The Sax Angle

Thoughts on the Apple pain trade

Posted on 15. Jan, 2013 by Harvey Sax.

I don’t see the point in taking a needless loss.  They should have made a larger size screen phone and I assume they will.  When Google starts making a computer you really want to own then I’ll get worried but right now I don’t see how anyone can compete well with the whole Apple ecosystem.  but then again there are a lot of people that don’t care that much  about that but the counter to that is that the market itself is growing, Apple will innovate and at the multiple it’s trading at there is not much expectation for any growth at all.  We’ll see but definitely a very painful trade now.

Apple probably a fist pounding heart thumping buy right now at $575

Posted on 04. Nov, 2012 by Harvey Sax.

I have to weigh my two cents in on the iPad mini.  This is probably the most innovative product I’ve seen from Apple in a long time. Innovative in the sense that how could you possibly place another IOS device in their product line without major cannibalization.  The mini is delicious.  To hold one is to want one.  It’s every bit an iPad and more.   Heavenly light, easy to read in bed and beautiful to behold.  I want one immediately.  Unfortunately they are sold out around the country.

Could Apple have priced it any better?  Absolutely not, if you are an Apple shareholder rather than fan boy.  It’s expensive compared to the Kindle.  People are complaining they should have priced it closer to Amazon’s Kindle Fire at $199   but the Kindle is a mere toy, a poor and unseemly second cousin to the awesome iPad.

But that alone is not to say it’s priced right.  If Apple wanted to rip the heart out of Kindle Fire, it could have priced it at $199 but then they would be dragging their own customers down the down staircase that Amazon is on.   The iPad Mini is priced expensive enough that it won’t drag much sales down from the full size iPad.  It’s so close to the iPad in price that if the screen is too small or dull a resolution for you, you wont’ think twice about moving up the line to it’s big brother, the iPad.

The say form and function is the essence of art.  Add price to the model and you’ve got the Apple way.  Function, form, and price is the mantra at Apple.  Kudus to Apple and Tim Cook.  They pulled off the impossible, an incredibly seductive product at a price that will add to the bottom line.  I just hope they can make enough of them because they are going to sell all they can make.  I’m two weeks out and waiting for mine.

Thoughts on Apple vs. Samsung trial

Posted on 15. Aug, 2012 by Harvey Sax.

I doubt if the two companies will settle and my guess is that it goes to the jury next week.  If someone blinks, it will be Samsung.  After all the trial is in Apple’s backyard and you know the last thing Steve Jobs would have said to Tim Cook was never settle this trial.  I think copycat suits in technology are a hard thing to win.  After all the mother of all copy cat suits was the first time Apple sued Microsoft for stealing the look and feel of the GUI.  They lost that one.  My guess is though the jury might have some nostalgia good feelings toward Apple and Steve Jobs and they just might win this one.  If Apple wins, it will be an enormous loss for Samsung and an even greater one for Google.  I think Google could lose a quick 10% or more.  On the other hand, a loss for Apple would be a non event.  I like the asymmetric nature of this setup.  One strategy would be to buy puts on Google and calls on Apple.  It’s a tough strategy because both have costly options.   Longer term I think the damage between Apple and Samsung might be permanent and Samsung alternative suppliers might benefit from this.

 Go to Wall Street Journal for background to this

Facebook IPO Seen Deepening Investor Distrust of Stocks – Bloomberg

Posted on 27. May, 2012 by Harvey Sax.

Facebook IPO Seen Deepening Investor Distrust Of Stocks

By Elizabeth Ody and Margaret Collins – May 25, 2012 10:01 PM MT

Facebook Inc. (FB)’s initial public offering, plagued by trading errors and a 16 percent drop in the share price, will push more individual investors out of a stock market they already distrust after the financial crisis.

“This is clearly the latest in a long string of events that is eviscerating the confidence investors have in the market,” said Andrew Stoltmann, a Chicago attorney who represents retail investors. “The perception is Wall Street jiggered this IPO so the underwriters made money, Facebook executives made money and the small investor got left holding the bag.”

