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Wednesday, October 31, 2012

China rebound

Decent numbers out of China tonight. They are slowly climbing out of under performance. The FXI has closed the gap with the SP500.

Just an fyi: still no power but making do with the wifey. Simply crazy the type of damage Sandy has caused.

Monday, October 29, 2012


Annoys me to no end that utilities are sitting on their antiquated hands, and not implementing a proper smartgrid.

Exciting. Apple vs Sandy

Not to be undone by Sandy, Apple released management changes.

John Browett has left. This is not surprising. He never felt like a good fit at Apple. Some of the actions he took were real head scratchers.

Scott Forstall is leaving. This is a bit surprising given his status. But bringing the iOS and Mac OS under one roof was inevitable. Especially with respect to the post PC concept of same content on various devices.

I really like that they are trying to apply Ive's design mentality to software interface.

Most surprising is that Bob Mansfield looks to be staying. (I thought he was going to retire.)

As for Sandy, she took out my cable and Internet. (Thank you apple for ushering in the mobile device/web convergence.) And she is teasing my power. Already witnessed a transformer blow. Winds have picked up, and shes not fucking around.

Saturday, October 27, 2012

the INTC hedge

I am not a fan of Intel. The company is about 5years late to mobile, and getting dragged down a sinking PC ship.  But I respects its fierce competitiveness, and its engineering capability.

To date, Intel has been pretty dead within the mobile space. Only recently has it over come battery line issues and App compatibility issues with their Atom base mobile processors, leading up to the 'Razr i'.

The 'RAZR i' allowed for an interesting comparison between ARM based 'RAZR m' that used ARM based processors over a year old. (Comparing a company's latest and greatest vs an older model is really not fair, but so is life.) The comparison was favorable for Intel.  The App compatibility issue was mostly resolved, and real-world power consumption held up very well.

The recent developments showed Intel is on their way to simply enter the mobile market. But, and there is a big BUT, we do not know a lot of things. The most important aspect of thing we do not know is cost. (I am also concerned about how their LTE capability will be.) In fact, the only thing investors know is what Intel 'claims' within their road map. (Their road map is specific to chip size, and nothing more. I am more interested in how the smaller chips will operate with the unit, and if the smaller size really enhances the over all user experience.)

At the moment, the RAZR i looks like a test phone.  If things go well, then Intel will have a basis to tout its experience and performance.  But other chip makers are not standing still. (At the very least, Apple's A series chips are a testament to the innovation push.)

I am a firm believer that QCOM owns the mobile space, and will continue to do so. Hence my recent post, "QCOM - pesky fundamentals", and a position in QCOM.  I do not like investing in "could be" stories, and right now Intel is touting a heavy "could be" story via mobile.  The RAZR i is the only tangible evidence it can enter the space. But a new chip vs an old chip is nothing to really brag about.

On Friday, INTC started to breach its negative trend, via the 14 SMA resistance. Because of the technical set up, I decided to enter the stock.

I view the position as a hedge to QCOM, and the fact Intel is yielding 4% helps.  I will probably hold on to this position until I unload QCOM, or come CES we begin to see just how fruitful Intel's mobile effort really will be. 

Mahaney fired at Citi

The news was a surprise to see. I rarely listen to any analyst opinion or commentary to make trades or investment because I try my very best to let pure data guide those decisions.  But there are a few individuals I listen closely to, Mahaney was one of them. (His work is usually less bias then the rest.)

Given his status within the investment world and technology, I am sure he will be fine. (Its really Citi's loss.)

The article also highlights obvious interactions between bankers and journalists. (The interactions should not be a shock to anyone.) One of the journalists mentioned was Josh Constine from TechCrunch. I found that interesting because over the past two quarters, he produced some really interesting articles and information specific to Facebook. So much so, I felt he was Facebook's 'leak' guy. Just like Steve Jobs used Walt Mossberg, I got the impression someone at Facebook (who knows, maybe Zuckerberg himself) was using Josh. 

Firing key people like this keeps making Citi look stupid.

Thursday, October 25, 2012

AAPL. all about the multiple

The quarter was alright. I'm sure the guidance of 11.75 caught a lot of people by surprise. Its probably the first comparable eps decline in some time. Given Apple's low-ball guidance, I am sure they will produce an eps near or slightly above the eps of last year's 1st quarter. Last year's 1st and 2nd quarter had higher margins. With the multiple tablet push from all competitors, and lower price points of the iPad, margins will simply not be as good.

