multi-year highs by the end of the year.

There is justification to merit an SP500 with a trailing PE of 14.4-15.

1. Historically, a trailing PE below 15 is low, and is discounting economic weakness. (North of 15, around 17 is considered 'rich'.)

2. The threat of bank runs have been squashed. (From America and EU.)

3. There are still plenty of worries to maintain a trailing PE below or near 15. For instance:

- a China hard landing (but the Chinese have a lot of tools to make sure this does not happen)
- more defaults from the EU (but with capital levels so high at US and EU banks, the market can handle country defaults)

4. Israel goes rogue and bombs Iran

Anything can happen tomorrow that can make the markets go down, but with a systemic financial collapse off the table, and earnings estimates fairly intact (thanks to global economic growth), the risk is to the upside.

If the US sees stronger job growth, hence stronger economic growth, the markets will continue to see multiple expansion, and the above PE assumption of below 15 maybe too conservative. (But that is dependent on the data, especially the jobs data.)

From a technical perspective, the SP500 is pretty over bought, along with key leaders (like Apple, IBM, banks etc). But we usually see multiple expansion with these type of very overbought conditions and bullish sentiment. These leaders, and the market, will eventually consolidate, but they will have created a new, higher, trading range in the process. (For the trading range, see above.)

Friday, March 16, 2012

JCP... i'm in

In late Jan management gave their plan to streamline and revitalize JCPenny. The stock spiked, and I have been waiting for an opportunity to enter a position.

I provided an evaluation in late Jan.  Based on operational income growth from improved efficiency alone, JCP should have a higher trailing multiple and can merit a stock in the 60s. Obviously for it to deserve a higher multiple, in the short-run, it also has to show a better retail experience.

The stock has since retraced completely from the late Jan investor presentation.

The investment thesis is simple:

1. A proven management with a proven history of operational efficiency. (So the operation income growth is pretty much a given.)

2. The stock is very very oversold.

The above combo is enough to merit entry on any stock at current levels.

The added bonus:

1. A proven management that has a plan to revitalize the shopping experience.

If traction is gained into their new retail experience, combined with the improved efficient operational cost structure, there will be even faster operational income growth.

At current levels, the risk/reward is very interesting. (With the stock above 42, it becomes a 'show-me-story' with respect to the new retail experience.)

Wednesday, March 14, 2012

anatomy of the AAPL rally

Apple rally is intense. Its about 100 points greater than I expected, thus far. Funny thing, after they reported their July 2011 quarter, I was expecting this very thing!  After a blowout quarter, Apple pulled back, then got swept with the rest of the market as Europe shocked the market.  Obviously I was humbled in July or 6 months too soon :)

The current rally started about a week after Apple stated their Jan quarter. Apple went from 450 to 525 (a 16% move) before a 5-6% pullback.  Then it went from 490 to 548 (a 11-12% move) before a 6% pullback. Now, the current move started at 516 and its saw a 15% move (with 594 being the high).

Should a 6% pullback be expected?

I hope so.

IMO, the only real trading concern, at this point, is the headline risk of Apple being re-adjusted in the Qs because of its size.  Near, or below 520, Apple was 17% of the Qs. Since then, Apple has risen 14% and the Qs have risen around 4.5%.  Apple has out grown the Qs by 10%.  (The index threshold is around 20%, I think.)

Tuesday, March 13, 2012

Market Thought... transition

The market looks to be transitioning.

The year long consolidation is breaking out, and the treasury yield is supporting the move.

Could this be a fake out? Maybe, but the wall-of-worry is still firmly established.

That same worry caused me to miss plenty via AAPL and IBM. Instead of getting what-would-be  perceived rational consolidations, some tech names saw heavy multiple expansion. (The expansion is still reasonable in relation to their growth.)  Combining the the breakout, shift in treasuries and leaders with multiple expansion, we have a serious suggestion of a transitioning market.  A market that can push toward a 15 multiple.

a note on JPM - updated

Wow. My screens actually froze from all the activity from JPM.  Within seconds the stock just spiked.  I thought the Fed indicated they were going to release the result on Thursday, but the news out of JPM makes the results pretty obvious.

