Tuesday, 05 April 2011 05:22

Apple Stock Gets Reacquainted, Ever So Slightly, With Reality - As Warned By The Only Source To Call A Short On Apple

Apple should see a material dip, on top of the one that occurred after I indicated that I was short the stock on March 16th. Before we delve into my opinion, let's peruse the news from 1 a.m. this morning:

WSJ: Apple Crunched in Nasdaq Rebalance- In a move likely to ripple across the stock market, Nasdaq OMX plans to announce a rare rebalancing of its Nasdaq-100 index, which will reduce the big weighting of Apple, which currently makes up more than 20% of the index.

Bloomberg: Apple's Weight in Nasdaq-100 to Be Reduced as Microsoft, Cisco Are Raised

So, why do you think Nasdaq decides to reduce Apple's weighting now? Well, the competitive pressures that Apple faces are nigh guaranteed to make it impossible for it to fulfill the pie in the sky expectations that are being built for it.  That in combination with a 20% weighting create a recipe for a guaranteed crash in the Nasdaq unless something was done about it. Signs of heavy reliance on on or two products for 70% of their profit, while sourcing the most important parts of those products from their biggest competitors, were starting to show. iPad 2 supplies are tight due to Japan's woes, and Apple does not have the mobile computing product diversity to handle it like the 150 or so Android competitors it is battling. This means much more than just a gap in profits for the quarter. These companies are in race, and Apple is being forced to give up some of its lead due to diversification issues - issues that Android manufacturers (who are more diversified because there are so many more of them from different places) don't have, or at least not to the extent that Apple does. Thus, Samsung, LG, Asus, HTC, etc. will be rolling out to customers who may have had an Apple iPhone or iPad.

This is also another (of many) massive triumphs of BoomBustblog research over that of the most esteemed Godman Sachs who put a $430 price target on Apple just as it was making all time highs and in direct contravention to BoomBustBlog's stated logic. See Shorting Apple and Why Software Developers Can Make More Money On Android Wednesday, March 16th, 2011

I have finally started dabbling with Apple shorts and puts. My OTM S&P put positions were profitably stopped out due to trailings yesterday when the market recovered some of its losses. I have decided to use Apple in the place of the S&P puts for the time being. Medium to long term, the trade is more evident and obvious to anyone who is objective and follows BoomBustBlog. It is significantly more risky shorter term. Alas, there are marginal gains already, and once they accrue to the point of indemnifying my trailing stop, I will add more. After I finish the current leg of my global real estate research to be disseminated to institutions, I will offer tidbits of the modeling (I have already offered subscribers significant info on why I think Apple is a risky long play). From a contrarian standpoint, it may be safe to go short with tight stops, after all although Apple Gears Up To Combat The Margin Compression That Apparently Only It, Google & Reggie Middleton Sees Coming, we still have those guys over at West Street... I have taken

Farther, Apple’s Closed System Risks Failure! Listen, everyone, regardless of what investment positions or tech products you may have in your stable, needs to ask themselves the appropriate "What if's". I have spurred the conversation with "Will Google Win The Mobile Computing War? Let’s Walk Through Where They Stand Now & How To Value Them"

Remember, I may not always be right, but it does pay to look at the track record...  Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? More attention should be paid to the little guy, after all by now it is Now Common Knowledge That Goldman’s Investment Advice Sucks! Didn't you get the memo? I'm sure many traders have spurned Apple due to the Japanese market being cut off right at the launch of the iPad 2, but the issues go deeper than that. I will cover it in depth at a later date, though.

Additional thoughts on the Apple short:

  1. Note For The Few Realistic Apple Bears… Wednesday, March 16th, 2011
  2. Buffet on Apple – Common Sense! Monday, March 21st, 2011
  3. Competition Heats Up In The Mobile Computing Space On Many Fronts – Prices Driven Down Once Again By The Big Players Tuesday, March 22nd, 2011
  4. How the “I Love Apple, There Is No Other Fever” Adds To The Attractiveness Of An Ever So Unpopular Apple Short Monday, March 21st, 2011

And that Research in Motion short alert given to subscribers is working like a charm - even more so if it get's caught in  NASDAQ storm: Research in Motion Drops 10% After Hours, Precisely As We Warned Two Months Ago – MARGIN COMPRESSION!!! Thursday, March 24th, 2011

Last modified on Tuesday, 05 April 2011 13:08

24 comments

  • Comment Link Kent Friday, 15 April 2011 17:20 posted by Kent

    This is the same guy that basically said the Palm Pre was going to destroy the iPhone. He obviously was completely wrong about that.

