echotoall

nice action in financials

2012-02-10T10:50:00.001-05:00

There is a lot of strength in financials today. Further evidence that this pull back will be short lived. Thought this was interesting. (Interesting enough for me to cover my market protection, and just wait for market opportunities.)

(XLF is in blue. Pretty clear relative out-performance.)

AAPL - discipline's tragedy

2012-02-09T14:19:00.002-05:00

I have a problem. My problem is discipline. I have too much of it. Many years ago, I got burned, hard, because I gave caution to the wind. Ever since then, I have been trading with a lot of discipline.

Over the last few years (yes, years) I have been very bullish on AAPL, and it has treated me well in return. Most recently, I have consistently highlighted Apple's trading range, why it was a good buy entering its report and pointed out gross hypocrisies from Cramer and other media folks.

All my bullishness, prior to this point was in the face of market inefficiency, causing a severe discount to the stock. But the entire argument was predicated on realism. A few months ago, I highlighted why I believe Apple should, at the very least, trade with a market multiple.

My points of consideration include:

1. Already the largest investor base. (Everyone owns it.)

2. Product growth trends

3. Revenue and earnings growth rates

4. Potential product growth drivers

5. The market has never seen a situation like AAPL

That thesis, imo, hold very true today. Apple's biggest problem is the large investor base. Everyone who wants to own it, already does. And the dearth of value managers who did not own it, bought it when the multiple was between 12.5 to 13.5. Hence, the 8-9% appreciation since the quarterly report.

A good argument can be made between Apple's growth rate and multiple, to show the undervalued nature of the stock, but that argument was valid for the last two years as Apple's growth was accelerating yet its multiple was compressing, and the argument meant nothing.

An undeniable fact still remains, a stock needs demand in order for its multiple to rise. When Apple reported its blow out quarter, that created demand. Any value boy worth his/her management fee could not ignore the stock's valuation. The stock was trading with a trailing PE of 12.6. So the stock appreciated.

Apple is currently trading at 493, which gives it a trailing multiple of slightly above 14*. The value boys/girls who were buying it will no longer do so. New value players will need a new reason to buy the stock. (These same players did not care for the company's growth before, they will not care at current levels.)

New players will need a dividend, or Apple to continue to perform quarter-after-quarter (and be late to the game). (After all, the late players still managed to see a 40point move 'after-the-fact'. Not bad for the late comers.)

Aside from the above argument, which is predicated on the mechanics-of-the-market, there is also technical reason I am cautious here with Apple.

The stock has approached a very cautious level of overbought conditions, as highlighted by the Slow Stoch.

The story is the same via the weekly chart.

So I am of the camp that Apple needs to consolidate at current levels. After reading that statement, do not think for a second that I am bearish on Apple. I am a trader, I do not simply buy and hold, even though I conduct heavy fundamental analysis that can point to such action.

For instance, I truly think Apple will be a $600 stock by the end of the year, so for any buy-and-hold person out there, do not sell. However, I will be actively trading the stock, again, once it consolidates. Right now, I am just waiting.

*The reason I use the trailing PE of 14 is because that is the expected market multiple and where Apple has been normally trading at for the last few months.

(Any 'new' person to this blog reading this and think this is me simply hating on Apple please go to the search box and search "aapl" or "apple", and read for yourself.)

Market Thought... the shift

2012-02-09T09:38:00.002-05:00

Some of the potential catalysts I was waiting for to provide market pull back, are not providing that pull-back.

1. Greek Deal. If CDS' get activated, I thought this may provide a hiccup. But with ECB willing to make concession, and the market yet to react, the chance that this is a catalyst has diminished.

2. China higher inflation numbers. The number was higher by 0.4%, yet the market does not care.

Now the indicators (10yr treasury and Copper) further indicate the shift to equities.

I do not want to get carried away with bullishness, cause I am still cautious from very overbought conditions, but the set-up does not support a big pull-back.

MSFT

2012-02-08T15:10:00.000-05:00

At the end of December, I highlighted why MSFT was going to push higher in 2012. Well, very early on in 2012, MSFT exploded from its consolidation pattern, and has effectively removed its discount.

The level of appreciation has put MSFT in a very curious situation. Its forward PE is now the same as AAPL.

Put in another perspective, a company who is LOSING device market share (shrinking device usage via Windows) verse a company who's device usage (iOS) is surging, are trading with the same valuation.