Ironically I feel pretty much the opposite of the headline.  If the IPO worked well and crowd mania held sway, I’d say that the market is irrational and impossible to make money or predict correct behavior.  Facebook is grossly over-valued as are  all social media stocks.  Technological obsolescence is so great in this industry, it’s hard to put long term growth rates on any business.  Furthermore barriers to entry are low and behavior is fickle.  Tomorrow’s disrupter is happening somewhere right now.  The Internet, cloud, web, whatever is becoming balkanized.  Facebook, Linkedin, Google +, iPhone, etc are all full steam ahead creating silos of users instead of the grand connected experience that advertisers are banking on  Once they realize the web is mature in this country and soon most of the world, it’s growth rate won’t be much more than population rates and a fight for market share.  This is not a high multiple growth business as the stocks indicated.  They are all shorts, everyone of them.

via Facebook IPO Seen Deepening Investor Distrust of Stocks – Bloomberg.

Apple to Top Spain, Greece, Portugal: Chart of the Day – Bloomberg

Posted on 12. Apr, 2012 by Wilensky.

Not much needs to be said here.  Apple makes more money than three european countries combined ($33 bil in earnings vs $32 bil in earnings for Europe).  Its valuation is more than three european countries combined.  How big can Apple get?

Apple to Top Spain, Greece, Portugal: Chart of the Day – Bloomberg.

Adobe Systems (NSDQ: ADBE): On the Fast Track to Growth

Posted on 09. Apr, 2012 by Investing Daily.

The 2000 technology bust and subsequent collapse of the high-flying Nasdaq left many investors with the perception that technology is a high-risk, volatile sector that’s only appropriate for the most aggressive growth investors.
That sentiment is downright anachronistic. The S&P 500 Information Technology Index has a beta of 0.96 over the past five years; indexes with betas lower than 1.0 are less volatile than the broader market. More important, technology stocks have outperformed the broader market by a sizable margin despite their below-average risk. (See “Tech Sector Shines.”)
Technology is the most cash-rich and least indebted sector in the S&P 500. Some of the bigger tech stocks including Apple (NSDQ: AAPL) and Cisco Systems (NSDQ: CSCO) generate so much idle cash they’re initiating dividends to return value to shareholders. Tech companies now hold 30 percent of all cash among non-financial balance sheets in the S&P 500 ($360 billion out of $1.1 trillion).

Top Stock Picks of Best Performing Hedge Fund Managers

Posted on 05. Apr, 2012 by Insider Monkey.

Guest Post By Meena Krishnamsetty

Insider Monkey tracks nearly 400 long/short equity hedge funds. A small proportion of these fund managers had amazing stock picks that returned an average of at least 30% during the first quarter. King Street Capital’s Brian Higgins was the best performing fund manager in the first quarter (see the list of best hedge fund managers). We should note that we only took into account a hedge fund’s large-cap stock picks. We excluded options and convertible bond positions.

The S&P 500 index returned less than 13% during the first quarter including the dividends. So, how did these fund managers manage to beat the market by at least 17 percentage points. Below you can find the list of top stock picks of these best performing fund managers:

Sears (SHLD) was a top pick for Eddie Lampert, Bruce Berkowitz, and Francis Chou. The stock returned 108% during the first quarter.

Bank of America (BAC) is the second best performing stock in our list. Again Bruce Berkowitz benefited tremendously from Bank of America’s 72% first quarter return. Berkowitz has been a long term holder of the stock and was hurt badly last year after BAC’s huge decline. However, he deserves credit for his conviction. Billionaire John Paulson sold out his giant Bank of America position during the fourth quarter and missed out on its 72% first quarter performance.

Netflix (NFLX) gained 66% during the first quarter. Technology hedge fund manager John Hurley was among the few who were still bullish about Netflix after its 75% plunge from its 52-week high.

Seagate (STX) also returned 66% during the first quarter. Eddie Lampert, John Hurley, and Jamie Zimmerman are among the hedge fund managers with Seagate positions. David Einhorn has a large position in Seagate too. He didn’t make our list but his large-cap stock picks returned more than 24% during the first quarter.

Priceline (PCLN) and Salesforce.com (CRM) are two other technology stocks with more than 50% returns. John Hurley is the only top performing hedge fund manager with positions in these two stocks.

Apple (AAPL) is the most popular stock among hedge funds since the third quarter of 2011 when the stock was trading below $400 (see the 10 most popular stocks). Skeptics have been warning investors to stay away from these hugely popular names because they are likely to experience large declines when hedge funds decide to sell. We have been telling investors that Apple is hugely popular because it is extremely cheap for a high growth stock. The stock returned 48% during the first quarter.

