Intelligent Speculator

I have been in and out of trades with Apple in the past 2 years and while it does remain a volatile stock, I do believe now is a good time to get back on the train with Steve Jobs.

Every day, I am reminded of how dominant Apple is. There are so many examples but here is one. I went to the gym this weekend and was impressed with the new cardio machines. Not only were they very nice looking and of the latest generation but they were also made compatible with Apple’s latest Iphone and Ipod Touch products. By compatible I mean that it can record performances for comparison purposes but also that any video or multimedia on the Ipod can be played on the large tv that is attached to the runmill.

The technology of course is very impressive but the fact that the equiment maker and gym made it possible is even more so. It is a great display of how dominant Apple is. There are many other examples (hotels that have alarm clocks that will play your Ipod’s music, etc) that all show how mainstream the Ipod has became. And it is more clear every day that Apple will indeed soon release its new tablet, that will compete with Amazon’s Kindle. Knowing Apple, I have little doubt that Apple will quickly take the lead in this new market. At this point, as I have written in the past, Apple looks beyond reach even to companies such as Sony and Microsoft.

To be fair, Apple does trade at an expensive premium already. It trades at a P/E ratio over 30, which is comparable to Google. But I do think that if Apple was able to do so well in the tough environment of the past few months, there is little to worry the company for now.  I do believe that its Ipod and Iphone business will continue to drive the show with the tablet to become an earnings contributor probably only 1 year from now.

As is usually the case, I will take this trade against against another tech company, going short on Intel (INTC). This is actually not a knock on Intel but simply a trade that I believe in because these are similar companies. Both are very dominant in their markets and thus have good pricing power. Intel also trades at a similar P/E and has also enjoyed high growth in the past year.

One of the major differences is that consumers are willing to pay an increasing amount of their budget for Apple’s products while the prices for Intel’s cannot be sustained as easily because of the falling prices of pc’s.

This can easily be seen in the sales growth. While Intel has seen fairly flat sales in the past 4 years, Apple has nearly trippled its sales with new products being released to keep the growth coming.

I will be using the opening prices today on both of these stocks to evaluate these trades and will of course be using a stop loss at -20%!