Also, a company (MSFT) who's business model is to copy the market leader (AAPL) is valued equally to the market leader. (With the exception of Kinect.)

The valuation does not make sense. If anyone got into MSFT prior to the big move, congrats. It may be smart to hold MSFT for the dividend yield, especially if anyone has the stock near 28-29. But fundamentally, MSFT should stall at current levels.

odd - industrials vs copper

2012-02-08T10:34:00.000-05:00

Copper is pushing higher, yet industrials (CAT, DD, ATI, ETN) are acting weaker. Interesting dichotomy.

Market Thought... wall of worry

2012-02-07T20:20:00.001-05:00

The wall-of-worry is built on questions:

Would you sell a stock that is growing revenue and earnings north of +50% (and probably +20% next year) even if it has a trailing multiple of 13? (And this company facilitated in creating around 466 THOUSAND jobs since 2008, the start of the greatest economic collapse the world has seen since the Great Depression.)

How does an investor decide to sell a stock of a company who's products are further ingrained onto users with an 86 million subscriber strong moat (iCloud), all while the stock is still trading at the low-end of its trailing multiple?

While Apple is truly a stand alone situation, there are other such stocks where similar arguments can be made. There is only one problem, stocks and markets are generally very overbought. So the money managers will wait for a pull back. (And I am not knocking them of this, cause over the last few days I too am waiting for one.)

What if that true pull back does not come when everyone expects it to? What if, the hint of weakness IBM was displaying this mornings, despite a very positive upgrade and trading near its all-time high, turned out to be its consolidation and the opportunity to enter?

Look how the stock maintained its 10 SMA support, and while trending up the below oscillators came down. (Thats bullish. I am not crazy about it, and I would rather see IBM go toward 188-190 before I enter, but I can't distort the true interpretation just because I want the stock to go down.) IBM's continued rise fits into my long-held belief of multiple expansion for the stock. (After all, before the 2008 financial crisis and proven execution of their 5yr plan IBM was trading near a trailing PE of +16.)

After all these questions we eventually get to the most important one, when will the market sputter-out?

The other day, I provided the fundamental thesis in the 're-evaluation' post. A move to 1360 is not unreasonable. But the technicals should be more revealing.

1. Throughout January any market decline has been shallow, and met with awesome buying power. However, we are at an obvious technical resistance.

Brief declines happened twice. Once in mid Jan and at the end. (But the buying at the end was due to surprisingly positive economic data points.)

2. Since everyone and their mother sees the obvious, there are a few indicators I am closely paying attention to suggest market activity.

a. Copper - Since there are a ton of money managers that place way too much emphasis on this commodity, if copper breaks out, it will be correlated to the economy and the market.

b. Treasury yield - The yield breaking its negative trend. I do not care how long the Fed wants to keep rates low, they can only keep rates low as long as the economy lets them. As stability continues, and positive economic data keeps coming, yields will rise and the perception of 'money-leaving-bonds-into-stocks' will facilitate an elevated market.

c. Complacency - The Vix/SP500 overlay merits caution, but it seems like it can facilitate a market rising a bit more.

This chart is the one giving me the most problems. It tells me to be scared, and take on market shorts (that don't work out) or be uber cautious on 'long' trades.

The one weird thing about the Vix over the past few days was that it actually saw the low-end decline, that got me really scared, but after that minute (literally) it showed resilient levels as the market drifted upward. (Which means others are preparing for a pull-back, or a lack of complacency.)

The above thought process has been guiding me. Basically, the market can push somewhat higher from here, but I am really letting copper, the treasury and Vix/SP500 overlay guide by how much. However, regardless of overall market action, individual stocks can and most likely will appreciate despite the overall market.

Market Thought... re-evaluation

2012-02-05T11:22:00.002-05:00

A few weeks ago, the World Bank lowered their global GDP outlook to 2.5%. IMO, a 2.5% global GDP is sufficient to produce about a 5% EPS growth on the SP500. Since then we got some information that could challenge the lowered thesis.

1. Stronger global PMIs (But the stronger trend, since Oct, is more telling.)

2. strong US Jobs number

3. CAT, during their conference call, said they are seeing stronger growth and projected a global GDP of 3.3%

Over the last few months, the market trailing PE was between 12.5 to around 13. The huge instability caused by the Europeans rightfully caused this discount. However, now we have a sense of stability. That stability should continue as the ECB big guns are active.