A bit of perspective from what JPM told the market:

Prior to today JPM was trading with a dividend yield of 2.4%. JPM raised the dividend by 20%. To get back to a yield of 2.4%, JPM will have to trade at 50.  Yup, 50.

This goes hand-in-hand with the aggressive buy back announced.

I was waiting to sell my light JPM position at 46, around book value.  But with this news, I added and will wait for 50.

This is tremendously bullish. (And as the treasury yield continues to rise, we can start talking about normalized earnings valuations as well.)

update: I got the dividend increase wrong.  Dividend was increased by 20%. The current dividend is $1.00. The forward dividend is $1.20. The yield become 2.7%.

Monday, March 12, 2012

Market Thought... watching, waiting

Its the same song and dance routine. The market is at an area where investors just don't know.

Everyone is waiting for a pullback, but what we are seeing today is consolidation. (Unfortunately for me, Oil related equities are acting like the industrials, and seeing a much heavier market reaction, despite the commodity acting fairly well throughout the day.)

From the above chart an argument can be made that there is a bearish breath within within today's market. This is further confirmed by the strength in the defensive stocks.

On the flip side, the 10yr yield looks interesting. It so desperately wants to breakout.

The support and resistance are pushing close to each over. IMO, if left on its own accord, it will push higher. But we have some Fed speak tomorrow, and that may alter its natural direction.

At current levels, prudence maybe merited.

Despite the prudence, I really want to maintain my bullishness. The market has done nothing for a year, while earnings has risen.

Some mid-cap momentum stocks have seen multiple expansion. From the large caps, only few names have seen the multiple expansion. Names like AAPL, MSFT, IBM and MA.  There are a lot of laggers to this expansion. Its only a matter of time before the others (like SLB) are recognized.

Saturday, March 10, 2012

Apple vs. the world

"The iPad Is Unbeatable", this is a good article by Farhad Manjoo.  Many have now accepted Apple's dominance.  Apple is no longer the underdog.

Farhad highlights, to the mainstream audience, just how lost all other competitors are in the transition to the Post PC world.  Microsoft, HP, Dell and Intel all trapped in a no-growth environment still trying to figure out their Post PC strategy.

The one things all these competitors fail to realize, in the Post PC world, the differentiation between "hardware" and "software" should no longer exist.

There are a few key observations that justify the lack of differentiation:

1. higher replenishing cycle of mobile devices (phones and tablets)

2. lower cost of the mobile device

3. ecosystem matters

4. the line between consumer and enterprise is vanishing

These points are important because they all are related in one aspect or another.  For instance, a strong ecosystem and lower cost of device allows for a quicker device update cycle.  A higher satisfaction rate promotes brand loyalty, greater demand for the device and ultimately device usage in the enterprise.

Apple understands this, and obviously executes brilliantly on this knowledge.  Apple's key strengths in understanding the above, are the very things their competitors ignorantly ignore.  Apples two key strengths are:

1. the importance of standardization

2. efficient manufacturing

An example of Apple's standardization is the screen size of the iPhone and iPad.  There has been no difference in screen size from the original devices. This promotes consistent app development and updates, making the developers happy.  Happy developers are the backbone of a great ecosystem. A great ecosystem makes for a happy consumer.  A happy consumer creates more demand for the product.

High demand for a product forces Apple to have efficient manufacturing. Efficient manufacturing, at the level of Apple, is far more difficult with a company that differentiates between hardware and software.  Apple's brilliance is in their ability to forecast their product demand. Through their forecast, they take the risk with huge upfront raw material costs, allowing for an even cheap device.  But this strategy becomes less of a risk with the development of a consistent brand. (No competitor currently has this.)

A consistent brand requires consistent refresh cycles. Apple is very organized with their refresh cycles. In comparison, other OEMs seem to release devices sporadically, and at a rate that consumers ignore the brand. I would argue there really is no other smartphone with a solid brand.

Even though the separation between hardware OEMs and software completely reduces a phone's brand, the strategy may still work. But for the strategy to work, the ecosystem needs happy developers. Which means there should be a level of standardization within the hardware. For instance, no alteration in screen size that causes developers to seriously alter their apps or OEM 'specialized' software that screws with older app versions.