    Report
  • Comment Link Kent Friday, 15 April 2011 17:19 posted by Kent

    Reggie, are you pretty shocked at the share price reaction of GOOG today? It sounds like you were encouraged by the earnings, but the market obviously felt the exact opposite. I took two things away from the earnings, the first is that Android is barely contributing to the top line, and not at all to the bottom line. Did you see their comments about how Google loves the iPhone because it brings in money too? I know they were trying to put a positive spin on things, but I find that discouraging because Android should be exponentially more profitable than iOS for Google as a company. The second major takeaway is that Google is no longer THE hot place to work for in silicon valley. I'm guessing it's Facebook as well as others, but I don't think having to spend this much on new talent is a positive sign like you do, I think it's a little scary.

    I didn't sell today, but I did put in a stop loss at $520 so hopefully that'll never get triggered. Today was quite the beating though, ugh.

    Report
  • Comment Link Hmmm Friday, 15 April 2011 12:49 posted by Hmmm

    Sorry> http://plus.cnbc.com/rssvideosearch/action/player/id/3000016655/code/cnbcplayershare

    Report
  • Comment Link Hmmm Friday, 15 April 2011 12:48 posted by Hmmm

    Here is the CNBC video commentary.

    Report
  • Comment Link Reggie Middleton Friday, 15 April 2011 10:07 posted by Reggie Middleton

    It's unfortunate that you find my style "annoying". I cannot respond to Roger's recommendation because I don't know what reasoning went into it. See my response above for strategic competitive risks to Google in relation to Apple.

    Report
  • Comment Link Reggie Middleton Friday, 15 April 2011 10:02 posted by Reggie Middleton

    Facebook is a credible threat, but MSFT is a much stronger threat. MSFT owns the desktop, much of the enterprise, has the #1 browser and the 3rd most strategically placed mobile OS (and recently made a synthetic purchase of the world's number 1 hardware vendor), and as a search engine that is growing market share and may be the technical superior of Google search.

    As it is Google is taking more from MSFT than MSFT is taking from Google, but MSFT is succeeding in chipping away at several fronts that are Google's to lose.

    Facebook is, thus far, still unproven and the only asset that they have is (thus far) the (probably) hundreds of millions of eyeballs and their sticky loyalty. With that being said, the buy thru rate on Facebook ads trails the industry average substantially. That's not to say that they won't do better with new and innovative products, but MSFT is the here and now - more so than Apple in the medium to long run.

    Once Apple gets its data centers up and running for true cloud services and a modern OS that can sync wirelessly (to break the dependence on desktop itunes, then it will be time to revisit their medium to long term potential. Until then, Apple's time in the sun is more shorter term in nature.

    Report
  • Comment Link Hmmm Friday, 15 April 2011 09:40 posted by Hmmm

    I find your self-aggrandizing style annoying, but wonder how you respond to Roger McNamee's (Elevation Partners) recent recommendation for a "perfect hedge" is long Apple and short Google, which "would give you a positive return in almost every period from here on out."

    Report
  • Comment Link rulman Friday, 15 April 2011 04:02 posted by rulman

    thank you very much for information

    Report
  • Comment Link Google-Worry Friday, 15 April 2011 02:22 posted by Google-Worry

    Agree with you Reggie. This is primarily due to the investment binge. But what is driving this binge is what is concerning me the most - Facebook. I don't mean to oversimplify things, but if Facebook can execute, they might really put Google in a world of hurt. Android ad revenue is ramping up nicely, but that may not be enough to offset the decline in their online search business. I suppose that's what they have to balance. Facebook has to execute on (i) search (ii) video and (iii) mobile -not easy, but doable given how fast they are stealing talent from everyone.

    PS I hate Facebook.

    Report
  • Comment Link Reggie Middleton Thursday, 14 April 2011 19:29 posted by Reggie Middleton

    @ Kent
    "I don’t know if the rest of you GOOG longs are as weak as I am, but after today’s earnings pounding I’m seriously considering getting out. As great as Android is, I’m starting to think it’s completely meaningless to the bottom line, and that’s really bumming me out."

    A two cent miss is far from a pounding, particularly on revenue that is up over 22%. In addition, if you actually read through the announcement, the miss appears to be intentional due to the fact that Google is on a intense investment binge. They have hired 1900 additional employees (on top of the 6,000 announced previously), have increased its marketing for Chrome (the browser) and their efforts for Youtube and Android should be obvious. These are good things, and this is how a company would be run if it wasn't afraid of analysts and traders that can't or won't see the benefits of heavy investment for the future. That is what I like about Google. I haven't parsed everything yet, but this drop looks more like a buying opportunity than a selling opportunity. I will have a quarterly review posted in 48 hours.

    My greater worry would be the stability of the market in general which is quite overbought and ahead of itself fundamentall, which Google hasn't fully participated in. The problems of the 2008 crash are sill upon us, yet we're partying like its 2007/19999.

    Report
  • Comment Link Kent Thursday, 14 April 2011 17:12 posted by Kent

    I don't know if the rest of you GOOG longs are as weak as I am, but after today's earnings pounding I'm seriously considering getting out. As great as Android is, I'm starting to think it's completely meaningless to the bottom line, and that's really bumming me out.