A stable financial system combined with stronger economic data should allow for better global GDP growth. This thought process should give more confidence to the lazy money managers who focus too much on 'top-down' analysis. At the very least, this should translate to a market that trades with a better trailing PE. (Also, they tend to put a over reliance on copper, and copper looks to want to break-out here, which only adds to the argument.)

Here is my breakdown with conservatively assumed EPS growth, but with a better PE range between 13.3-14 (which is still below the historical average of 15).

Basically, the above is my market range expectations for the subsequent quarters.

Keep in mind, if the market decides to expand its PE, to a level prior to August 2011, many individual stocks will see multiple expansion. One prime example of that is DIS. DIS, like many others, had a higher trailing multiple prior to August, and has yet to recover despite stronger results last quarter and accelerated earnings growth.

At some point, the market needs to consolidate from the current overbought condition. When that point comes is a bit tricky. I am now waiting for the VIX to get to extreme lows with the below overlay.

A few potential catalysts for a consolidation include:

1. CDS gets activated for the Greek default.

2. Portugal starts restructuring talk that may also cause CDS to be due.

3. Chinese inflation may spook some. (They did not lower rates when expected, probably because their economy is doing better than expected, and that could lead to a higher CPI or PPI rate on Wed.)

Market Thought... frustration

2012-02-03T11:37:00.000-05:00

The past three days have been frustrating for me. Simply put, I haven't been in the position to capitalize on the 2-3day rally.

Not looking for pity. I was bullish on this market since 1200. My point to highlight my frustration is that, if I am feeling this way, after two days, can you imagine how a money manager who has been watching since early december is feeling?

A couple of days ago, I highlighted why I was cautious, but expected a potential blowout top toward 1340-1350. After a brief pull back, the current push higher is not because of blind buying. There was significant economic data that takes recessions completely off the table.

First we got the global PMIs that were pretty good. Especially when digging into the EU PMIs and factoring in the ECB support. Then we got the US jobs number today.

Taking the above data, with a very inexpensive market, that offers higher dividend yields to the treasury, we have the potential of a powerful reaction. I dare say it, but we may find ourselves pushing toward a normal market multiple. That basically means the market has some serious appreciation to do.

The economic data makes me reconsider the technical conditions we are seeing. Usually with such over bought conditions, there is justification to be cautious. But with the new data in play, it might mean the markets are approaching a new trading range, with the low/mid 1300 level being the new low end.

wow. job number.

2012-02-03T08:41:00.001-05:00

Holy crap that was a good number. Put aside the head line number of 243K, which is great on its own. But the private sector number was 257K!!! Thats awesome! Here is the breakdown.

Ave weekly earning kept rising to $803.51.

This report, along with the recently stronger PMIs, is making me re-evalute my lower growth thesis.

SLB acting relatively well

2012-02-02T12:55:00.000-05:00

SLB is acting relatively well in the face of declining crude.

I took on a less-than-initial position in SLB, in case it breaks out, but waiting for a decline to the 14 SMA to take on the full 'initial' position.

As for Crude, low 90s seem like a solid support area, considering the lack of global recession thesis. (Price action for today is not included in the below charts.)

WTI is seeing a bigger decline today than Brent. Brent is pretty stable today. But Brent should not see a decline below 100. (It may not even go below 105.)

Despite the declining price action in the commodity, the elevated prices is still very bullish with respect to the current equity level of SLB.

NOTE: Just an FYI on the declining use of gasoline in the US. This is what happens to a mature economy that has actively been shifting its major cities to be less car-centric. (ie Portland, NYC are the best examples) This major shift is not a reflection of poor economics, although I understand why established investors who have been using this indicator would think otherwise. But they are wrong, and not paying attention to a huge trend that was in development for the better part of a decade in the US. (This is what is allowing America to be a net exporter of carbon-base fuel to the emerging economies that are still rapidly growing their use of gasoline.)

Facebook - the details

2012-02-02T10:01:00.000-05:00

Everyone is talking about it, and has given their two cents. Plenty are showing what the company already produced, but below are future projections and interesting facts about their growth prospects.

First interesting observation is seasonality. When looking at the growth trends, we can see a sense of seasonality.

Sept and March being the low growth quarters, while June and December being the higher growth quarters.