The phone and tablet market are obviously pretty different. There can be an inexpensive smart phone that does not need Apple's level of manufacturing efficiency. But when in comes to tablets, if any competitor want to truly compete with Apple, they got to get their shit together, and use Apple tactics to bring costs down.  Amazon proved you can compete with Apple if an ecosystem is in place and the price is right, despite an inferior product.

Right now, with the acquisition of Motorola Mobility, Google is in a prime position to compete with Apple in the tablet space. Google needs to execute properly. (Maybe focus on a iPad-size device that is 'good enough' tech spec wise for $199.  Do this to gain brand recognition and share, then slowly get to the internal-specs of the iPad.)

(The aspect to which I disagree with Farhad is the threat to Google. Without Siri's answer engine inside the iPad, Google has less to fear. Google has a complete dominance in mobile search, across all mobile devices.)

Friday, March 9, 2012

Google - unloved, but a ton of potential

It was only one quarter ago when Cramer was touting Google and throwing away Apple.  That all changed when Google reported their quarterly results and Apple reported theirs. That is when the script flipped. Now its mo-mo Apple, and no-no Google.

When AAPL was out of favor last quarter, I was touting its fundamentals, and calling bullshit on the negative nellies. I still like AAPL and think its best of breed, but now that everyone wants to poop-poop Google I am going to let the data guide my thesis.

Over the past few months Google has not been getting a 'free pass' from the blog-o-sphere. (I include myself in this camp.) Everyone, I mean every influential blogger has called out Google's 'no evil' mantra with the new data policy. (I can link the articles but anyone can google Danny Sullivan, Sarah Lacy or John Gruber and others to see their opinion on the matter.)

Everyone can have their opinion on the actions of Google, but I always felt (and feel) Google is going to do what it has to do in order to properly compete with Facebook and Apple.  They will push and alter their policies to where they think necessary, and the true test will not be the opinion of the bloggers, but the actual usage of their services.

The data is now coming in since the uproar in the blog-o-sphere, and comScore showed an increase in market share from Jan (66.2) to Feb (66.4).

Despite all the negative chatter, Google's search business was not affected.

With the new private policy in place, Google finds itself in a position to leverage all its properties and better compete against Facebook. IMO, like it or not this is a positive development for the company.

Another positive development is the unification of the Android Market place, and enforcement of its in-app payment policy. (Google Play and purchases)

In summary, I am seeing things I want to see. The recent developments for Google has shown their attempts to streamline their policy to compete with Facebook has not hit core search. And they are streamlining their mobile ecosystem. Now the Motorola deal has to close so they can, at the very least, streamline Motorola's product offerings. (Most importantly reduce the 27 product offerings from Motorola to only a handful. Although I have written extensively on what I would love to see from the MMI acquisition.)

Since Google reported their disappointing quarter, the trading dynamic has been basically following the SP500. Unfortunately, today that was not the case.  Technically, the stock looks very interesting at the current levels. Although it may test its 85SMA if the market turns weak.

IMO, Google is in the best position to compete with Apple in the 'post PC' world. Make no mistake, Google is far, far, away from unseating Apple as the best of breed in the post PC world (for reasons I will not go into now because I do not want to make this post about Apple), but Google does not have to beat Apple to benefit the stock at current levels. Google just has to show better competition.

If Google can show it is benefiting as a player in the Post PC world, the market will reward it. If current  SP500 sentiment holds up, Google's trailing multiple will approach 23-25.  (This could happen when they issue a viable game plan for Motorola or after their next earnings report.)

NOTE: The new iPad will not have Siri.  This removes a concern, for now.

Job number... pretty good

The employment data is pretty good. We are seeing what we want to see.

1. Total private employment increase of 233K. (Gov continues to reduce. This month by 6K.)

2. Temporary work spiked to 45.2. Could be a good leading indicator to future growth in the coming months.

3. Average weekly earnings continues to increase to $804.20.

4. Some interesting data interpretation: Average weekly hours worked has been flat for a few months at 34.5, while Average weekly earnings steadily increases.  More money for the hours worked could indicate more demand for employment.