Regardless, the margin scenario is not stopping top line growth. In relation to any other company AAPL is still cheap, and has been for years.  So they will not see +50% eps growth, they will see 20-30%, and earnings are very stable. Does this merit the stock to collapse?

With lower margins, and a flat eps growth for the quarter, the question becomes 'what is the multiple the street will give AAPL'?

Will the street punish the stock? Allowing it to trade at a trailing multiple near its low of 12.5 because of the flat eps? The street certainly did not reward the stock when it was seeing a +50% eps rate last year with 50 trailing multiple. In fact, when AAPL was growing at a +85% clip the street rewarded the stock with the greatest multiple contraction I have ever witnessed.

Apple now has a cash level of $127-128-per-share. Which means the stock, as of after-hours action (609) has a business value of $481 per-share. This means the street values Apple's businesses with a trailing multiple of 10.89.  For a set of businesses that will see a top-line growth of 13% (2011 1st quarter had an 46B revenue, and 1st quarter 2012 is projected to be 52B), an obscene free cash-flow and product being adopted at a very very fast clip, the street is basically valuing the business as they are Intel's business. (I don't need to explain why this is stupid.)

Excluding the "minus cash" or "valuation-per-cash-growth" (assuming the stock value should trend the cash growth) argument, at 609, Apple has a trailing multiple of 13.8. This is already near its low end.  The contraction is consistent with the current market environment.  If the market holds up, this valuation is too low. AAPL should trend more toward a 14.5 multiple.

From a technical perspective, AAPL's daily chart is very oversold.

From a weekly perspective, an interesting support is very near. The 28SMA typically acts as an area for a bounce.

If that level breaks, the 50 SMA on the weekly is next. (That would mean the stock drops to the 560 area, giving the stock a trailing multiple of 12.6. Near historically low multiples for AAPL.  That would suck, but given the growth of cash, I do not expect it to happen.)

I will try to play a bounce off the 28SMA.

Tuesday, October 23, 2012

FB. nice.

The pre-earnings chatter turned out to be on the mark.  Facebook went from 0% of revenue from mobile ads to 14% of revenue from mobile ads in about two quarters.  And from the chatter, most of the mobile revenue came from the current quarter.

The quarter was good. Even better are the realistic prospects. (I say realistic because analysts and tech writers have a way of running wild with "could be" expectations that hold zero merit.) The two drivers

1. expansion of the current mobile strategy to the rest of world

2. Gifts morphing into a commerce experience

Rest of world (ROW) ARPU is lower.

As Facebook's current mobile strategy expands globally, these rates will rise. Especially as the ROW's main connection to Facebook is mobile. (This means Facebook will be gaining a macro wind, and benefiting from global smartphone adoption.)

If after hours action holds up (and with the strengthening of action as the night progressed, the action should hold up) the stock's trading dynamic will shift to a bullish one.

FB will most likely open near 22, which will be a clear breach in SMA consolidation. The technical set up, along with the fundamentals at Facebook's back, 24 looks to be easy.  As the sentiment shifts from negative to positive, and 24 begins to break, 27 will be achieved sooner rather than later.

A stock move to 27 would give FB a market capitalization of about $58B.  Considering the bulk of the 14% of ad revenue is due to mobile within one quarter, the valuation does not seem like a stretch.

A note on the wall-of-'lock-up-expiration'-worry, Zuckerberg controls the majority of the stock to be unlocked.  He has already publicly stated he will not sell for one year. Those words were about a month ago.

Monday, October 22, 2012

trades... IBM, AAPL

Since my most recent Market Thought post 'just below normal', the thesis has not changed.  But as the market declines, and stocks are absorbing recent earnings (along with individual declines) multiples are no longer unpleasantly high. The most obvious example of this phenomena is IBM.

IBM has a history of declining upon an earnings announcement, after a solid run in the stock. And decline it did.  IBM went from 211 to 194. An 8% decline in three days. (Part of that decline was due to the negativity Google caused with their botched earnings release.)

The report was consistent with IBM's current strategy shifting its business to higher margin-higher profits-with less revenue. (This is not new, and a theme consistently touted throughout the last few years.)  But from a superficial perspective, I guess its never nice to see revenue declines from all segments of operation from a transparent company despite the consistent earnings.  (Interesting fact, the word decline appeared as many times as increase within the earnings report.)

