Friday, May 28, 2010

Apple's Business Accelerating as Economy Decelerates

In what passes for a sell-off in Apple stock world, AAPL is at a 5 week low in price.
It even briefly thrice dipped below its 50 day smoothed moving average only to bounce above it. Long lines have formed in multiple countries in Europe as well as in Japan to be in on their launch of the iPad.

A sort-of polling entity, Changewave Alliance, of which I am a member, is out today with survey results of its members. It has found an amazing satisfaction level with the iPad.

Fundamentally, the Value Line actual value line is as good a way to look for over- and under-valuation of growth stocks as any I know. For AAPL, the value line is set as 22X "cash flow", which for AAPL is very close to earnings. For calendar year 2010, I am guessing that AAPL with have cash flow of $15/share. Thus to be at its Value Line, it would be at $360. Yet more bullish is the fact that for the last 6 years, it has spent more time above than below this valuation level, despite rapidly rising profitability.

AAPL stock is 25% above its highest 2007 price with triple the earnings.

We are at a point in the economic cycle where discount retailers tend to stop outperforming. My favorites of Dollar Tree, Ross Stores and TJX are great companies, and their stocks remain reasonably valued, but with Wal-Mart struggling, one has to wonder if their margins have anywhere to go but down at this point.

Meanwhile the Economic Cycle Research Institute is out with more gloomy news today:

A measure of future U.S. economic growth fell to a 39-week low in the latest week, pointing to a slowdown in economic growth, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 125.6 in the week ended May 21, down from a revised 127.2 the previous week, originally reported as 127.3.

That was the lowest level since Aug. 21, 2009, when the index stood at 125.3.

The index's annualized growth rate tumbled to a 47-week low of 5.1 percent from 9.0 percent a week ago. That's the worst level since June 26, 2009, when it stood at 4.6 percent.

"The downturn in WLI growth evident since early 2010 has recently intensified, so it should be no surprise when U.S. economic growth slows noticeably in the months ahead," said Lakshman Achuthan, managing director of ECRI.

Short-term rates are increasingly like to stay around zero for the indefinite future.
While this is ultimately bullish for gold given how our leaders handle economic sluggishness these days, ECRI's forecast is decidely not bullish for any other commodity, and with slowing economic growth likely per ECRI, fears of a new recession and perhaps the actuality may lead to another forced liquidation even of the highest quality assets such as gold at some point.

Right now AAPL may even be outshining gold. Yet the former can be laid low by a downturn in the health of one man, which is not the case for the latter.

To summarize, the list of attrative investments continues to narrow. Whether Treasuries will be on that list as growth slows is uncertain. One suspects so, but who really wants to lend money to the U. S. Gov't at 4% annually for the next 30 years?

Copyright (C) Long Lake LLC 2010

No comments:

Post a Comment