Thursday, March 8, 2012

Windows Mobile Market Place is closing!!!

Holy crap, do you believe it? Yup. Read the article.

"But wait", you ask, "didn't they just develop a mobile platform?" Yup!

Confused? If you are, this is why Microsoft has been losing mobile market share to iOS and Android.

A consequence of a 'reactive' management style.  It is quite fascinating to see the variations in organizational structure between competing companies:

1. Apple - super organized, a game plan and executes very very well. (This is pretty much across the board.  Although there were exceptions, ie Mobile Me.)

2. Google (specific to mobile) - fairly organized, a loose game plan and poor communication with OEMs. (Although, to be fair, Google has taken a ton of action to improve their organization and communication, even though the street does not recognize these efforts yet.)

3. Microsoft (in general) - react to whatever the best of breed is doing, then add some differentiation to call the Microsoft product unique.

Aerospace, ATI

ATI's performance over the few days has be frustrating, to say the least.  The obvious low-end support of 42.50 saw a breach, and now it is very oversold with negative sentiment.

Ever since mid Feb, when it went below the SMA support, I have been monitoring the chatter around plane cancellations and traffic demand.  I have not seen any significant order cancellations, but there has been chatter of lower traffic demand in 2012.  The most highly visible coming from Brazil and China. (Although China East already re-arranged its orders in Oct 2011 due to lower traffic demand.)

The interesting thing from this chatter was not the lower demand, but how the airlines will cope with the lower demand.  Obviously capacity will be reduced, but with oil prices to remain high, airlines are still placing orders for more efficient planes and removing older planes from the fleet. China East is an example of this. While they cancelled orders for the 787, they added orders for the 737. (The specific reason being China East's strategy shift to a more domestic focus flight schedule.)

Even though traffic demand looks weaker in 2012, orders are still being made and there is still a sizable backlog. (Especially when considering, the growth in airports in China alone.)

Due to the new technical setup with ATI, I will probably look to unload around 46. But I still think the fundamentals merit a stock in the 50s.

Wednesday, March 7, 2012

AAPL trading dynamic

Below are a few thoughts on how Apple may trade. I kept seeing some unrealistic chatter that suggested AAPL could 'theoretically' see 460, and that is simply unrealistic unless the market declines significantly.

The technicals suggest an initial base support around 516 has developed.

However, with the knowledge that everyone is in the stock, especially loose hands, a push to 500 would not surprise me.

Below 490 Apple's multiple gets into the 'discounted' range, removing the fact that it is best of breed. If that happens the market is being very inefficient.

update 03/07/12 2:28pm: The stock is acting much better than I expected, and not as volatile throughout the presentation. Maybe a new phase of less volatility is coming to the stock. Thinking it may chill-out around 516. Will look for an entry at that level.

Tuesday, March 6, 2012

Market Thought... Growth Fears?

Brazil records a 2.7% GDP growth for 2011, and all I kept hearing today by Bob Pisani on CNBC was how the GDP disappointed.  What he failed to mention during each of his sound bites was that estimated GDP growth was 2.8%. Brazil missed its GDP by 0.1%.  Yup, 0.1%.

The next "disappointment" was China's targeted 2012 7.5% GDP growth. Obviously nobody remembered when China first stated they were going to reduce its target.  Feb 23rd was when the world got the first whiff of a "target of less than 8%", with the medium estimate being 7.5%.

Funny thing, industrials, oils and materials did not start their decline when the 7.5% China GDP target was first announced. It started around 4 days after, and without Oil (the commodity) declining until today. And we are suppose to believe industrials, oils and materials continued their decline because of a Brazilian GDP that was off by 0.1%?

Google ecosystem

With in my post 'Google needs to Wake Up' post, I am actively looking to play Google.  It has lagged its peers, and if Google can show it can compete with Apple within mobile and tablets, the market will reward it.  In relation to the type of move its peers have had, the reward could be a stock appreciation of 10-20%, pending overall market conditions at the time.

Today was an interesting first step.  Google re-branded the Android Market place with 'Google Play'.

