New Stock Pick: Long Apple (AAPL) & Short Blue Nile (NILE)

By: ispeculatornew
Date posted: 08.16.2010 (4:00 am) | Write a Comment  (0 Comments)

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To regulars here, this stock pick might look very familiar as being short Blue Nile (NILE) is kind of a tendency for me. So far this year, I have made a short trade on Blue Nile against Netflix in January (+63%) and also in April (+19%). Then, I went short again in May against Apple (+21%). Going short 4 times on the same stock in a year is certainly a record. I also was long on Apple earlier in the year (+27% against Amazon). You could say that these are two of the stocks that have been most “kind” to me. Eventually it will end right? Maybe… but maybe not.

Every time I look for a trade, I use the same approach, looking at my dashboard looking for opportunities. If the same pair comes up every time, I will generally go ahead (unless it fails a few straight times). It’s not about being original and making new trades all the time, it’s just about making money. And once more, Blue Nile seems to be overvalued. It is incredible really that a stock could be down 34% this year and still look overvalued right? And yet it does.

It would be easy to consider Apple (AAPL) as being overvalued. After all, could a company have more hype around it than Apple? Unlikely. But facts remain facts and the Iphone 4 problems seemingly behind the company, it’s back to sales and new products and no one is better at the moment. Dell just released a 300$ tablet pc to compete with the more expensive Apple Ipad. Have you heard many friends and family discussing their future “Dell streak” purchase? Neither have I…  Which helps Apple maintain decent margins thanks to reasonable prices.

I took all the names on my dashboard that do not have live trades on them and Blue Nile was the 6th most expensive in terms of Price/Earnings ratio. How can a stock with almost no growth continue to get such a high ratio? It is beyond me. Especially when you compare it with the ratios that Apple has. I’m not certain that Apple’s growth can keep up and it probably won’t. But can it maintain higher growth than Blue Nile? No doubt in my opinion. We do live in an Apple world after all. So their P/E’s should reflect that, and they don’t.

Here are the numbers for the 2 stocks:

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I would say that it’s’ pretty unanimous. Current earnings, growth, analyst ratings and trend analysis all indicate the same direction. I never like to go short on a stock that has lost so much because of the possibility of a fight back but in this case, the decline is warranted. Just to return on the trend analysis for a second, it is actually the first time since we’ve been tracking this factor that it’s been so clear cut.  Sometimes when everything looks too perfect, it is. But I am staying disciplined and will go with my feeling on this trade.

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