Second, zero revenue from mobile. From the S-1:

"Facebook app is the most frequently downloaded app across all major smartphone platforms in the United States. We had more than 425 million MAUs who used Facebook mobile products in December 2011. We currently do not show ads or directly generate any meaningful revenue from users accessing Facebook through our mobile products"

This can potentially be a good source of growth for both its business segments (ads and payments).

Third, year-over-year growth is decelerating, and below 100%. This does not justify a trailing multiple of +100 on the company.

The third observation highlights where the company has been. But where is the company going to go? In October 2010, a techie wrote a pretty detailed article pointing out Facebook's potential growth, and how it will be a larger company than Google within 5 years.

The article is fairly relevant with respect to advertising and credits, and how the facebook platform can be used to juice both segments. However, the 'Groupon' comparison was shot dead as Facebook exited the business. But the article suggests Facebook will have near or over $28billion dollars in revenue by 2015. Since the author is the experienced techie, I used his assumption as the potential base case for growth projections.

Below is a chart of revenue growth from 2009 to 2011, and what they will be.

If we assume margins to remain fairly consistent, then operational income should see similar growth trends. Is this growth trend reasonable? I do not know yet.

What I am looking for:

1. Progress on the mobile front. The current transition from PC to mobile is currently causing a hiccup in Google, and with no mobile ads on FB, it will definitely cause a hiccup for FB if their "sponsored" news feeds do not produce the same revenue as the PC ads.

2. Expansion of the platform. More retailers and video rentals etc.

3. Credits to be used as a viable mobile payment alternative.

The revenue projections suggests a company that should be trading with a multiple below 70, and shrink throughout the 5 years. (Although we may see a +100% growth spurt in 2012 if they truly monetize mobile this year.)

some thoughts... ATI, SLB and DD

2012-02-01T11:37:00.000-05:00

(updated SLB section 02/01/2012 at 2:19pm)

Today's PMI numbers are very good, and should favor names like ATI, SLB and DD. More importantly, we can deduce from the Euro what the EU PMI may be going forward. The ECB will continue to pump money into the system, and a big infusion is coming at the end of Feb. This should keep downward pressure on the Euro, while providing support for the EuroZone manufacturing. (Mitigating EU economic contractions.)

ATI - The technicals for ATI indicate the stock is consolidated, and the weekly chart suggests current levels to be an interesting area for an initial position.

The weekly 200 SMA was a resistance, and now could act as support. ATI could see the low end of the channel range from the daily chart (42.5), but without a severe EU contraction it should push higher.

SLB - The stock is sitting on a long-term resistance area. Today's oil inventory numbers created a slight pull back intraday. Relative weakness in oil may prevent SLB from breaking out, but generally speaking, crude (Brent or WTI) above 90 is pretty bullish for the name. I would like to enter an initial position near 70-73 (between the 14 and 50 SMA).

update: SLB has had an intraday comeback. (Kind of a pisser considering I was thinking about picking it up near 75.80.) It breached the 200SMA resistance of 76.48. An interesting break out trade maybe setting up. An entry can be made now, but with a tight stop, or willingness to sell if SLB can not hold above 76.48.

DD - Need chemicals if manufacturing is growing, and with the above thesis, DD should be positioned well. Its just way too overbought for me to enter right now. Hopefully, with a market correction, DD can see around 48-49 (between the 20 and 200 SMA).

Market Thought... thanks PMIs

2012-02-01T09:31:00.000-05:00

The market is rallying thanks to the better than expected Global manufacturing numbers (PMI). This is good news.

(Note to partners: I covered the light protection near Monday's morning low. Wrote a post about it, but my internet crapped out and the post was never published. But I am actively looking to take it back on.)

First, China's official PMI (which highlights the larger manufacturers in China), along with China's lack of rate cut, strongly suggest China's economy is doing better than economist and negative traders think. Second, and probably more important, is Germany's PMI figure. It showed an expansion, continuing to prove to be an anchor to the Eurozone. For Germany, even with the lowering of global consumer demand expectations, their manufacturing sector can expand with a Euro around 1.26 to 1.31. However, the EuroZone, as a whole, is still contracting, and needs a lower Euro.

Overall, I am still cautious because the leaders into this rally, the industrials, have been acting weak. (Although the financials have made up some of the weakness.) And there are some subtle stresses due to extreme overbought conditions.

