Author: Andrew Keene
LinkedIn Networks With Amazon (LNKD, AMZN)? 1.28.2013
AMZN is the premier international online retailer. The company serves consumers through its retail websites and focuses on selection, price, and convenience. LNKD, on the other hand, is the most popular professional networking website. LNKD offers a variety of professional services for career advanement. Both companies embrace technology in order to drive growth.
LNKD and AMZN both spend a lot of their cash on reinvestment. For example, just under 60% of LNKD revenue was spent on sales/marketing and product development. This kind of investment positions the two firms to benefit in the long run.
The LNKD situation is, interestingly enough, very similar to AMZN. AMZN spends a large portion of its cash on improving its distribution centers and preparing itself to have economies of scale for the future. These two stocks have rich PE multiples and both trade in a similar fashion. This thesis can be tested. The 55-day (a Fibonacci number) price correlation between the two stocks is 0.88. This coefficient is very strong. A reading of 1.00 represents a perfect positive correlation and readings above 0.75 are generally considered strong. This figure simply quantifies the severity of relationship (positive or negative). Therefore AMZN will be a stock to watch for LNKD investors.
Spending for the long-run seems fine, however renowned economist John Maynard Keynes one said, “We are all dead in the long run.” They may be planning for the long run, but if these two companies continue to put up underwhelming EPS the market may eventually discount their massive forward and trailing PE multiple.
Must See TV: Carl Icahn & Bill Ackman's CNBC Throwdown
Market Recap 1.25.2013
S&P Emini Pivot points for 1.28.2013
Apple & Google Pivot Points for 1.28.2013
Does AAPL Have a Date With $400? 1.25.2013
The biggest news from earnings weren’t the revenue numbers, but rather the somewhat staggering $137 Billion hoard of cash on hand – technically speaking, enough to buy Visa, Pepsi, or even Citigroup.
For every $10.60 Apple’s share price drops, the company loses $1B in market capitalization. At the time of writing, shares are down $11.61, or over $1.25 B for those who like to track such things.
Apple closed out 2011 at $405 and hit all time high $705 in September before essentially going parabolic downwards until November when it began trading in a $500 to $600 range. After a similar move downward following the recent earnings report, it seems likely we will see the $429.78 and $409.05 supports tested in the very near future.
—
John Voorheis
john@keeneonthemarket.com
SWHC a Value Here? RGR SWHC Pair Trade 1.25.2013
There is not a quick and dirty way to look at value plays. Many sophisticated metrics and models go into determining if a stock is valuable. The analyst community has run these numbers already though. The average recommendation is overweight/buy (zero sells) with an average price target of $13.33. Analysts also are expecting $1.00 of EPS for the next fiscal year, in line with how management guided. Average numbers here should be taken with a grain of salt however, the average price target, for example, only takes into account six analyst opinions! The analyst sample set is rather small and thus is easily swayed because not many people cover the stock. To put this into prospective, AAPL has over 53 analysts covering the stock!
SWHC’s forward PE is not only under the average market multiple (around 12-17x), the multiple of its closest public competitor, RGR, is also significantly above it. RGR is currently trading at nearly 15x forward EPS. If a trader was inclined to play a compression between the two multiples…a pair trade could be advised. This would include selling RGR and buying an equal amount of SWHC; dollar weighted. The correlation between these two stocks over a 60 day period is 0.68.
A correlation coefficient is a quantitative indicator of the severity of a particular relationship. In this case, 0.68 indicates that there is a reasonably strong relationship between RGR and SWHC, but not too strong. Having a decently strong relationship between two stocks in a pair trade allows for one to sleep at night. The risk is that one has a massive gap and the other leg of the trade does not follow. On the other hand, if the correlation was too strong there would not be a chance of the two moving favorably inversely and compressing
Away from the fundamentals for a moment, the technical picture is pretty bullish. The $7.75 level in the stock proved to be solid support after we came down and tested it after the tragic events of late last year. Considering the firearm stocks are under immense scrutiny now, it may be wise to pursue pair trades instead of single leg trades if one was inclined to trade this sector of the market.
AAPL's Cash Hoard 1.25.2013
Now everyone wants to know… do we see more pain in the near future, and/or what could give this monster a spark to ignite a strong rally?!
First, looking at the chart everything is looking bearish right now. The MACD is pointing straight down, the RSI is embedded in the oversold area (23.15), and the recent decline happened on huge volume. Not what you want to see if you’re a perma-bull…. and I know there are plenty of them out there! I would want to see it clear the 200MA to get me back onto the bullish side. That has been a tough obstacle for it, since it hasn’t been on the bullish side of it since October 5th.
When looking at the wave count of Apple, it seems best to label this downside action as (iii) of 5. Leaving us only with one more impulsive wave to the downside, (v) of 5. I am expecting a bounce here very soon, taking us back up to the $480 level before we begin the final sell-off.
But what could spark Apple once we hit the bottom?!
I am looking for some big news to give investors that ‘Apple love’ to jump back on board! What jumps out to me is a takeover of Twitter. Twitter, is everywhere nowadays…. ESPN, CNBC, Discovery Channel, ABC, History Channel, the list goes on and on. But there seems to be hash tags everywhere I look, and there are no signs of slowing down. They are even using hash tags to connect with students in classes here at the University of Oregon!
I know Apple is not known for buying up companies, but this setup is screaming at Apple to take action. My classrooms are filled with student’s texting/surfing the web on their iPhones. It almost seems rare to find someone with a Droid or Blackberry. Apple knows that college kids drool over its products, and I keep on coming back to teachers using Twitter as a way to communicate instantly with their students.
Cash is obviously not an issue for Apple, so that is out of the picture. It really comes down to if Apple has a need for Twitter, but from by viewpoint, it makes perfect sense!
Author: Peter Nitso
Twitter: @PeterNitso
