– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	Freeport McMoran	FCX	Holding	10/4/2011	+16%
2	Ford Motor Co.	F	Holding	10/5/2011	+21%

– Story-Stock Investing –

 

Let’s talk again briefly about Apple, Inc. (AAPL $392.87).  On Wednesday, among many other things that we wrote about Apple, Inc. – we included this:

Deutsche Bank told their customer today that Apple, Inc. was a “buy”.

At Stock Market Companion however, we are now “out” of the stock.  We advanced our stop-loss to $398 and this afternoon that level was briefly run-through to the south by the stock.  OK.  Why did we want to give up our shares?

• We hate losing money on a profitable position.
• We don’t know if there may be a compelling case somehow that other smart phones and products are near to the market that may really compete with Apple’s powerful offering.  By the time that idea would become clear, the stock would be well south of $380 as investors sold first and looked for verification later.
• Today’s stock price action implies to us heightened volatility which may bring the price down below our entry at $394.50.  We don’t want to be upside-down on a $400 stock.
• Our plan was to engage the stock as it moved above $400/share, hopeful for an aggressive move above previous highs at $422 and then on to the $500/share range (and beyond).  (Did you know that during the financial crisis, shares of Volkswagen jumped from approx. 400 Eur. to over 1000 Eur? – This was because of some shenanigans between the Porsche Co. and VW, but it gives you an idea of how stocks can MOVE when there is momentum behind them – even at high prices.).  With Apple, we anticipated this upside surge accurately on  October 11th, getting in a bit early.  Now our defined “line in the sand” $400 has been breached to the south.  We don’t like it.  The stock closed yesterday at $422.  If Apple had reported something different the stock would be at $450 and beyond.   Our plan has for the moment failed and we are not interested in trying to see where the Apple, Inc. shares end their downward move and if the shares again then turn higher.  We will consider a re-entry in the shares above $408 to $410.  What would really frustrate us of course is if the company all of a sudden announced a 2 or 3 to 1 stock split.  The stock would then surge higher and we wouldn’t be on board.  So far there has been no such talk that we are aware of.

Today the market surged STRONGLY higher, but Apple, Inc. closed LOWER for the day at $392.87.  Why?

First, we think on the surface that institutional investors are still adjusting to Apple’s quarterly earnings MISSING estimates.  They don’t like it and that has taken OFF some of the “must-own” fervor surrounding the stock.  But more importantly in terms of short term conditions, it appeared to us that the weakness in Apple shares today were strongly related to the UNCERTAINTY of the seriousness of the flooding in Thailand and the impact that the flooding will have on Apple’s supply line and their ability to meet such enormous demand for their product.  What we are reading is that flooding is extensive and computer component manufacturers are affected.   Large shareholders of Apple, Inc. stock used today’s $390+ share price to reduce exposure (read = they sold some or all of their holdings) because they don’t know yet what is going to happen.  If component supplies become tight, Apple will have to adjust near term quarterly earnings down and – in this environment – this will put the stock price under pressure.

Here are two good articles covering this Thailand flooding event –

Fox News.

Businessweek.

Apple’s CEO Tim Cook talked about this issued during the earnings conference call on Tuesday.  We think that today’s apparent escalation of the flooding – now impacting Bangkok – may have been a “watershed” (couldn’t resist the pun, even though this is a very serious development and we are concerned about people’s lives and livelihoods) event related to the entire issue.  Mr. Cook said that he was “concerned”.  Here’s a good article specifically related to Apple, Inc.

If this were another time, the price of Apple shares would already be significantly higher in recognition of the incredible performance of the company and its growth.  The shares would also be impacted due to uncertainty surrounding possible supply chain disruptions, but the share price adjustment would be taking place from a much higher level.

Let’s talk about some other observations that we are making related to this Thailand flooding situation –

Yesterday we saw OCZ Technology Group (OCZ $6.25) rocket higher on very significant volume.  OCZ manufactures solid state hard drives, they don’t make other hard disk drives.  It is not so easy to simply swap out hard disk drives manufactured by a specific manufacturer for a specific product.  We were contemplating sending out a late evening alert related to OCZ, but then thought that we were simply not confident enough that yesterday’s jolt higher in the stock would signal a start higher for the stock.   We wanted to see if today the stock simply sank back down when people realized that there are no quick fixes to this problem, or whether this may be a follow through move on the company’s good earnings posted on October 6th.

The stock DID pull back today, but in the afternoon again began attracting buyers.  The stock closed higher today than yesterday.

