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Caterpillar Inching Lower? (CAT, XLI, SPY) 10.23.2012

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China, according to CAT, has continued to be weak…FXI. CAT went on to say that their finished inventory could have been lower if China was not slowing so fast. In the communist Chinese 5yr plan, they propose to accelerate some infrastructure spending and this has been compounded by monetary policy easing, anf for these reasons CAT expects a little bit of a pick-up here in the fourth quarter. “The sentiment on the ground from the dealers is a bit better, but in terms of translating it into sales, I’d say it hasn’t happened yet, so the selling season is sort of mid-February on, so probably not going to see much till then.” Mike DeWalt –Director of CAT IR

CAT CEO Douglas R. Oberhelman commented, “Well, we’ve had the easing expected to open almost all year. We are seeing increased levels of building permitting this year over last year. We’ve also seen in the last six weeks or so have major infrastructure effort announced. I suspect all of that is aimed after Presidential – leadership transition and most of that’s aimed towards spring of next year which is kind of a confluence of when is it around Chinese New Year, but if it happens it is going to happen then if it doesn’t we are in for another kind of slow year in 2013. But right now the cards in the hand are looking better than they have for a while. But I would emphasize nothing concrete from (water’s edge) yet.”

The muddling along thesis seems to be playing out, for CAT and XLI have been flat to lower. Oberhelman said, “We’re not expecting rapid growth, and we’re not predicting a global recession.” However, there is also the fiscal cliff and Europe to worry about

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to…

mark@keeneonthemarket.com

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Earnings Play of the Day TXN 10.22.2012

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TXN has an earnings report due out after the close today. Analysts are expecting mediocre returns as net income is expected to fall 24% from $711 million to $541.3. Revenue is expected to fall 2% to $3.39 billion. Texas Instrument chips, which were used in old iPads, will likely be replaced as Apple will design and manufacture their own in Taiwan. 

My Trade: Sell the OctWeekly 28-29 Call Spread for $0.50

Risk: $50 per one lot

Reward: $50 per one lot

Break even: $28.50

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AAPL and iPad Mini Update (AAPL, QQQ) 10.22.2012

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The tech giant has been on a slide as of late, more specifically since hitting $700. Shares are off nearly $100 from the all time high. It can be hard not to get emotional considering the massive amount of money the average individual investor has allocated to AAPL.

            According to a recent study done by SigFig, “Nearly 17% of all individual investors own Apple shares.” And according to the same data, AAPL has three times the level of ownership of another widely held stock, GOOG. Interestingly enough, of the AAPL investors’ sample set, they on average have 17% of their portfolio allocated to AAPL. This is confirmed with other data, nearly 60% of the float is owned by investment managers and the top 50 investors in AAPL actually own about 43% of the company. To that point, nearly 15% of the AAPL float is allocated to index funds. And finally, the largest shareholder is Fidelity Management according to recent data. This is all very important, for it is vital to know the nature of the selling and buying done everyday, along with the corresponding personality of investors.

           The AAPL analyst community already has high expectations for the device; for example Piper Jaffray expects AAPL to capture 50% of the 7in market upon release. On the other side of the analyst community, KGI Securities analysts Ming-Chi Kuo expects the cost breakdown to be around $195 for the 16 GB wi-fi version and at the higher end up to $254.50 for the 64GB, LTE + Wi-Fi edition, then perhaps one can add into that figure the typical 40% AAPL margins they so thoroughly enjoy.

            The market leading iPad 3 is 9.7 inches; some analysts and AAPL followers are expecting a 7.85 inch liquid crystal display (LCD). These dimensions are slightly different than the prevailing 7-inch norm. The heaviest competition is expected to come from the ANZN Kindle Fire and the GOOG Nexus 7; both of which have fresh models out on the market already. The new 7” Kindle Fire is priced at $159.00. At this price point AMZN is expected to just break even considering the cost breakdown, but everything after that, including items like books and movies, is what AMZN is really in the tablet business for. AAPL is expected to naturally price at the higher end of the market.

            AAPL is currently pinned between the 100 and 150 day moving average. The average price target is about $789 and for the upcoming earnings on Thursday the current quarter’s estimate is about $8.92. Of the 39 analysts who cover the stock, 97% of them rate Apple either a “strong buy” or “buy.”

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mark@keeneonthemarket.com