If you have an apple and I have an apple and we exchange apples then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas. – George Bernard Shaw
We’re about to enter earnings season, so let’s preview some of our upcoming reports.
Apple – The stock has taken a big 10% hit from its recent all-time highs as the market seems to discounting a troublesome upcoming earnings report. The iPhone 5 hasn’t sold as many millions of units in its first couple weeks as some analysts had expected and that was the initial catalyst for this sell off. There’s also a lot of concern about a supply chain problem and Apple’s ability to meet demand for the new iPhone. Talk about a problem that Microsoft, Nokia and RIMM would love to have, eh? Too much demand? We’ve been in Apple for almost ten years now, and as I’ve explained over and over, the main driver of this company’s earnings is the “platform” that they’ve built for Apple customers. The seamlessness of being able to access all your data, emails, files, pictures, videos and everything else through the Apple platform drives more sales of other Apple devices as well as sales of content and information that gets accessed over those devices. Margins are likely to be a bigger factor in the company’s upcoming earnings growth, as there’s still room for margin expansion over the next couple years. Feet to fire, I expect a slight miss on the quarter relative to consensus expectations but that the stock could rally back over $750 by year end.
Amazon – Like Apple, Amazon is a bet on a developing platform of hardware and services that will drive future sales of Amazon hardware and services. There’s hundreds of millions of more customers for both Apple and Amazon to fight over for the next couple years and it’s not a mutually exclusive set up of winners. The stock is certainly expensive but I think it can continue to slowly climb into year end, maybe even up past $300 a share.
Google – Google’s just been on such a big tear of late that most traders have to love the momentum or need to be freaked out by the parabolic chart. It doesn’t have to be one or the other in this set up. Despite Google’s wild rally, I could easily picture this stock shifting down a gear, but continuing its ascent higher into year end. Feet to fire, Google’s likely to report a very strong fundamental quarter, with lots of growth and cash flow, but the market won’t reward it immediately.
Sandisk – Rumors of a shortage of NAND components out in Apple’s iPhone supply chain are helping to push this stock higher. With the market so skeptical about paying any more than 5-6x earnings for this stock, any hint of sustainable growth and pricing power in NAND would likely pop this stock after the report.
LPS – The entire mortgage industrial complex has been given a free pass from the regulators and prosecutors into the election. I continue to expect that LPS will have some serious regulatory and perhaps even criminal charges brought against the company and its executives for messing up the chain of title system throughout the country. Regardless, I can’t picture that the LPS database of title chains and mortgage ownership will sustain for the next two to three years. This quarter could be better than consensus expects, but I’d add to my short if and when this stock gets back into the mid-$30s which is where we originally shorted the stock.
DDD – We’re seeing a smattering of articles and reports on the 3-D printing revolution, and DDD is becoming the de factor brand of the market. Whether that drives upside to this quarter or not is really the big question for the short-term, and I do think the company will deliver on the growth targets. Feet to fire, witha good report, I’d expect a run back towards its recent highs in the mid-$40s before year end.
Facebook – I don’t recall another IPO that was as widely hated as FB has been since it came public in a way that was by far the best possible way to protect the company’s future shareholders — by maximizing the amount of money that the original public investors paid straight into the company’s coffers. Put another way, Facebook right now has twice as much cash in their bank account as they would have if they’d come public at today’s quote of $20 a share instead of the nearly $40 a share it started at. The way Facebook handled their IPO and the way its traded down so sharply since it came public makes me more confident about investing in FB, not less. Flip it. I think FB simply needs to meet topline and bottomline consensus estimates and any hint of improved monetization of mobile users would pop the stock.
We’ve been very successful thus far with our Revolution Investing approach here and I don’t see anything on the horizon that would make me change the strategies or the playbook just yet.
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