A few points of concern:

1. Portugal's CDS keeps spiking (or yields keep rising).

They do not need to tap capital markets until the end of this year, so right now it should not play a role in driving market action.

2. Involuntary status on the Greek restructuring.

Some issues the pundits say are a concern, but do not concern me:

1. EU only focused on austerity. This is not true. Italy's actions last week prove other wise. They are actively working to improve government efficiency and promote growth initiatives. Other EU members will follow.

2. China not raising rates. Their last GDP was better than expected at 8.7%. China feels they do not need to do much right now, as their PMI suggest. That is a good thing.

GOOG+MMI needs to improve

2012-01-29T14:56:00.000-05:00

Now the quarterly results are in for MMI, GOOG and AAPL, here is a look at their respective margins.

The combined GOOG+MMI will have lower operational margins than AAPL by almost 12 basis points. Apple is trading at a PE of 12.5, Google is trading at a PE of 19.5.

Google has the potential to increase its margins if they take better control of MMI.

The most important thing they can do is to take from Apple's play book. Drastically reduce the number of offerings. Motorola currently has 27 product offerings, 27!!! A taste of what I would like to see from GOOG:

1. Cut the phone offering to 3 or 4. (Offer high-end, mid-end and low-end)

2. All offerings to be the latest Android OS. (All to have the ability to sync to the latest OS version. Remove fragmentation via the Motorola phone.)

3. Make all the Motorola phones (the 3 or 4) IT friendly for enterprise adoption. (Which also means #2 is very important.)

(Ideally, I would love for GOOG to re-engineer Android from the ground up, to prioritize the software for touch screen, but that maybe asking for too much.)

Everyone has their opinions of what Google should do with Motorola, as an investor, I want to see them make an effort in properly positioning the combined company to better compete with AAPL. The above three loose guidelines facilitates that. (Because they speak to production efficiency and greater user experience.) If they can not, Google does not deserve a high multiple. (They can still offer the Android on multiple carriers and try to mitigate the fragmentation issue, but from a company perspective, they need to improve margins and increase sales.)

I am currently actively looking to go long GOOG. It got the bounce off the weekly 50 SMA, but I am waiting for the market to react to the less than stellar numbers from the combined company. Hoping that allows me to enter around 550-560.

Current weakness is from a bad earnings report (in relation to the street's expectations), and some maybe from the crappy acceptance of the Google+ search results by techies and influential bloggers.

Apple stock seriously discounting

2012-01-29T13:39:00.001-05:00

If you hear anybody say, Apple's stock is priced for perfection or is about to hit the "laws-of-large-numbers", call bullshit, because the stock is already being discounted for a ton of negative things.

Everyone knows Apple continues to see very impressive growth, and the best way to show it is through a graph. Asymco.com plotted the Net Sales and Earnings growth rates over a 5 year quarterly basis.

A stock is suppose to trade with a reflection of its growth. Looking at the below chart, Apple clearly is not.

Using the above data points, the trailing PE is incorporated below.

Despite all of Apple's growth, the market has been systematically discounting the stock. However, from what we know of stock ownership, AAPL is still pretty heavily owned except from the value boys.

The above chart, with the market mechanic info of ownership, simply means new money is not being put to work within AAPL.

Will the reduced multiple thesis change? I am betting it does. Below 13, even without at a dividend Apple is just too inexpensive to ignore considering the potential of the mobile web.

In order for AAPL to see a trailing PE more in line with large cap stocks, it will need to offer a dividend, as other large cap stocks do, or develop a solid subscription service.

Apple has tremendous flexibility with a dividend. If Apple was to offer a 2% dividend at 450, and with 941M shares outstanding, it would be giving about $8.47B a year to share holders. And if the value boys recognize the strong reoccurring revenue stream for the company, they will be far more inclined to participate. (A reoccurring revenue stream will allow them to believe the 'stickiness' of Apple's products, and the 'bubble' argument gets thrown out the window.)

Apple has room to grow

2012-01-27T11:04:00.001-05:00

Anyone who thinks AAPL has no more room to grow is just wrong.

BCG was commissioned by Google to explore the economy of the web.

http://www.bbc.co.uk/news/business-16753902

The main point of the study:

1. To grow from $2.3tn to $4.2tn thanks to mobile internet access.

2. By 2016 about 80% of all internet users will access the web using a mobile phone.

3. In four years 3bn people will be using the internet, or nearly 50% of the world's population.

The most striking theme to growth is mobile. While mobile is important to Google, it's currently a source of slower growth, with a CPC at -8% for the quarter due to mobile.

