1. AAPL - the new iPhone is just sick. I still find myself being impressed even though I, like every other Apple Fan Boy saw the phone coming. What it can do is just awesome, and miles ahead of the current version.
2. GS - added to the position.
Monday, June 7, 2010
Trade - AAPL
I am waiting on the weakness to level off, but I am awfully tempted to step in an buy AAPL calls here.
The reasons:
1. technically, it is at a support level around the low 250s
2. it is freaken cheap. (on an discounted cash flow perspective)
lets look at the number in a dirty and quick manner...
The liquid cash the company has on hand is about $25B, which equates to $25/share. Take the cash value out of the stock at current price (253-25= 228) and we have a stock trading at est. 2010 PE of 17-18. BUT...
The stock has about another $20B in cash, which is considered illiquid (meaning it is tied up for a few months or years). Combine the cash hoard, and we have an equity who's future earnings power is being discounted to an est. 2010 PE of 15. (253-40=213; 213/13.80 = 15.4)
AAPL's large market cap is already being discounted in its valuation. (Do not believe the analyst that tell you other wise.) If you look at the future earnings of this company going out 2-3yrs, its EPS will continue to grow at a +15-20% clip. The 2010 est. PE (excluding cash) is telling investors that AAPL will grow EPS at less than 15% going forward.
Does that sound realistic?
(Heaven for bid something happens to Steve Jobs sometime in the near future, the earnings power of this company will be greater than 15% eps for the next few years.)
The reasons:
1. technically, it is at a support level around the low 250s
2. it is freaken cheap. (on an discounted cash flow perspective)
lets look at the number in a dirty and quick manner...
The liquid cash the company has on hand is about $25B, which equates to $25/share. Take the cash value out of the stock at current price (253-25= 228) and we have a stock trading at est. 2010 PE of 17-18. BUT...
The stock has about another $20B in cash, which is considered illiquid (meaning it is tied up for a few months or years). Combine the cash hoard, and we have an equity who's future earnings power is being discounted to an est. 2010 PE of 15. (253-40=213; 213/13.80 = 15.4)
AAPL's large market cap is already being discounted in its valuation. (Do not believe the analyst that tell you other wise.) If you look at the future earnings of this company going out 2-3yrs, its EPS will continue to grow at a +15-20% clip. The 2010 est. PE (excluding cash) is telling investors that AAPL will grow EPS at less than 15% going forward.
Does that sound realistic?
(Heaven for bid something happens to Steve Jobs sometime in the near future, the earnings power of this company will be greater than 15% eps for the next few years.)
Gonna be interesting...
If the pre-market is a gauge to Monday's trading, looks like it will be interesting. Regardless, all of Wall Street was preparing for a horrible week (this week). Last I checked the SP500 futures were down about 9 points, and this should correlate to GS being down nicely too. The reason I highlight GS is because on Friday, Guy Adami (of Fast Money) brought to light GS' book value.
A quick look on Yahoo Finance reveals GS has a book value of 128.33. Analysts can argue until they are blue in the face regarding how a banks value their assets, but the one thing I do know is that GS has a very long history valuing its own assets extremely conservatively. So the 128 level is fairly legitimate.
GS currently trades at 142. With the sizable market decline expected, intraday action could lead GS to the high 130s. If this happens, I will be a buyer of GS.
A quick look on Yahoo Finance reveals GS has a book value of 128.33. Analysts can argue until they are blue in the face regarding how a banks value their assets, but the one thing I do know is that GS has a very long history valuing its own assets extremely conservatively. So the 128 level is fairly legitimate.
GS currently trades at 142. With the sizable market decline expected, intraday action could lead GS to the high 130s. If this happens, I will be a buyer of GS.
Saturday, June 5, 2010
Market Thought... re-evaluation
The technicals of the market continue to look horrible, and frankly I do not think they matter at the moment. The one indicator I am keen on is the 10yr treasury. The yield is about to retest a level (3.0-3.1%) that (if severely broken) may signal deflation, which would relate to a weak equities market.
The piss-poor Jobs Report was so bad, it made me take a long-hard look at my bullish market thesis. Since Friday morning I have been thinking, reading and contacting people that can help me piece the puzzle together.