(Just an FYI, a currency hit is not new to IBM, but this quarter seems like currency has been an issue across the board with many multi nationals ranging from Coka, Goolge to IBM.  Seems like the firms these multi-nationals pay to smooth out currency fluctuations dropped the ball this quarter. Further mitigating the issue.)

IBM has been slowly raising its trailing multiple. But with the recent decline, IBM is now trading below a trailing PE of 14.

The negativity may take some time to wash out, but the story is still intact.  If the trailing PE remains at 14, and with an accelerating 4rth quarter it should be higher, IBM should be back above 200.

AAPL so far has just seen the decline, we will see earnings next week.

My thesis on AAPL has not changed.  With AAPL having a known history of re-accelerating earnings (at a massive scale) during the Christmas season, a trailing PE below 14.5 is difficult to justify, even if the current quarter is a bust.

Factoring the current quarter's numbers, AAPL should see a stock price of mid 600s (640) with a multiple of 14.5. In the mean time, AAPL will get a very oversold condition soon, that will allow for a oversold bounce. 

Friday, October 19, 2012

FB chatter into earnings

Thanks to Google nasdaq took a beating today.  Due to 'weak mobile' theme, Facebook took an extra shellacking.  But for a company that had zero mobile ad revenue less than a year ago, with new products announced early in the quarter, the chatter has been pretty positive.

1. Facebook ads are clicked more on mobile

2. CPM and CTR up across the board

3. Retargeted ads performing well

4. Mobile banners have high click through rates

5. some CTRs are very high for Facebook

6. Sponsored Results are doing well

7. Facebook Exchange Retargeting ads showing really good returns

Some of the chatter is qualitative, others are more quantitative.  Regardless, the chatter is positive.

Better clarity on the growth and performance of these initiatives will be provided next week, but as per the chatter, I am expecting to hear good things. Things that should change the perception of the street, and drive the stock toward 27.

Sunday, October 14, 2012

QCOM - pesky fundamentals

By and large my trading this past year has been pretty shitty.  Frankly its the shittiest it has been in a number of years.  But over the past two-three months trading has been pretty good, except for two trades, thus far.  One of those trades, at the moment, is QCOM.

With QCOM declining about 10% within a 6 day period (far more than I expected), I find myself having to re-evaluate the trade thesis.

The thesis is simple: the mobile transition. Everyone knows the PC era is rapidly declining, and the post PC computing is/has gained prominence. The best semi positioned to benefit from this shift to mobile is QCOM.

Yet, while other key tech leaders have seen a multiple expansion from the summer lows, QCOM's multiple expansion was not as large.  Trailing multiple expansion:

GOOG: +30%
AAPL: +25%
QCOM: +19%

While a 19% expansion is pretty good, the difference is that GOOG and AAPL tested their high-end multiples for the year. QCOM has yet to do this. It has only tested its low-end multiple of its previous trading range.

Considering the fundamentals story of the Post PC world, this makes little sense to me. Especially when this thesis allowed so many other stocks to trade higher (ie MA, EBAY, AMZN etc)

Despite its positioning, QCOM could not escape its sector's poor showing last week.

Regardless of sector performance, as of Q2 smartphone growth was pegged around 43%.

As consumers were awaiting the iPhone 5 to be announced, no doubt there was a hiccup to this growth. While we await official Q3 numbers, the indication that growth is currently strong is seen with Freight Cargo rates directly attributed to the iPhone 5 and mobile computing.  (There is still fairly strong international growth expectations, which will most likely target low-end adoption. And with QCOM's expansion of the Snapdragon platform, they look better positioned to ride that growth.)

While the above is taking place, a competitor (Texas Instruments) bowed out of the mobile consumer race. So I am still left scratching my head as to why QCOM is allowed to trade at such a low multiple.

One idea is that while one competitor leaves the race, another strong competitor (Intel) will enter. Intel has made considerable stride getting their mobile chips up to speed to Arm based processors. The most tangible evidence of that is the Motorola RAZR i in everyday test use.

Even though Intel seems to have simply gotten up to speed with respect to performance, they still lack LTE. And LTE compatible chips are not scheduled to enter the mix until 2013.

So is the competition from INTC causing the multiple compression?  A look at Intel's performance would not suggest it.

Intel broke down, facilitating the sector's decline, and with a very high degree of negativity. The stock is not suggesting INTC will see tangible inroads into mobile anytime soon. Here is Intel's mobile road map:

By 2013, Intel plans on getting smaller than the leading processors. But ARM based processors are not standing still. Apple has been looking into a fabrication of a 20nm chip, which would suggest other ARM based chip makers will soon follow.