But another company proved they are the best positioned for the mobile web, and that's Apple.

The majority of 80% growth in mobile web will come from lower end users. Apple, currently, is only addressing the lower end user with the 3GS. As the newer iPhones emerge, the iPhone 4 will be offered free, globally, across multiple carriers.

Even though the report was commissioned by Google, and Google will benefit from the trend, it will mostly benefit AAPL.

(apologies for the raw link, I'm writing this on my iPhone)

JCP - good risk/reward

2012-01-26T17:10:00.001-05:00

Day two of the JCP meeting was a very interesting one. Management gave good details on the financial front, that gave a lot of certainty letting the stock to pop rather nicely.

The numbers:

JCP told investors a few important things:

1. Expenses (in relation to sales) will decrease to 27% by the end of 2015.

2. They will cut $900M in expenses over the first 2 years.

3. Traditional metrics (same store sales, guidance and quarterly sales) are thrown out the window. (Looks like all new management cares about is profitability. Also, with the mantra of merging online and brick-and-mortar sales, many traditional retail metrics are simply irrelevant.)

4. EPS for 2012 will meet or exceed 2010 GAAP 1.59 eps. (I am only going to focus on GAAP earnings for this analysis.)

5. Self funded transformation. ($800M in Capital Expenditures in 2012.)

Yesterday, I thought the street would react negatively with the $800M capital expenditure, but the cost savings initiative overwhelms the added costs.

Working out the numbers, I find myself impressed. Using 2010 numbers as the bases case, as management has done with respect to eps guidance (#4), its fairly obvious operational income is projected to grow nicely.

A few notes regarding the above numbers:

1. Conservatively assumes zero revenue growth. (This was done because from 2008-2010 revenue declined, hence a conservative measure is simply prudent.)

2. Operational Expenses in relation to Sales was spread evenly over the 2015 time period.

3. Gross Margins remained constant. (This is really conservative. GM will increase as $900M expenses are removed.)

4. With the lack of GM increase, the total $900M is not factored in. (Again, this for the sake of being very conservative.)

With very conservative estimates, Operational Income still increase significantly from 2012 to 2015. Applying these growth rates to a realistic EPS and trailing PE projections, JCP can potentially trade near mid 60.

The only thing that may hinder this year's eps is the $800M cap ex. expense, but they should do much better than 1.59 (or the 1.60 I modeled) for 2012.

A few notes regarding the eps figure:

1. Assumes base case operational growth rates will act as trailing PEs. (So that pegs the stock price to a very conservative base case.)

2. EPS growth is fairly significant.

For me, the above is a baseline case. When factoring in higher revenue growth and increased GMs, there is far more operational income growth.

Management:

What makes this a baseline case is the fact the management team is no joke. They help build the true integration of online and brick-and-mortar store, whose operations are the most efficient in the world, the Apple Store. (And I am speaking of efficiency, not demand for product or product driven sales.)

Management's performance history and the above numbers, allow an investor to have the benefit of the doubt. (And the market indicated this today.)

Dividend:

Another added bonus, is the $0.80 dividend, giving a 2% yield even with the recent sizable stock appreciation. I did not notice management suggest they will cut the dividend to fund the Cap. Ex. The Press Release did not mention it, so I will assume they will keep it.

Conclusion:

A base case model that suggests a stock price target of mid 60, and with a 2% yield to ride it out, seems like a nice situation to be in.

Of course, this is a show me story, but with a management that has already shown the street what it is capable of, the street will give it the benefit of the doubt, and will give the stock a richer multiple.

Technicals:

(I consciously put the technicals below the conclusion :) JCP is at a two and a half year high, so their maybe some sort of push back. But JCP is morphing into a new company so technicals prior to the last two day maybe irrelevant. I will use the last two days as the "new company" bottom (between high 30s and 40).

If JCP sees high 30s, or where ever the stock decides to consolidate, I will look to enter an initial position.

some notes... CAT, AAPL, data

2012-01-26T09:55:00.001-05:00

1. CAT produced some good numbers. Very interesting to me was their projection of 3.3% global GDP for 2012. That should translate to around a $105 SP500 eps.