Basically, it seems like iCloud. Nothing really new, but the marketing angle is important.

Still looking for from Google:

1. A game plan to make Motorola more efficient. (Despite the 'firewall' bullshit, a Googler will be running Motorola once the deal closes. I think Google is insightful enough to see the obvious needed for improvement.)

2. Create a far more efficient and better communication via OEMs to push Android updates with little time differential. (If the next version of Android is ready, let your OEMs know before the rest of the world so the OEMs have time to update their software.)

3. I do not want to see any, and I mean any, fragmentation issues with Motorola once the deal is closed.

4. Google will really have an opportunity to be a viable competitor with respect to premium tablets. (But we have to see reduced fragmentation, and seamless updates on software updates.)  With a proper ecosystem in place (via Google Play), Google can really shine here via a premium product.

Google has an obvious opportunity with the phone, but as a well funded player, with a proper unified ecosystem on its side, it can be a true competitor to the iPad (if it has a proper handle on manufacturing efficiencies).

Market Thought... well

The market moved to the 32SMA, with the Vix spiking and coming off its overbought condition. Well, for anyone who feels like they missed the boat, what are you going to do?

As for me, I covered my protection. (Although it doesn't feel like protection as my oil stocks were hit so hard.) Currently, I'm looking for entries.

Monday, March 5, 2012

few thoughts... ATI, FIO, AAPL, GOOG

ATI - Testing its low-end support, and oversold. With global PMI at 55, I just don't see a slow down in global GDP to hit the aerospace trends. There was some negative chatter regarding the aerospace boom a couple of weeks ago, but since then TIE (a company in a similar product space as ATI) stated the "industry has entered a sustained growth period". With out a recession and with continued aerospace demand, I still believe ATI is at least a $55 stock.

FIO - Love the story, just overbought. An entry may present itself around 28-29.

AAPL - What is there to say that everyone else does not already say? The obvious product presentation is the iPad 3. There are indications that iTV could be revealed as a 'one more thing' on March 7th.  We get that 'one more thing', stock could continue its push higher. If we get the obvious, we may consolidate.  Regardless, I doubt AAPL will go below 515-520.

GOOG - The tech lagger.  If anyone thinks Google will stop dicking around in mobile, and properly utilize Motorola with all their offerings, then Google will catch up to the rest. If not, it will languish here until Apple eats their lunch. IMO, the current action is dictated by the market. Current levels seem interesting, but if the market keeps declining GOOG could see 600. If 600 breaks, it will see low 580s. I'm looking for an initial entry. I would have more conviction in this entry if they outlined a decent mobile strategy with Motorola, or if there was chatter indicating a decent strategy. (Instead we get bullshit 'firewall' rhetoric.) If Google did issue a reasonable strategy, the stock's lagging status will be removed, and it has the potential to see a 20% move. (And that 20% move is simply to catch up to its technology peers!)

Sunday, March 4, 2012

Market Thought... cracks or consolidation?

There are a few indicators that maybe suggesting "cracks" in the market. For instance, over the past couple of days CNBC has been touting the weakness in the transports, and Friday they were pointing to the weakness in the Russell 2000.  Both very valid, and there are others to look at as well.

A market leader throughout the current rally was CAT. Unfortunately Thursday appears to have been a break down day, and today there was follow through on the down side.

Throughout the rally, CAT did not breach the 14SMA once, until Thursday.

IMO, the market handled itself fairly well despite this leader breaking down. Which would suggest...

1. the market is lagging

2. there is a rotation supporting the market, and CAT will simply enter a trading range or will find support as it gets oversold and then continue to push higher. (more on this below)

Another point of weakness was an apparent negative SMA breach in the Semi index too.

The same suggestions as above apply. Although the semis are more important in leading market action. As of now, the semis seem to just want to chill around here, as they get oversold. Worse case, they pull back to the 50 SMA, then bounce. But I have a hard time seeing the mid 50 level not holding unless something crazy takes place geopolitically.

Another interesting point is the treasury yield. It hasn't broken from its interim negative position.  The yield is chilling just below 2%, and with a yield below 2%, the sentiment may favor a stalled market.