1. Jobs:
The private jobs growth of 41K was piss poor. On Friday I contacted some Head Hunter friends of mine, and what they are seeing does not corroborate with the Jobs Report.
-One firm is seeing record numbers, and a sense of stress with companies looking too specifically for criteria regarding talent. It appears a tipping point is being achieved where 'good-enough' talent have to fill a company's desired role.
-June was also considered a busy month, but July and August are generally slow. Then a drastic pick up in Sept. (This next report maybe more reflective of what the Hunters were seeing.)
Obviously this is very qualitative, and not scientific by any means. (If I had the time and resources to contact over 20 or so ground level Head Hunters or a few executives I could produce a more quantitative model of expectations. The only quantitative model I have regarding full time employment expectations is MWW stock. One can assume if the private jobs market is good, the trading habits of a forward looking stock would indicate this. But right now the stock is not indicating the qualitative findings.
One thing that can corroborate the qualitative findings is the high productivity rate for corporate America. My discussions indicate to me, the level is unsustainable, and a point for optimism.
2. Corporate Profits:
The market is driven by profits, or expectations of profits, (everything else is essentially noise that people assume will affect profits) and the 'Hours and Earnings of all Employees' still increased, and it has consistently increased since last year.
This current Jobs report is the only one that would lead to the lack of sustainability toward Employment Earnings. With so much public sector job increases, it is hard to argue otherwise. But there is still a lot of stimulus money not spent yet, along with the gradual reduction in productivity level from job growth, corporate profits should remain high for the rest of 2010. (And with the global economy growing, companies positioned for the growth will continue to grow profits.)
3. Europe (from banks-to-politics)
I still believe there is a 'perceived negativity' in Europe that is acting as a domino effect. The risk of default or breaking of the Euro is squashed. Austerity measures are being passed across the continent, and countries that need help are being dragged kicking and screaming via the IMF. In my opinion, this risk is being reduced. However, a domino effect of the default is jump-starting rumors regarding high profile bank failures, along with derivative losses from others. The ECB apparently has been on this, and is taking action. (article) With their own stress tests established, this may alleviate this domino-effect. (I also think a awesome buying opportunity will be established for STD when or if a secondary is required from the stress test. I will be looking to buy STD if a secondary is announced.)
Also, the decline in the Euro does not worry me. The rate of decline is a concern, but this will begin to mitigate itself (as the markets find an equilibrium) to present a new carry trade the Hedgies can exploit. (Just like they did with the dollar/yen for years.) I find it hard to believe anyone was not expecting the Euro to decline once the Greece situation was first mentioned in the early parts of the year.
4. China Slowing:
The Chinese have proven time and time again that they have too much control over their economy. I mean some of the numbers that come out of China w/respect to bank lending can swing wildly, and make me scratch my head. We can see consumers borrow north of $190b in one month, then borrow close to nothing the next month. Also, their government has too much money to let their 'economic miracle' simply dwindle now. Over the last 20 years they (the controllers of their economy) have shown to have too much control, and I do not think they will loose it just yet. (But I do think commodities continue to under-perform due to their direct involvement in China slowing down their real-estate construction boom. That is just common sense.)
Fact of the matter...
The cold truth is that the US and global economy can be sustained and grow with a higher unemployment number. Corporate profits are growing. Political leaders are doing what they have to do to maintain stability, even though sometimes we cringe at what they do.
The austerity measure will hurt some, the unemployment rate will hurt some, but those 'some' just do not matter with respect to the economy.
(Although the above statement seems arrogant, keep in mind, I will be one of those 'some' in a few months as I will be laid-off due to Pfizer's closure of a vaccine manufacturing site. I do not make that statement lightly. My knees and knuckles are too bloody from trying to continuously better myself, and my family's, well being to carelessly make that statement. It is merely a point of fact.)
The piss-poor Jobs Report was so bad, it made me take a long-hard look at my bullish market thesis. Since Friday morning I have been thinking, reading and contacting people that can help me piece the puzzle together.
1. Jobs:
The private jobs growth of 41K was piss poor. On Friday I contacted some Head Hunter friends of mine, and what they are seeing does not corroborate with the Jobs Report.
