Today I am opening my 10th trade of the year between 2 stocks that trade at similar P/E ratios. This week was actually a bit more of a challenge. I have 5 open trades, a number of stocks that I am not willing to trade for a variety of reasons (China stocks, stocks that are too difficult to borrow, stocks that have potential takeover activity, etc) but I ended up being very happy with what I found. As is always the case you can see the existing live trades here:
Let’s start off by looking at the numbers:
|Ticker||Name||Price||PE Ratio||PE Next Year||Return YTD||Sales Growth||Analyst rating||Beta||Revenue/Share||Sales 5Y Avg Growth||EPS 5Y Avg Growth|
|NILE||Blue Nile Inc||24.54||27.47||22.07||-31.64||1.38||3||0.99||41.14||5.88||2.11|
And the growth story is not even close…
Long Alphabet (GOOG)
Given all of my trading over the years and my focus on internet stocks, you’d probably expect me to be very active on Alphabet/Google but that has not been the case. Why? A combination of factors but as much as I admire what Google has built and its incredibly ambitious goals but I had little confidence in how much important delivering returns to its shareholders had for its management. But when Google went out to hire Ruth Porat as its new CFO, it gave me hope that things might change. When Google ended up splitting its business to give more transparency (creating Alphabet), that was a great sign. Then, news came out that Google was going to try to sell its robotics division Boston Dynamics partially because it saw no clear path to profitability. It seems clear that Google’s finances are being transformed and while I certainly hope to see Alphabet continue to focus on moonshot projects, the financial aspect should still remain an important part of the discussion. For that reason, buying GOOG at this valuation, especially compared to slower growing NILE makes a lot of sense. Thanks to its dominant position in AI, Google will at least have a shot at becoming an important player in areas such as driverless cars, cloud services, etc.
Next earnings: April 21st 2016
Short Blue Nile (NILE)
It feels like I’m always shorting Blue Nile (NILE) doesn’t it? But a (fairly) high P/E that has been unable to display much in terms of growth and that has been the case for years now. It’s difficult for me to understand why NILE continues to command such a high premium but I’m not complaining in the meantime.
Next earnings: May 6th 2016