I think we will see a trading range for the yield north of 2% sooner-rather-than-later.

Simply focusing on the data points above, we would clearly see cracks in the market that would suggest the market finally sees the 3-5% pull back everyone (including me) has been waiting for.

Ahhhh, but the market is never so simple.  On the flip side, we are still seeing very good strength in the financials.

The financial look like they are making a straight line to their book values.  This makes sense since there is stability in the EU banks, improvement in US housing and MBS bonds have been firming up. The only thing that would have caused a hiccup is if the Greek CDS' were triggered, but they were not triggered or at best delayed.  (As an example, JPM and GS have about a 10-15% upward move before they see something in line to their projected book value.)

For the markets to have a serious pull back, without the financials moving downward, is unlikely. As such, the above should not be viewed as market cracks as these cracks are most likely individualized consolidations.  If individual sectors are taking turns consolidating, then this supports a stalled market or a market that is susceptible to a very shallow pullback.

Some over the weekend developments that may help set the tone next week are:

1. China's non-Manufacturing PMI was 48.4 vs 52.9 the month before. (Could be from the New Year festivities, but how the market decides to react to it will be seen on Monday.)

2. Head hurting chatter about Greece's debt restructuring negotiations. The main negotiator is confident they will see the +90% holders agree to the deal, while a day before his comments the tally was at 66%.  (If this changes the perception on the banks, this could affect a sector holding up the market, as indicated above.)

Thursday, March 1, 2012

Google needs to Wake Up

Over the past few weeks I have been trickling my analysis on Google through various posts. The post include:

1. The threat to Google's core business

2. Comparing Google to Apple before both companies reported their recent reports. The assessment is still very valid.

3. My assumption that Motorola will be 'special'. (After Rubin's talk of a 'firewall', Google's rhetoric points to keeping Motorola a dumb OEM, I'm not so sure.)

4. Regardless of the utter stupid idea of a 'firewall', the margins of the combined company will need to improve.

I am not the only one that thinks Google needs to wake up.  The market does as well.  In relation to its technology peers, Google is seriously lagging.  At a time when AAPL, MSFT, IBM and MA, along with the overall market has seen significant multiple expansion, GOOG has seen a multiple contraction.

The above chart shows the change in trailing PE from early January to February 29th. (I included MA or IBM because I view them as general technology performance. But AAPL and MSFT are better competitor comparisons.)

The obvious reason for this is due to Google's poor performance last quarter. They were below estimates, and the stock took a hit.  The only thing keeping it afloat is the overall performance of the market and technology.

Google has the opportunity to see hyper growth and be a true competitor to Apple in the mobile space, but their current vocalized strategy is rejecting the opportunity.

Instead, Google has vocalized an approach that will have it merely be a competitor to Microsoft, and the two will be fighting for Apple's crumbs.

Google and Microsoft have taken the "PC model" OS strategy in a "Post PC" world!  Does anyone else see the stupidity in that logic?!?

The "PC model" OS strategy in a "Post PC" could work if there is a tremendous amount of communication and organization between the OS developer and OEMs. But Google already proved the level of cooperation is simply not there.  (Microsoft is so far behind, their level of communication remains to be seen. And as of now, the only OEM they are really cooperating with is Nokia, which makes cooperation easier.)

Each company is entitled to whatever strategy they choose. But that strategy needs to get implemented correctly.  Right now, the numbers prove it is not.  One of the weak spots in the recent Google report was the lower revenue from mobile ads.  And while Google was giving away Android to make a couple of bucks from each device via mobile ads, Microsoft is collecting a steady stream of licensing revenue per Android devices sold and Apple's iPhone business became larger than Google and Microsoft combined.

I could go into a lot more detail about this (regarding the economics, tablet growth and the effect on developers, and more), but frankly, if Google wants more help, my email is in the About section.

I am looking to invest in Google, but I need to see a properly executed strategy. In the mean time, GOOG is a show me story.

Just an FYI... on an interesting note, Samsung is investing heavily in their own OS and ecosystem.  At least one other company may want to emerge as a true competitor to Apple.