-One firm is seeing record numbers, and a sense of stress with companies looking too specifically for criteria regarding talent. It appears a tipping point is being achieved where 'good-enough' talent have to fill a company's desired role.
-June was also considered a busy month, but July and August are generally slow. Then a drastic pick up in Sept. (This next report maybe more reflective of what the Hunters were seeing.)
Obviously this is very qualitative, and not scientific by any means. (If I had the time and resources to contact over 20 or so ground level Head Hunters or a few executives I could produce a more quantitative model of expectations. The only quantitative model I have regarding full time employment expectations is MWW stock. One can assume if the private jobs market is good, the trading habits of a forward looking stock would indicate this. But right now the stock is not indicating the qualitative findings.
One thing that can corroborate the qualitative findings is the high productivity rate for corporate America. My discussions indicate to me, the level is unsustainable, and a point for optimism.
2. Corporate Profits:
The market is driven by profits, or expectations of profits, (everything else is essentially noise that people assume will affect profits) and the 'Hours and Earnings of all Employees' still increased, and it has consistently increased since last year.
This current Jobs report is the only one that would lead to the lack of sustainability toward Employment Earnings. With so much public sector job increases, it is hard to argue otherwise. But there is still a lot of stimulus money not spent yet, along with the gradual reduction in productivity level from job growth, corporate profits should remain high for the rest of 2010. (And with the global economy growing, companies positioned for the growth will continue to grow profits.)
3. Europe (from banks-to-politics)
I still believe there is a 'perceived negativity' in Europe that is acting as a domino effect. The risk of default or breaking of the Euro is squashed. Austerity measures are being passed across the continent, and countries that need help are being dragged kicking and screaming via the IMF. In my opinion, this risk is being reduced. However, a domino effect of the default is jump-starting rumors regarding high profile bank failures, along with derivative losses from others. The ECB apparently has been on this, and is taking action. (article) With their own stress tests established, this may alleviate this domino-effect. (I also think a awesome buying opportunity will be established for STD when or if a secondary is required from the stress test. I will be looking to buy STD if a secondary is announced.)
Also, the decline in the Euro does not worry me. The rate of decline is a concern, but this will begin to mitigate itself (as the markets find an equilibrium) to present a new carry trade the Hedgies can exploit. (Just like they did with the dollar/yen for years.) I find it hard to believe anyone was not expecting the Euro to decline once the Greece situation was first mentioned in the early parts of the year.
4. China Slowing:
The Chinese have proven time and time again that they have too much control over their economy. I mean some of the numbers that come out of China w/respect to bank lending can swing wildly, and make me scratch my head. We can see consumers borrow north of $190b in one month, then borrow close to nothing the next month. Also, their government has too much money to let their 'economic miracle' simply dwindle now. Over the last 20 years they (the controllers of their economy) have shown to have too much control, and I do not think they will loose it just yet. (But I do think commodities continue to under-perform due to their direct involvement in China slowing down their real-estate construction boom. That is just common sense.)
Fact of the matter...
The cold truth is that the US and global economy can be sustained and grow with a higher unemployment number. Corporate profits are growing. Political leaders are doing what they have to do to maintain stability, even though sometimes we cringe at what they do.
The austerity measure will hurt some, the unemployment rate will hurt some, but those 'some' just do not matter with respect to the economy.
(Although the above statement seems arrogant, keep in mind, I will be one of those 'some' in a few months as I will be laid-off due to Pfizer's closure of a vaccine manufacturing site. I do not make that statement lightly. My knees and knuckles are too bloody from trying to continuously better myself, and my family's, well being to carelessly make that statement. It is merely a point of fact.)
Friday, June 4, 2010
Jobs Report... piss poor
The report was piss poor. I did not care for the head line number, but was looking primarily at the private sector job growth of 41k. There is nothing to be happy about in it. Linked is the break down from bls.gov (table). Market has every reason to sell of today, every reason.
Still looking to enter the names posted yesterday with this decline. My target prices will be for the low end, as this jobs report may force the SP500 to test the low end of its range again (over the next week or so).
Still looking to enter the names posted yesterday with this decline. My target prices will be for the low end, as this jobs report may force the SP500 to test the low end of its range again (over the next week or so).