2. I was thinking about selling the aapl common, and just wait for an opportunity to re-enter, but I noticed something that stopped me. The data feed to the trailing PE is wrong on Wolphram and Yahoo Finance, which means the many funds that rely on automated computer models have incorrect data. The real trailing PE is in the high 12s. That's just too low.

3. Good Durable goods number and okay jobless number.

fortune cookie

2012-01-25T22:44:00.001-05:00

Got this tonight :)

JCP - Johnson is impressive

2012-01-25T16:27:00.002-05:00

Ever since Johnson moved to JCP, I like many, have been following JCP. After this interview, where he gives us a taste of where he plans on taking JCP, its hard not to like him.

I especially like his continued theme of merging online w/brick-and-mortar retail.

I am not ready to enter JCP at current levels. His vision is a process, and there will be a lot of restructuring and added costs until the finished product is ready to shine. Looking at a weekly chart, JCP will start to get interesting near 28. But I will have to dig into its financials, along with the potential increase in brand power and the potential of the department store model he briefly touches on to get a better idea where the stock could go before the transition.

Market Thought... light protection

2012-01-25T13:47:00.000-05:00

I have some relatively light protection. Interesting intra-day action. The market started climbing around 12:20.

The equity rise should have correlated with the treasury 10yr, but it did not. Around 11:30, the 10yr started to collapse.

Seeing this type of action does not inspire confidence, at least to me.

Superficially, the SP500 chart is still very much intact.

I have already expressed my cautiousness, and I am lightly protected (via a light SPY put protection and EUO).

The market could always see a blow-out top, reaching 1340-1350, and any decline should be in the range of 3-5%, but I am patiently waiting.

AAPL

2012-01-25T10:26:00.001-05:00

Congrats to those who held the stock! Now that the enthusiasm is out of the way, lets be realistic. Here are some interesting valuation facts:

1. Below 454, AAPL is trading with a trailing PE below 10, if cash is excluded.

2. Below 456, AAPL is trading with a trailing PE below 13. (At 446, its making a new low w/respect to trailing PE. Here the anticipated price band if AAPL is to trade between a PE of 13-14.

3. AAPL's tone regarding their cash is very different from the past. Seems like they will do something soon.

4. Subscription revenue growth (via iCloud and TV).

Assuming Apple plays its cards right, like issuing a +2% dividend, the above three things is a powerful combination that will facilitate the value investors to come into this stock. This should allow the multiple to trade in similar fashion to other large cap stocks.

As for how I traded AAPL today, I unloaded all options in the AM due to the volatility the spike caused, but still own the common. I simply can not sell the common with # 1 and 2 (listed above) in play.

(I don't care that it spiked, its still just too inexpensive. The stock should be trading near 490, but I am willing to unload near 460.)

wow AAPL crushed it

2012-01-24T16:35:00.001-05:00

EPS of 13.87, and pretty much just crushed every other metric and guidance. wow.

To have a trailing PE of 13, after this report, AAPL needs to trade at 456!. wow.

Note on FIO - FIO beat and beat future guidance, but the street is not treating it well. Unfortunately looks like it wants to maintain the 68 SMA resistance. But the numbers were very good.

earnings play - FIO

2012-01-24T10:19:00.003-05:00

If anyone has the speculation bug, FIO should be an interesting play. They report today after the bell. The strength in IBM and EMC may translate into a benefit for FIO.

Technically, it is sitting on its 68SMA resistance, but may want to push toward 34. The trade from 29-34 is the easy trade. A move to 34 will give it a head and shoulder. If it breaks 34, technical indicators will flash on many screens and the momentum whores will push it higher. If not, it will consolidate.

Fundamentally, the stock is pretty pricey. But this is a tremendous growth into the Solid State Device Storage, and the processing efficiency the company provides.

This trade is not for the faint of heart.

VZ

2012-01-24T10:11:00.000-05:00

Today's weakness in VZ is bringing the stock to oversold territory. So I stated entering the stock.

The first position was at the 50 SMA. A heavier position will be between 36-37.

I am not a fan of the traditional cable companies for 2012 because I truly believe a disruption is coming on the TV Content delivery side of their business via a user friendly a la carte model. But Fios is started from a much lower base, and seeing double digit up take. Basically, the Fios growth should mitigate the disruption effect. (I also think VZ is in a position to add value added services to those who have FIOS and Verizon Wireless, but that remains to be seen.)