But regardless of chip size, even though the theory is that smaller is better, there appears to be a limit as to how small a processor can go in relation to benefit.  How efficiently the chip interacts with other components can matter more, and this is what makes Snapdragon so powerful.

The above re-enforces the trade thesis with QCOM, and would expect it to trade toward its highs, if a multiple of 19-20 is applied to the stock.  I would expect to see this considering the fourth quarter is usually a strong quarter for mobile devices.

Thursday, October 11, 2012

Jobless claims = awesome

The adjusted numbers re-entered the down trend today. Nice.

The unadjusted numbers raised an eyebrow. +25,990, totaling 327,063.

Sunday, October 7, 2012

Market Thought... just below normal

Believe it or not, the market has achieved a trailing PE of 14.8. That's 0.2 points below the historical average of 15.

I find this to be fairly remarkable because the 10 yr treasury yield is below 2%, reflecting a below average GDP growth.

Ever since the Financial Collapse the market has been trading below historical norms. The SP500 has been trading between 12-14, discounting EU issues and slower economic growth, even though earnings growth has been fairly solid.

The Q3 SP500 earning's quarter is projected to be down, and below last year's Q3 earnings.

The trailing EPS (from 2011 Q3-to-2012 Q2) is 98.69. With the market near 1460, the trailing PE is 14.8.

Factoring in 2012 Q3, the SP500 eps is 98.34. With the SP500 near 1460, the trailing PE will be near 14.8 if earnings simply meet, let alone beat.

We have a situation where the market is near normal multiples, with a flat-to-declining eps, the treasury yield far too low and a level of complacency (SP500/vix overlay in relation to the current rally) that would merit caution.

The above argument suggests caution here, or a lack of broad upside, in the near term.  But Q4 eps estimates are higher, and would result in a $101 2012 end of year earnings. If the market stays near a 14.8 multiple, the market may very well rally towards 1,530 as the end of the year approaches or into Jan 2013. (Assuming Q4 estimates remain at current levels.)

The few caveats that may bring the SP500 multiple toward the 13-14 range again are:

1. the renewed 'fiscal cliff' debate

2. any issues that may again flare up in the EU

I am not too concerned about #2, given the determination of the ECB. And while the fiscal cliff debate will be annoying to watch, at the end of the day if Romney can act as a liberal to win the presidential debate (and bring the far-right with him), then I have more confidence that the current leaders will not be the assholes that destroy America's standing in the world. (No matter how utterly stupid some of them can be.)

Thursday, October 4, 2012

Romney's vs Obama's market

A lot of chatter today giving credit to the positive market move to Romney's good debate performance. Statistics is calling bullshit.

I had the good fortune to interview Statistics today, and this is what he had to say:  (Statistics is a man, sorry ladies :)

me: Statistics what gives? Is today due to Romney or am I being fed bullshit?

Statistics:  How does that bullshit taste? Using Sarcastaball theory, Romney's good debate showing caused the market to rally today. Romney gave us a +0.72% market push.

Saying Romney made the SP500 rally today is like saying Romney made it Rain in NYC today. See, one data point does not make a trend. And the day's move was corrupted by pesky positive data points. Powerful out side forces had an obvious effect on the markets today. The Jobless claims were better than expected (at 8:30am allowing for a higher market open), and the better Factory Order data at 10am was directly followed by a market run.

Looks like there is a direct correlation to the data points and today's intra-day market move. And if the data points caused the rally, then it looks like Obama should get the rally award. (As it was his policies that set the stage for the economic data points.)

Listen Echo, I love data points. The more the merrier. So if we were to look at 4 years worth of market data, we would get a clearer picture. Oh, I don't know, lets start from Jan 21st 2009.

me: Hey, that was President Obama's first day in office!

Statistics: Yup, you are correct. Echo, your a smart guy!

me: on rare occasions :)

Statistics: The SP500 was trading around 840. Today the SP500 closed at 1461. Obama gave us a +42.5% rise in the stock market. Yup, a 42.5% rise over almost a 4yr period.

So if anyone liked today's market gain, thank Obama.  And if anyone liked the last 4 years of the market, they can thank Obama as well.

me: Oh Statistics, its so hard to argue the numbers. Thank you for showing me the bullshit.