Posts filed under “Valuation”

Random Thoughts on Apple

Is it possible that a company that grew to be the dominant axe in Technology, became the largest capitalization firm in the world, and created many new categories of products, is still misunderstood by Wall Street and the Financial Press?

The short answer is yes. Apple (AAPL) remains an enigma to much of the Street. The longer answer is nuanced and complex. and therefore ignored by most players.

In no particular order, lets look at a few points on Apple prior to their earnings report this afternoon:

• Apple has run into the law of big numbers. From the introduction of iPod to its peak in 2012 the stock has gained ~9,300%. That is a number that is simply and obviously unsustainable.

Obvious? Not to everyone: Lots of hedgies plowed into Apple at $500, $600 and even $700, paying little attention to how over loved and over owned Apple had become.

• Want a more objective measure of overowned/over-loved any stock is? Look for companies that have these 3 characteristics:

1) More than 90% institutional ownership;
2) More than 90% Buy or Strong Buy;
3) 1000% gain over the prior 3 years.

You then wait for the 1st technical break. (Look out below!)

• Historically, companies with these 3 traits have presented a terrible risk reward ratio — and Apple was right there at the top and during the prior year. You can tweak these numbers when you run a screen to get a shorter list of dangerous names;

• Apple garners most of the profits in the mobile space. (See this this and this) Android may be capturing market share, but you get that when you give your product away for free.

• Will Apple use some of its huge cash hoard to raise its dividend? Possibly. Will it also do more stock buybacks? I hope not — its a colossal waste of money to anyone except Wall Street financial engineers.

• Despite what Lawrence Haverty of Gamco claimed, it is not the responsibility of any publicly traded company to help Hedge funds have a good quarter. Neither is it any publicly traded firm’s responsibility to use its capital to goose the stock short term for the benefit of this community. (Only an ass would say that).

• CEO Tim Cook is an excellent operator and executor. Don’t blame him for not being Steve Jobs — NO ONE IS.

• In the 2,000s, Apple’s P/E ratio was high — but so was its revenue and earnings growth rate. Today, its P/E is much lower — but so to are its revenue and earnings growth rate

• Its been 7 months since the last introduction of a new Apple product. We used to wait years between product introductions, and now 2 quarters is too long.

• Apple has always been a Software company that sold Hardware — but Wall Street has fialed to understand that. It is not, per the WSJ, an identity crisis.

• Wall Street has a long history of not understanding Apple. Amazingly, most of the street still seems to not get it. (See: Analysts Still Underestimate Apple: Sell-siders simply don’t ‘get’ Steve Jobs’ company from 2005 based on this post: Wall Street Remains Clueless as Ever as to Apple’s Products)

• Apple’s app universe is enormous and vastly superior to their competitors.

• When I suggested selling or hedging Apple positions, it was due to many of these technical and quantitative factors. I put a $500, then a $350 downside target on the stock, which had gotten way ahead off itself. The key for traders is managing their position.

• Investors need to understand the difference between a company and its stock price. They are not the same thing. The valuation is a function of the firm’s growth rate and profits. Sometimes a stock gets mispriced relative to these factors.

• Traders never seem to care — if its going up and they are long, they like it. When it stops going up and they are long, they cut and run. This is how it has always been.

Category: Investing, Technology, Trading, Valuation

A Year-To-Date Look At The World

A Year-To-Date Look At The World Click to enlarge Source: All Star Charts     The chart above, from JC, shows how the world has been doing since the start of the year. I can only think of three possible future outcomes, from best to worst: 1. Rally! The rest of the world bottoms, reverses,…Read More

Category: Earnings, Economy, Markets, Valuation

Update: Rotation, Gold and Markets

A quick note on some of our commentary in April — it has been an interesting month for TBP. On April 9th, I mentioned that the Great Rotation theme was incorrect: It was not stocks into bonds, as is so commonly claimed. Rather, it was a New Great Rotation: Commodities into Bonds. Since then, Bond…Read More

Category: Gold & Precious Metals, Valuation, Weblogs

Markets Rebound as Gold Recovers

Click for video

Source: BNN

Category: Gold & Precious Metals, Media, Valuation, Video

12 Rules of Goldbuggery

Yesterday morning, I mentioned the extent of cognitive dissonance surrounding the Gold was surprising (What Are Gold’s Fundamentals?). The reaction to Gold’s crash has produced some astonishing rationalizations. The refusal to acknowledge basic trading facts leads us to recognize that Gold bugs and traders have very specific rules that they MUST follow. These social conventions…Read More

Category: Gold & Precious Metals, Humor, Psychology, Rules, Valuation

What Are Gold's Fundamentals ?

In a piece published in Barrons.com’s on Friday (Is Gold Nearing Capitulation?) the selloff in gold was described as “a contrarian’s dream scenario.” John Hathaway of Tocqueville Funds wrote in Barron’s: “The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like…Read More

Category: Gold & Precious Metals, Really, really bad calls, Trading, Valuation

What Are Gold’s Fundamentals ?

In a piece published in Barrons.com’s on Friday (Is Gold Nearing Capitulation?) the selloff in gold was described as “a contrarian’s dream scenario.” John Hathaway of Tocqueville Funds wrote in Barron’s: “The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like…Read More

Category: Gold & Precious Metals, Really, really bad calls, Trading, Valuation

Broad Market Lagged Price to Earnings Ratio

Click to enlarge Source: BEA, Federal Reserve Board, Wilshire Associates, J.P. Morgan Asset Management March 31, 2013

Category: Investing, Valuation

Sequestration Impact on Top 10 US Military Contractors

click for larger graphic

 

 

Here’s a little surprise: The top military contractors have all been doing pretty well since Sequestration hit.

I know what you’re thinking: They already got hit in anticipation of Sequestration. Only they didn’t.

Boeing (BA) and Oshkosh OSK are near 52 week highs, while United Technologies (UTX) and McKesson (MCK) 20% are at all time highs. (Table below)

So much for the impact of these government cutbacks on Military contractors . . .

 

See also:
Chuck Hagel on defense budget cuts under sequestration: ‘We’re adjusting to the realities’ (NBC)

The case for the sequester’s defense cuts (WonkBlog)

McKeon ‘Very Concerned’ About Sequester’s Military Impact  (Washington Wire)

 

 

Read More

Category: Markets, Trading, Valuation

Discuss: Is Anything Cheap?

click for larger graphic     All of the major markets have had a huge run off of the lows (though they are barely flat since the 07 peaks). What does this mean? Are markets too expensive, or are they better priced than last time? What say ye?     Source: Is Anything Cheap? JASON…Read More

Category: Digital Media, Investing, Valuation