New stock pick: Long Apple (AAPL) & Short Blue Nile (NILE)

By: ispeculatornew
Date posted: 05.24.2010 (6:29 am) | Write a Comment  (4 Comments)

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With only 2 active trades right now (RIMM vs YHOO & PCLN vs TZOO), we are now ready to take on a new trade. There were many options available this week. I always feel like when markets go down so much, many of the securities in my dashboard become mispriced and so there were many other opportunities. I discussed a few of them in yesterday’s premium newsletter. Apple is not the easiest stock to trade because of all the hype surrounding the company. Having consumers that are passionate about its products is certainly good but of course it all comes down to sales and profits. My basic assumption going long Apple is that the company still has a lot of growth in it. Ipad’s are a hit by any possible measure as they are selling out quickly in the US and are now ready for a worldwide explosion as they become available in 9 more countries within a few days.

That means huge sales numbers of course but it also means more incentives for developers to create solid applications that will generate recurring revenues. In the same way, Apple’s Ipad is taking over the power spot that Amazon’s Kindle had been enjoying as the top EBook reader which will likely create a similar (although not quite as powerful) environment as Apple has been enjoying with music. Apple is facing competition but like its dominant Ipod line, the Ipad seems to be the overwhelming #1.

As for Blue Nile, the same reasons give me incentives to short the stock again and again with success. The past two times that we did the trade were against Netflix (NFLX). Both were successful but I really feel like Netflix’s stock is not as cheap this time around which is why I did the trade against Apple (AAPL). The mystery surrounding Blue Nile is its high P/E ratios. The stock has not been able to generate as much growth as analysts had been anticipating and frankly I do not see any change in that regard in sight. Just take a look at its traffic stats and you will see the challenge of selling luxury items in a weak economy. I can hear those saying that Apple’s items are also luxury items. True. But try telling any Ipod/Iphone user to switch to save a few dollars… good luck:)

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthBook ValueRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
MWWMonster Worldwide Inc4.88230.318.5-13.96-4.654.788.75-5.83N/A
AAPLApple Inc93.4210.69.8-5.0127.8623.1340.6225.5634.76

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4 Comments

  1. Comment by the Cynical Investor — May 24, 2010 @ 3:55 pm
  2. Comment by IS — May 24, 2010 @ 8:17 pm

    I see your point but then I would guess you would also consider Microsoft hugely overvalued (given its market cap is even higher)?

    I still think the profits are very real and could not crash as quickly as Nortel’s did…

  3. […] Priceline (PCLN) – Apple (AAPL) – Google (GOOG) – Shanda Interactive (SNDA) – Rosetta Stone […]

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