Let’s look at the company’s last earnings posted on October 6th  (courtesy of Briefing.com and Needham Co.) –

• OCZ lost money last quarter.  -$0.06/share.
• OCZ made money the previous quarter = barely.  $0.01/share.  That’s right, 1 penny a share.
• The quarter before that, they again lost money = -$0.02/share.
• Revenues (gross sales) are VERY STRONG.  On October 6th, the company reported $78.5 million in quarterly revenue, which was a 106.6% increase over the same quarter a year ago.  In May, the company reported revenue of $64.6 million, which was +99.4% higher than the same quarter a year ago.
• So, the company is operating at the threshold of profitability AND revenue is increasing significantly.  That’s o.k., as long as the company hits consistent profitability soon.  Institutional investors are willing to look beyond near term earnings IF the company is growing STRONGLY and forecasting positive earnings ahead.
• OCZ announced during their earnings call that fiscal 2012 earnings are going to be STRONGER than expected AND that the company is expecting to meet their 30-40% gross margin targets in the second half of 2013.  That’s a long way away, BUT possibly encouraging.
• OCZ said that IF they can sell more of its PCle Z-Drive R4 Solid State Drives, THEN they may be able to reach a non-GAAP (GAAP = generally accepted accounting principles) of +$0.63/share for full year earnings 2013.
• IF OCZ achieves 0.63/share earnings, THEN today’s share price of $6.54/0.63 = a price / earnings ratio of approx. 10.38.   A 10.38 P/E company growing at an annual rate of +100% could be CHEAP today.
• We reported in detail on this stock in July, but DID NOT run after it as the stock gapped up on earnings and then began to tear higher.  The stock ran ran UP to approx. $10.35 on 7/15, a week and a half after earnings and then proceeded to SINK like a rock as the market weakened, dropping all the way down to approx. $4.40 at the beginning of October.  The stock has now closed just above its 200 day moving average at $6.54/share and may be attractive here for an entry with a stop at $5.50.  We will see on Monday.

Of course many other stocks performed very well today.  Let’s consider some of them –

Nike (NKE $94.35) = the VERY SUCCESSFUL sport shoe and apparel co.  The shares finally poked above their 3+ month consolidation top AND above their July INTRA-DAY high posted on 7/7/2011 of $94.23.  Remember on September 22nd, the co. blew the “socks” off earnings = beating expectations by +$0.14/share AND announcing sales increases in the system (actual near term orders) of +16%.  The shares gapped higher, but has been very “whippy” in their pattern, but have tightened up considerably since the October 4th turn around in the market.  NKE looks very attractive here AND pays as modest dividend of +1.40%.

OCZ = See our notes, above.

Ford Motor Co. (F $12.26) = A SMC holding.  Our entry was on 10/5/2011 at $10.17.  That’s at +20.6% move in our favor.  Today marks a very strong follow through day for the company.  Enthusiasm for this stock comes from these two items =

1. The union ratified the agreement negotiated within the last three weeks.  This balances the scales for Ford as their union agreement of the last few years has been less favorable for them compared to GM.  This also takes some of the uncertainty off the shares, related to the union’s final position on the agreement.  Ford now has 4 years time to focus on designing and producing excellent vehicles that people want to buy.

Ford also announced that they will be investing $16 Billion in U.S. product development AND U.S. manufacturing.  That’s great news.

 

If an investor doesn’t own Ford shares yet, we believe that today’s announcement and technical move in the shares offers NOW an attractive buy-point, as long as an investor is willing to give the shares room to breathe, maybe down to $10.50.  Investors will want to own shares of Ford LONG TERM.  Catching a turn-around company like Ford in a cyclical business that is on the mend like the automotive industry is a winning idea.  The Ford share price has lots of work to do, with plenty of “backing-and-filling” to come, but we don’t have any trouble seeing Ford advance into the mid-teens and then into the twenties from here.  Today’s close is $12.26.

For those who purchased Ford on our ideas that we presented on the evening of October 4th, today is an excellent place to Add-to shares in our opinion.  See our disclaimer below.

SMC holding Freeport McMoran (FCX $36.58) advanced today.  Yesterday, copper futures hit a 15 month low.  We are still positive on this holding and like it that it pushed higher today, even though copper futures have been so weak as of late.  Remember too that Deutsche Bank upgraded this stock as well in the twilight of the big sell-off in September.

 

– Benchmarks “At a Glance” –

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