some thoughts... JPM, SLB, AAPL, GOOG and QCOM

JPM - Looking to increase the position near low 42.  If the jobs data begins to improve, JPM will trade between 46-50.  If jobs data does not improve, JPM should trade near 46 because as the housing/mortgage market improve JPM's book value of around 46 continues to be justified.

SLB - Looks interesting here. Now that the fracking negativity is flushed out, and oil prices remain elevated, SLB should be able to maintain the 73 level. Even if SLB maintains its low-end trading multiple range (18 being a low-end trailing PE trading range), SLB will approach 76-77 as the quarter matures.

AAPL - Looking to add here.

GOOG - Looking to add near current level and near 580.

QCOM - I think QCOM is at least a 69-70 stock by the end of the year, but am looking to sell my current position between 66-67 (then re-enter after a consolidation). If QCOM doesn't yet reach 66, and sees between 63 and 62, I will add.

I still believe my current market thesis. If I get an opportunity to add to the above names, I will look to proportionately take out SPY puts for a hedge to the jobs data later this week.  (Although I am getting the feeling the market is front loading potentially negative news, and could rally on decent numbers.)

Facebook or MySpace?

Guess if I am referring to Facebook or MySpace:

The most widely used and popular social networking site buys a rapidly growing photo sharing property.


Is it Facebook or MySpace?

Its a trick question. The funny and sad reality is that both fit the bill.

In 2007 MySpace was the largest and most popular social networking site, and bought PhotoBucket for a shit load of money.

A few weeks ago, Facebook bought Instagram for more than a shit load of money.

Did Facebook need to spend $1B? Many have stated that Instagram-is-to-mobile as Facebook-was-to-PCs.  In this context, the price tag was a no brainer. But Facebook's growth over the last two years have been directly tied to mobile. If Facebook is loosing in the mobile space, they have themselves to blame. Facebook should understand mobile better than anyone, yet their current mobile offerings suck. Their mobile offerings are slow, clunky and frustrating to use.

AAPL potential trading dynamic

AAPL is in a interesting place. (Been adding to it recently.) Like many other tech stocks, after they reported, AAPL's multiple seriously contracted.

AAPL is currently trading with a trailing multiple of 14.7. Barring the multiple seen in January (12.5), 14.5 was a low end range for AAPL toward the second half of 2011. IMO, the 12.5 multiple was an anomaly as investors were forced to readjust to Apple's new growth trajectory.

Prior to the iPad, and when the iPhone was only on 1 carrier, AAPL typically beat their own estimates by 16-24%. Now that the iPad is gaining wide acceptance and the iPhone is available world wide, Apple has been beating their guidance by +40%. (That's sick, but to the victor goes the spoils.) Realistically, they should see a new range, probably low 20s%/high 30s%.

From a trailing PE perspective, a reasonable assumption can be established to allow AAPL to have a trailing multiple in the mid/high 15s. (If a name like IBM can maintain such a multiple, so should AAPL. The only differences between the two companies is that IBM properly uses financial engineering, where as Apple's growth does not merit heavy engineering. Although they did need a dividend to allow an increased pool of funds to play the stock, via dividend funds.)

With a multiple of mid/high 15, AAPL should be trading between 635-to-655. Heck, even if Apple did nothing for the quarter, then assume Apple beat their own guidance by 24% at the end of the quarter, AAPL would have a trailing PE of 14.5 with a stock price of 637.

Basically AAPL will eventually trade near 630-640 as the quarter matures.

From a technical perspective, AAPL is not overbought and chilling near support SMAs.

Barring an outside shock to the financial system, AAPL should be trading between 600-and-640. As this quarter matures, AAPL should trade between 620-and-new-highs.

Market Thought... seasonality

The slight upward trend in jobless claims comes as no surprise.

The last two years they have trended slightly upward during this part of the year. And each time, the market had the same reaction. The market went slightly down to flat.

