New Trade: Long Apple ($AAPL) & Short Rackspace ($RAX) – Earnings play?

By: ispeculatornew
Date posted: 05.12.2014 (3:00 am) | Write a Comment  (2 Comments)

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It’s time to trade again!! After skipping a couple of weeks because I had all my long & short fund invested, I then went a few weeks without opening new trades. Being busy, a lack of opportunities and the earnings season all were partially responsible for that but things have been going well and with today’s MSFT/AOL trade being closed, I now only have 3 live trades and am ready to get at it. Just as a reminder, you can see those trades here:

http://www.intelligentspeculator.net/livetrades

You can see the numbers for both companies involved in today’s trade here:

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
AAPLApple Inc587.9914.1512.426.89.24.22139.460.89184.741.2353.24
RAXRackspace Hosting Inc26.6544.8529.7-31.2317.233.767.481.0211.0823.4526.1

$AAPLLong Apple (AAPL)

It’s fairly simple. I’m a BIG believer in Apple. It’s the only “long term speculative pick” that I made last year, was sitting at the #1 position in my 2014 tech stock power rankings and I simply think the potential upside vs downside risk is the best value you can find right now. It is trading at a P/E of 14 and despite its size continues to show decent growth. The company arguably has the top ecosystem play in the world in what I am convinced will be a world dominated by these ecosystems.  I will soon be doing a much more detailed post with an “updated” view of Apple but it’s safe to say that I remain a big time believer in the stock.

aapl

Next earnings release: July 23rd 2014

$RAXShort Rackspace (RAX)

I usually stay very far away from stocks that are about to report earnings. I simply feel like it’s playing with fire and I’d rather not get involved. I’m making an exception here for a few reasons but the main one is the fact that I think this is one of the most overvalued stocks in my universe. It is trading at very high P/E’s based off of the (very true) assumption that “cloud” based stocks will see incredible growth in revenues in the coming years. I don’t argue that point but I do think that the competition is incredibly fierce and that will drive down margins and put a lot of pressure on non-ecosystem plays that cannot afford to operate at break-even (or even losing) businesses for several years in order to gain market share.

Just look at this chart and I personally think it’ll get a whole lot worse:

RAX Revenue (Quarterly YoY Growth) Chart

RAX Revenue (Quarterly YoY Growth) data by YCharts

RAX Chart

RAX data by YCharts

Next earnings release: May 12th 2014

Disclaimer: Long Apple (AAPL)

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2 Comments

  1. Comment by Ken — May 12, 2014 @ 10:02 am

    RAX is announcing earnings after the close.

  2. Comment by IS — May 12, 2014 @ 10:47 am

    Yes, exactly as I mentioned in the post.

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