New trade: Long Apple (AAPL) & Short Amazon(AMZN)

By: ispeculatornew
Date posted: 02.08.2010 (5:00 am) | Write a Comment  (4 Comments)

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I have written a few times about Apple and found it very interesting to see the reaction to the launch of the tablet a couple of weeks ago. Seems like expectations were so high for Steve Jobs that there was no way it could live up to the hype. But Apple remains very solid and I still expect sales of Ipod’s and Iphones to provide the high sales that are expected. The Ipad is a longer term project that does have a future and I do think that it will eventually become a solid contribution to Apple’s revenues/earnings.

I also think the recent direction of Apple into advertising and competing with Google will provide some diversification to the model. I had written about the impact of Apple’s Ipad on Amazon’s Kindle and the power shift from Amazon to Apple but what shocked me was seeing Amazon’s purchase of a company to advance its touch screen technology. Are these guys serious? They waited all of this time before considering Apple a serious enough threat? Kindles will still be sold and bring revenues to Amazon but I believe that putting too much energy into this battle with Apple will take away Amazon’s focus from what is its core; its sales and distribution network.

When taking a look at the P/E ratios of both companies, it is striking how expensive Amazon has become with Apple’s recent decline. It is trading at almost twice Apple’s ratios for the next two years as per Bloomberg estimates, something that makes little sense to me, especially when you consider how strong Apple’s core products continue to be.

TickerNamePriceDividend YieldEPS 5Y GrowthDVD 5Y GrowthDVD 1Y GrowthSales 5Y Growth
ESVEnsco PLC50.755.9116.9690.3753.8533.71
NENoble Corp plc30.944.8524.4750.85140.3810.21
LOLorillard Inc58.384.2117.7719.747.868.64
FCXFreeport-McMoRan Copper & Gold Inc34.073.67336.6426.768017.5
OKEONEOK Inc63.733.518.616.5424.649.25
CVXChevron Corp125.363.4132.03911.119.57
OXYOccidental Petroleum Corp94.73.0445.7715.5816.8116.22
SPGSimon Property Group Inc174.052.99412.0312.2610.477.5

In terms of traffic, the data is not as useful since Apple does not need nearly as much traffic given the average order size but still, you can see that traffic growth from Apple is slightly better than Amazon’s over the past 12 months (+17.25% for Apple vs +15.18% for Amazon). Again, maybe comparable but then why is Amazon trading at such a high P/E ratio?

Here are the stock charts for both companies:

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4 Comments

  1. Comment by IS — February 8, 2010 @ 5:45 pm

    Oh and just out… Amazon is now hiring to get colour screens:

    http://bits.blogs.nytimes.com/2010/02/08/job-postings-hint-at-amazons-plans-for-the-kindle/

    Amazing that they are just thinking about these things now….

  2. Comment by IS — February 11, 2010 @ 3:01 pm

    Opening prices for this trade (Monday opening):

    AAPL: 195.69$
    AMZN: 119.37$

  3. Pingback by Intelligent Speculator | Financial Ramblings — March 6, 2010 @ 1:12 pm

    […] interesting to see Apple(AAPL) rise so much on news confirming the date. I wasn’t sure if being long Apple was good since investors might have already fully priced the Ipad, but it looks like it […]

  4. Comment by Executive Suites — April 22, 2010 @ 3:36 am

    I think with the new 4G iPhone, iPad, iPhone OS 4.0 and the new macbookpros, Apple’s Stock will keep on rising this quarter…

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