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Thursday, July 19, 2012

thoughts... GS, IBM, QCOM

Generally speaking, earnings are holding up pretty well. More specifically:

GS - Since its a bank, or Goldman, whatever it does is wrong or not good enough. Despite crushing, simply crushing, the report.  Obviously the street can care less about earnings power, as the stock has done nothing in two days. But as housing continues to firm up, the more book value of these banks is justified.  Banks continue to trade 20-30% below book.

I was long GS going into earnings, and remain long. I was hoping to unload some near 102 before a pull back, then unload the rest around 105-106. (And actively trade it as it marches toward book value.)

With the pull back, I will now wait for GS to hit its 98 sma.  Could it break down here? Sure, anything can happen. But for banks to remain broken, a systemic risk needs to be present in order to justify valuation far below book. (I understand the the bearish argument of a higher-cost-of-capital, but that merits a lower multiple, not a severe discount to book value.)

IBM - Investors in IBM appear to care about profits. That's a nice surprise in this market. Their report continues to show their consistency, and correct strategy. IBM should be at new highs by year end. In the mean time, I will most likely unload some in the morning pop. (Ideally would like to see it push toward 195.) I plan on holding a core position until the negative trend line is tested.

QCOM - Demand is still present, and they are ramping up 28nm production. For the type of demand the mobile space will see in the second half of the year, QCOM should NOT be trading with a trailing multiple of 17. At the very least it should be 19-20 (its low end multiple range). Below 19, near 16, is recessionary.

From a technical perspective near 59 is a level of resistance, via the daily chart and the weekly chart.

Ideally, I would like to sell half of the position near 61, and let the other half ride. But knowing my habits, I will most likely sell half near 59, allow for a consolidation, then re-enter the position.

(I will keep myself exposed to the name, and look to sell the remaining position when the trailing multiple is at or above 19. Which would suggest a stock price of 65 this quarter.  As the 4rth quarter approaches, I do expect to see some level of multiple expansion due to increased demand.)

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