As I highlighted before, the real cause for the major corrections were not the slight uptick in jobless claims, it was Europe. If there is no European financial systemic shock, then the market will acknowledge another pattern many are currently overlooking. After the uptick, the jobless claims continued to decline.

Considering corporate earnings, and the higher consumer confidence numbers, the jobless claims should continue to decline after this 'hump'.

The likely hood of a European scare this time around seems less likely. There are obvious concerns regarding Europe, but I think the market is discounting these obvious concerns. (Consider Apple, Google, QCOM, and many other secular growth stories at discounted multiples.)

Although, there is one recent subtlety that I want to point out. The last time the big boys were expecting a major market correction, IBM rallied in their face, and the market did not see the correction at the time all were expecting one. Similar action appears to be happening now.

How can we have a huge correction when IBM is rallying?

But I am sticking to my pervious thesis. If the Employment situation shows improvement from April, the treasury yield will spike. This will cause a nice rally in equities, to remove the current discount. (If the Employment Situation continues to suck, then the markets have a reason to muddle along or decline.)

healthy real estate - BGCP

Seems like BGCP is in a sweet spot with respect to real estate.

"Tenant demand for Manhattan apartments drove the median rent in the first quarter up 7.1 percent from a year earlier to $3,100 a month, the largest annual gain since 2007"


For a company that got into the real estate broker market on the cheap, with some really interesting reach, they are in a nice position to take advantage.


Obviously the above is just one city, and the recent Case-Shiller index continued to suggest a bouncing bottom, but real time chatter suggests there are healthy signs across the country with south Florida doing well, along with Arizona.

FIO - a shame

From a non-GAAP perspective FIO did pretty good. From a GAAP perspective, their performance was (IMO) crappy. (And since FIO ended the quarter with less cash on their balance sheet for the quarter, their non-gaap gain really wasn't a gain.)

At a time when Flash prices declined, crushing Sandisk's margins, FIO's margins only increased by 1% from the last quarter. Seeing how well AAPL was able to increase their margins, I was expecting FIO to do north of 55%. Maybe the high 50s, considering FIO saw gross margins in the 60s in Sept 2011.

The revenue indicated strong demand for their products, but there is an inconsistency here. The macro trend of flash is not jiving with FIO's results. Investors got the answers in the Conference Call.  Management indicated that they passed along the savings to their costumers.

They sold more product for less, which means the lower hardware sales could not be offset by the software.

Whats a real pisser is that management indicated that for every 10% decline in flash price should lead to a 150-200 bases point increase in gross margins.

Basically, FIO is not a company that will ultimately benefit from lower flash prices, as they are passing along the savings. So the basis of their business model, to reap the benefit of lower flash prices, was deteriorated this quarter. (If not completely thrown out the window.)

This quarter showed investors their business model is now shifting, and more dependent on software.

Its a shame. If FIO stuck with their original business model, this quarter should have been a blow out. Most likely they were getting too much pressure from their 'partner' venders to sell at a lower price point because the competition was using the lower price point (no pricing power).  Either way, it will now take longer to get to real (balance sheet expanding) profitability.

I am going to shy away from trading this one until I get better clarity.

FIO - do or die

FIO reports tonight.  For me its a do or die quarter. The reason being:

1. Demand for their offerings was high (as per the chatter from analysts and similar companies)

2. Flash prices have come down significantly this quarter. (Apple was able to translate this decline to a significant increase in gross margins. I am expecting the same for FIO.)

The macro trends favor a significant beat for FIO tonight. Both aspects of the business were favorable (costs were down and demand was up).

I really like management and the segment of the business, but if there is ever a more beautiful quarter for this company to beat, its this one. If FIO can not translate huge benefit from this quarter, then their business model is not conducive to scale any macro benefits. As which point I will no longer trade the stock.

From my current analysis, FIO should be able to benefit from the favorable macro trends. Hence, I am playing FIO one into earnings, and am expecting margin expansion and profitability.