New Trade: Long Apple (AAPL) and Short Blue Nile (NILE)

By: ispeculatornew
Date posted: 07.19.2011 (5:00 am) | Write a Comment  (4 Comments)

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In some ways, nothing is really surprising about this trade. I’ve been very consistent about being long Apple and even more consistent about shorting Blue Nile, both have even been paired up together a few times. What is rare however is for us to open a new trade just before earnings. In Apple’s case, earnings are actually due to be released after tonight’s close with sky high expectations once again. The fact that Apple has surprised to the upside each and every time for years only reassures me slightly. Is it a case of me taking on additional risk after doing so well in recent days? I tend to think it’s not but it’s always a challenge to truly forget what has happened in the past.

So why am I opening this new trade? After closing out 4 trades in the past 2 days, I am left with only 2 positions and when I took a deeper look into my dashboard, the 2 companies that stuck out were Apple and Blue Nile. Apple, incredibly, remains what looks like a cheap stock. The whole concept is that with such huge sales and earning numbers, there is no way that the company can keep up growth…or can it? Let’s take a look at the numbers that I used for this trade:

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Long Apple (AAPL):

The rumors of an upcoming Apple TV have also helped further hype the company’s future with Steve Jobs’ health being the only major downside risk to owning Apple stock at the moment. Sure, Apple is being outpaced by Google’s Android in mobile but it does seem to have the most valuable users and could at any point in time release a cheaper version of the iPhone to increase its market share. Will it do so? It’s unclear but it’s certainly an option. The iPad has been a bigger success than anyone could have anticipated and there is no slowing down in sight honestly. Recent rumors of a deal for Apple to enter China in a big way are also pushing up the stock. What is the downside risk to owning Apple? I personally think the main danger is that when everyone is bullish on a stock or a given investment, it’s rarely a good sign. That has been the case for at least a couple of years though….

Short Blue Nile (NILE)

Blue Nile has certainly been my most consistent short target and in general that has worked out very well. The company is in a lucrative market, has a great position but has been unable to display anywhere close to the growth that it should have when you consider it’s P/E ratio. It is a bit more difficult to short the stock given the fact that it has already declined almost 25% this year (it will bottom out eventually right?) but to me, the stock remains too expensive. Can its growth accelerate? Absolutely. However, that will probably not be enough to take on Apple.

Disclosure: Closing positions on Apple (AAPL) and Blue Nile (NILE) on today’s opening

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4 Comments

  1. Comment by Zavi — July 20, 2011 @ 6:53 am

    it’s going crazy today for Apple. what a great timing!!

  2. Comment by Stephen — July 22, 2011 @ 10:47 am

    I regret selling some AAPL a few months ago for $265.00. Good thing I sold only one third of what I had. I used it to pay down the mortgage. I hate owing money to the bank, and I specially hate paying them interest. I’m tempted to sell some more.

  3. Comment by Intelligent Speculator — July 24, 2011 @ 4:29 pm

    @Zavi – Thanks:)

    @Stephen – If your choice is between selling AAPL or another stock I would hesitate as I do think AAPL is attractive at this price.. but if it’s between holding AAPL and having less debt, I see your point:)

  4. Comment by Stephen — July 25, 2011 @ 10:23 am

    Thanks for the advice I.S., I’ll keep that in mind.

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