Delphi Automotive (DLPH) is another popular stock in our list. Centerbridge Partners, Anchorage Advisors, and Litespeed Management benefited from its 47% return during the first quarter. Delphi is also a bright spot on billionaire John Paulson’s portfolio. He is one of the largest shareholders of the company.

Gap Inc (GPS) returned 41% during the first quarter. Eddie Lampert had nearly $600 million invested in the stock. Francis Chou also had a small position in the company.

The rest of our list is dominated by financial stocks. Warren Buffett says that he attempts to be fearful when others are greedy and to be greedy only when others are fearful. Buffett was among the fund managers who added or initiated new positions in mega-cap banks like Wells Fargo (WFC), JP Morgan (JPM), Citigroup (C), Goldman Sachs (GS), and American International Group (AIG). Wells Fargo gained 24% and the rest of the stocks gained at least 32% during the quarter. Bruce Berkowitz had more than $2 billion invested in AIG. We never liked AIG but we have been recommending mega-cap banks as long-term investments during the darkest days of last summer.

via Top Stock Picks of Best Performing Hedge Fund Managers.

Buybacks And A Dividend The Answer For Apple

Posted on 19. Mar, 2012 by Wilensky.

Looks like Apple finally has a solution for the pile of cash they have amassed.  According to SFGate, shareholders should expect a dividend of $2.65 and a significant buyback of stock that would return another 10 billion or so on a quarterly basis.  Apple’s decision will be completed over the next three years.  In the wake of the new iPad 3 selling out almost immediately, the tech giant knows that they need to start moving all this cash off their balance sheets.  Especially considering how it seems the massive company has been sucking some of the life out of the S&P…

Apple to Pay Dividend, Buy Back Stock to Return Some of Cash.

China Dethrones iPhone, Samsung Sales Surge

Posted on 11. Mar, 2012 by Wilensky.

Apple’s market cap may rule the S&P, but it’s a different story in China.  The tech giant is struggling to efficiently capture a leading share of the country’s massive market, while Samsung is proving a substantial opponent.  With more than three times the market space over Apple (24.3% vs 7.5%), the South Korean company has a strong lead in subscribers which isn’t expected to be challenged any time soon.  According to Bloomberg, Samsung’s blanket strategy proved much more effective in gaining subscribers than Apple’s tactically narrow approach:

“Apple’s partnerships with China’s second- and third-largest carriers give it access to about 34 percent of the nation’s 988 million mobile users, while Samsung targeted the whole market. iPhones aren’t sold to China Mobile’s 655 million subscribers, a number almost equal to the combined population of the U.S., Brazil, and Mexico.”

Considering the recent headwinds for Apple on the iPad/iPhone fronts in China along with the stock reaching toward the $550 mark, it wouldn’t be surprising to see the tech giant take a quick breather in the near future..

IPhone Failing to Gain Market Share in China as Samsung Lead Triples: Tech – Bloomberg.

Apple Looking Up In Shanghai Trademark Case

Posted on 23. Feb, 2012 by Wilensky.

A local court denied a motion to surpress the sale of the iPad in Shanghai due to a similar ongoing case in the Guangdong Province, allowing Apple stores to continue selling the product until an outcome is decided.  Facing the unpredictability of Chinese courts, this is finally a glimmer of hope for the tech giant.  Although this has no bearing on how the Guangdong case will turn out, it shows that China is in support of Apple continuing with sales probably due to some political pressure.
“Proview’s injunction request was rejected,” Carolyn Wu, the Apple spokeswoman, said in a telephone interview Thursday. “The court granted Apple’s request to suspend the case.” The U.S. technology company insists that one of its subsidiaries acquired the rights to the iPad name in China from the Chinese company several years ago, before the tablet computer was released.
But the Proview parent company, a computer display maker based in Taiwan, says its subsidiary in Shenzhen, which is in Guangdong Province, retains the rights to the iPad name in the mainland. Proview is facing bankruptcy and has said it is trying to force Apple to pay some compensation.

via Apple Case in Shanghai Is Suspended – NYTimes.com.

Thought Pre-Release Lines for Apple Are Absurd? Try China, Bring Eggs..

Posted on 16. Feb, 2012 by Wilensky.

Beijing, China:  Several weeks ago, crowds of people amassed in front of Apple’s flagship store in the pre-dawn hours.  Eagerly awaiting the anticipated release of the new iPhone 4s, customers and scalpers alike grew restless as the chants of “Open the door!!” grow louder and louder.  At 7:15, already past the time when doors were supposed to open, a man steps outside with a bullhorn and announces to the crowd, “Please go back home! No iPhone 4s!!”  Anger spreads through the masses, fights break out between angry scalpers and frantic customers, and eggs start flying….

