New Stock Pick (AAPL, AOL) And Closing One Trade (AAPL, NILE)

By: ispeculatornew
Date posted: 03.05.2012 (7:00 am) | Write a Comment  (2 Comments)

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You would think that at some point this trade would stop working right? I mean we have barely started March and I have already traded and closed 3 successful trades where I went long Apple (AAPL) and short Blue Nile (NILE).  It’s not a big secret why I kept going back to this trade. While Apple (AAPL) was incredibly undervalued with almost no downside (thus becoming an obvious stock to own), Blue Nile (NILE) has remained one of the most overvalued stocks. My opinion on both was clear in my 2012 Tech Stocks Power Rankings and thankfully it has worked out well.

Two weeks ago, I opened the third such trade and it is now standing at +24% or so and will be closed on Monday morning. Here are how both prices have moved since opening the trades:

I am also taking this opportunity to open a new trade where I am once again going long on Apple (AAPL) but this time against a different stock. Why not short Blue Nile once again? It’s not that the stock is not still overvalued (I still think it is) but it’s more about the fact that NILE might see a rebound and that I believe there is a better short out there! Let’s look at the numbers for these 2 stocks:

[table id=372 /

Long Apple (AAPL)

You could certainly say that while Apple was way undervalued, it is less so these days. I can see that point but I do still think there is terrific value and again very limited downside if you look at a 1 year horizon. There might be more ups and downs, especially if the product announcements rumored to be done later this week are disappointing. But I would argue that even with existing products, Apple is trading at a discount so if you add newer products such as a new iPad, the upcoming Apple TV and others, you will see exactly why.

I am not a momentum trader but these numbers surely give me confidence in my entry points:)

Short AOL (AOL)

The basic fact is that AOL is trading at a valuation that is way out of line in my opinion, especially in what is still a soft advertising market. AOL has no real growth as its online business growth seems to be offset by the continued decline of its ISP and older business. There also continue to be departures among the senior players which is always a bad sign. Simply put. AOL should be trading at a very low P/E right now.

Disclosure: Currently long Apple (AAPL) and have no position on AOL (AOL), this trade will be opened on Monday morning

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