Thursday, June 3, 2010
Potential Trades - GS, AAPL, CHK
GS - If GS approaches its 14SMA (around 141) I will add to it. I am already in it, but the current activity around 145 has consolidated the name from its very-short-term overbought position.
CHK - Based on the previous chart I highlighted the other day, the target of 18 may not be viable. President Obama's talk of Nat.Gas (along with Cramer's highlight of it) changed the trading dynamic of the stock. A more realistic target, based on its new trading dynamic, would be around 20.
AAPL - I would rather wait for it to fall between 250-255, but it is close to its 5 SMA (which acts as support when it is in a momentum move).
Tuesday, June 1, 2010
Market Thought... butter
My word for the rest of 2010 will be 'butter'.
The markets are churning so much, it is as if the markets are making the stuff. Then, when the fear fades and the markets rally, the markets will be butter. (look up butter on urbandictionary.com for those who do not get the slang ;)
I am not backing away from the thesis of the recent Market Thought post 'resistance?'. The markets are playing out the very uncertainty highlighted, and its churning. This has to play out until things look better, and if the economic data holds up, it will play out.
I have made no secret that with this market churning, when the SP500 meets the daily 320SMA (which can be around 1040/1050, not the current SMA level), I will go very heavy into this market. I will be adding to my usual suspects (ie IBM, AAPL, GS, NAT, F, KMP, C and maybe GOOG among others).
A few stocks I am really interested in with this market decline include ERII and CHK. Most of my capital I plan on allocating to the names above, but with the oil spill, Shell's recent announcement of a Nat.Gas. acquisition and Nat.Gas prices holding steady CHK is very appealing. If I can get CHK for around 18, I will not pass it up.
ERII, to me, is one of the best pure play water themes (along with NLC). I wish management would execute a better acquisition strategy to flatten out their extremely bumpy earnings. (They have to define to Wall Street what kind of company they have to become. There current product line up, while technologically impressive is not cutting it for investors.) Regardless, it is approaching levels that a deep value player can not ignore. Their product(s) are proven, in demand and the company is legit. Asset Valuation (excluding intangibles and goodwill) its worth in the mid/high 2s. Book Value its worth in the high 1s. And Cash Value alone its worth about 1 dollar a share. If ERII enters the mid/high 2s, I will buy a few thousand shares on shear valuation alone. (But I warn, the chart is not pretty, indicating a strong and consistent liquidation going on right now.)
The markets are churning so much, it is as if the markets are making the stuff. Then, when the fear fades and the markets rally, the markets will be butter. (look up butter on urbandictionary.com for those who do not get the slang ;)
I am not backing away from the thesis of the recent Market Thought post 'resistance?'. The markets are playing out the very uncertainty highlighted, and its churning. This has to play out until things look better, and if the economic data holds up, it will play out.
I have made no secret that with this market churning, when the SP500 meets the daily 320SMA (which can be around 1040/1050, not the current SMA level), I will go very heavy into this market. I will be adding to my usual suspects (ie IBM, AAPL, GS, NAT, F, KMP, C and maybe GOOG among others).
A few stocks I am really interested in with this market decline include ERII and CHK. Most of my capital I plan on allocating to the names above, but with the oil spill, Shell's recent announcement of a Nat.Gas. acquisition and Nat.Gas prices holding steady CHK is very appealing. If I can get CHK for around 18, I will not pass it up.
ERII, to me, is one of the best pure play water themes (along with NLC). I wish management would execute a better acquisition strategy to flatten out their extremely bumpy earnings. (They have to define to Wall Street what kind of company they have to become. There current product line up, while technologically impressive is not cutting it for investors.) Regardless, it is approaching levels that a deep value player can not ignore. Their product(s) are proven, in demand and the company is legit. Asset Valuation (excluding intangibles and goodwill) its worth in the mid/high 2s. Book Value its worth in the high 1s. And Cash Value alone its worth about 1 dollar a share. If ERII enters the mid/high 2s, I will buy a few thousand shares on shear valuation alone. (But I warn, the chart is not pretty, indicating a strong and consistent liquidation going on right now.)
Subscribe to:
Posts (Atom)