    Report
  • Comment Link Jasemin Monday, 11 April 2011 18:50 posted by Jasemin

    YegNa9 That's way more clever than I was expecting. Thanks!

    Report
  • Comment Link Yev Sunday, 10 April 2011 10:31 posted by Yev

    "I like Google, and some Apple products sans the price – but to be honest when it comes to mobile computing all we want to to is replicate the Windows desktop experience while on the go"

    Enough said, this quote alone makes your whole diatribe a waste of time. Thankfully general consumer sees past that and the floodgates have been opened. Good luck with your shorts, don'ts the reversal when it comes and pay attention to April 20th.

    Report
  • Comment Link Kent Wednesday, 06 April 2011 16:59 posted by Kent

    I agree the bigger picture is what's important, but the frustrating part is that GOOG has been so underwhelming since the end of 2009. I can't believe Android has had all the success it's had and the stock is lower than where I bought it, despite the fact that the market is up considerably over that time and AAPL is way higher. How long do you think it will take before some of Android's great market share is finally reflected in GOOG's share price?????

    Report
  • Comment Link Reggie Middleton Wednesday, 06 April 2011 06:37 posted by Reggie Middleton

    Google's stock, as is, is woefully undervalued. It is an opportunity for those who know how to value contingennt opportunities, but it is far from being without risk. My forensic report on Google explains it all in 69 pages of detail

    Report
  • Comment Link Google-Worry Wednesday, 06 April 2011 06:33 posted by Google-Worry

    Reggie,

    Thank you for your thoughtful response. I agree with you that Microsoft-Nokia has put a material dent on the opportunity for Android. This has stabilized Microsoft somewhat and at the same time, reduced the window of opportunity for Google. Take Nokia from the global opportunity of Android....They have been desperately looking for ways to diversify from the dependency on Search without much success. I don't know if Facebook can execute given how young it is and the R&D required to go head to head with Google, but if it came out with its own FB-Search and FB-youtube, I know a lot of people who will never leave the site (I am not one of them).

    I have no idea if this is the ONLY reason Google's stock has dropped from $630 to $569 and acted so weak, but something is clearly affecting the stock.

    Report
  • Comment Link romanya vizesi Wednesday, 06 April 2011 05:43 posted by romanya vizesi

    hi,thank you very much

    Report
  • Comment Link Reggie Middleton Wednesday, 06 April 2011 04:39 posted by Reggie Middleton

    IT did, but that is one day in a multi-year race. You really have to look at the bigger picture. See below.

    Report
  • Comment Link Reggie Middleton Wednesday, 06 April 2011 04:37 posted by Reggie Middleton

    While Facebook's sticky command of a very large audience does pose material risk and competition, you must realize that Google is growing way past advertising. Advertising is the cash cow base that is allowing the company to fund initiatives that put it in head to head competition with Microsoft and Apple, and the consequent profits to be derived from each market leader if it is successful.

    Google's largest risks are 1) regulatory and 2) Microsoft. The company is amassing monopolistic power and its competitors have successfully lobbied .gov to start digging in. Microsoft is the only company that truly has the asset chops to topple Google in the near to medium term, but also has severe execution problems which has alllowed Google to get so far so fast.

    Apple is not in the running here, at least not yet. Don't look at where the companies are now, look at where they will be in 3 to 8 quarters. MSFT has mitigated, to some degree some of its errors by its defacto purchase of Nokia thus will have highly customized hardware platforms upon which it will be able to deliver its OS/ecosystem products. It also picked the largest and one of the best hardware vendors. This will allow it to produce Apple like integration between hardware and software.

    I like Google, and some Apple products sans the price - but to be honest when it comes to mobile computing all we want to to is replicate the Windows desktop experience while on the go. The first one to successfully to that will win and no one is closer to that from a tech perspective than MSFT. Google has executed much better than MSFT, thus is closer in the here and now, but is truly threatened by MSFT. MSFT makes real tablets while Apple and Google make lightweight mobile versions. I tried the Asus Windows 7 tablet yesterday and it is amazing. No compromises, lightning fast, running full office, photoshoop, flash HD, the whole shebang. Bright screen, big louad speakers, only a pound heavier than the iPad but a real computer.

    Well, there was one caveat - 3 hour battery life. When MSFT comes out with Windows 8 running on ARM chips, this should be rectified. Google, and to a lesser degree, Apple, have until then to perfect their products or it will be game over for the high end user and those who need to get real work done. Facts on the ground - Google is moving at an unprecedented pace and looks like it can pull it off while Apple is selling a lot of product but losing market share and has yet to get its cloud infrastructure together to compete with the other two.

    Report
  • Comment Link Google-Worry Wednesday, 06 April 2011 02:27 posted by Google-Worry

    Google has major risk due to Facebook. It's a matter of time before Facebook develops a serious search engine or partners with Bing. Where will the bulk of the ad dollars go then?

    Report
Login to post comments