Read the complete account and see the photos here:

via BREAKING: Apple Cancels iPhone 4S Launch in Beijing After Fight Breaks Out Between Scalpers » M.I.C. Gadget.

Facebook Under Fire as it Approaches IPO

Posted on 31. Jan, 2012 by Wilensky.

I’m sick of Facebook.  The name makes me cringe every time the talking heads on CNBC spout out the same regurgitated facts; all too reminiscent of Armani  clad penguins feeding vast fields of their young.  Regardless, here’s some news that might  get a smile out of your spiteful inner self: lawsuits against the social media giant are rapidly piling up as we near the initial public offering.  No, the company didn’t decided to go on one last rampant crime spree just before going public.  It’s the scent of money in the air that drives the shoals of patent lawyers into a frenzy, the metamorphosis of a galvanizing concept into billions upon billions of dollars.  And Facebook is the fattest victim to enter their waters in quite a while…

From Reuters:

“Last year, Facebook was named as a defendant in 22 lawsuits accusing it of patent infringement, double the number from 2010, according to a Reuters analysis of court documents on legal database Westlaw, a Thomson Reuters unit.  Among the lawsuits is one alleging Facebook violated a patent that covers the core ability to transmit messages to large networks of users. Facebook said in a court filing earlier this month that it will seek to dismiss that lawsuit.

Previously, the bulk of legal challenges brought by patent holders against tech companies has focused on markets like smartphones, with defendants including Apple and Microsoft.  The attacks against Facebook signal that social media has become a new front in the Silicon Valley patent wars. The company’s adversaries include a former lawyer at Kirkland & Ellis, one of the biggest U.S. law firms, whose new firm filed the lawsuit over how Facebook transmits messages.

Before 2010, online game developer Zynga, Web discount deals operator Groupon and professional social network operator LinkedIn had not faced a single patent lawsuit, Westlaw data show. Last year, the year those three companies went public, the lawsuits mounted.

Facebook faces more patent cases than any of those other companies.”

via Analysis: Patent plaintiffs target Facebook as IPO approaches | Reuters.

Some interesting numbers on Netflix

Posted on 25. Jan, 2012 by Wilensky.

As the subscription based online movie provider soars as high as 15% in after hours trading on a decidedly positive earnings report, some investors are left scratching their heads.  While the company has shown an impressive rebound of 38% since touching on it’s 52 week low of 64.54 a share, the upward correction seems to lack a real catalyst.  In their trademark no-nonsense style, Zerohedge took a closer look at the hard data (spreadsheet can be downloaded here ) and found some interesting points..

• Netflix generated $33.9MM in “Free Cash Flow”. Of this $25.6MM was from change in Net Working Capital; this compares to ($7.6MM) drain from NWC in Q3.
• Of Netflix’ $186.6MM in Free Cash Flow in 2011, $110MM was from Net Working Capital
• Net Working Capital as a source of Netflix “cash flow” has grown from 23.3% in 2009, to 45.4% in 2010 to 59% in 2011
  • NWC has “generated” $22.6MM in cash in 2009; $59.5MM in 2010; and $110MM in 2011;
  • How is it that NWC has been a constant source of cash for year after year after year? What happens when this balance sheet drainage reverse itself and the company is forced to fund working capital?
• The company ended Q4 and 2011 with $508MM in cash compared to $159MM in Q3, and $194MM a year prior; this was courtesy of a $200MM equity raise and $198MM in debt issuance to a “related party”
• Netflix Q4 Operating Margin was 8.1%, based on $70.8MM in EBIT and $875MM in revenue; this is the lowest Operating Margin since before 2009 (we dont’ know what quarterly margin was prior to 2009); Q4 EBIT of $70.8MM dropped by $26Mm from Q3′s $96.8MM
• Domestic streaming paid subscriptions (the bulk of the Company’s revenue at$476MM, and $52MM contribution profit) decrease by 1.7% sequentially, Free Subscriptions soared by 62%
• Domestic DVD subscriptions, which generated $370MM in revenue
  and the bulk of the company’s $193MM in contribution profit in Q4, plunged by 20% sequentially;
• Consolidated free subscribers rose by 35.6% from 1,437K to 1,948K

via Some Notes On NFLX’s Q4 Results | ZeroHedge.