The Proficient Investor

Apple topped Wall Street estimates for Q1 Today.

Quoted from marketwatch:

Apple (AAPL) earned $1.05 billion, or $1.16 a share, on $7.51 billion in revenue for the quarter, compared with the same period a year ago when Apple earned $770 million, or 87 cents a share, on sales of $5.26 billion.

The results topped Apple’s forecast of a profit of 94 cents a share and $6.8 billion in revenue. Analysts surveyed by FactSet Research had estimated Apple would earn $1.05 a share on sales of $7 billion.

Apple said that it sold 2.29 million Macintosh computers, 1.7 million iPhones and 10.6 million iPods during the quarter ended March 31.

For its fiscal third-quarter, Apple Chief Financial Officer Peter Oppenheimer said the company expects to earn $1 a share on revenue of $7.2 billion. Analysts had previously forecast Apple to earn $1.09 a share on $7.23 billion in sales.

Shares in after hours trading lost $7 or 4.3% after the news on the lowered guidance for the second quarter.

I smell a bargain coming. The last time Apple took a nosedive I made $600. Wait for the pullback and pull the trigger when the action levels off. Apple is one of the few juggernaut stocks that always seems to work its way out of these slumps.

I sold a few more shares of apple today for about a $200 gain and 100 shares of EMC for about $100 gain. It’s important in this kind of market to take the gains when you can. It’s ok to leave something on the table but you want to play with the house’s money.

Selling into strength (prices moving upward) is the best way to ensure you are profitable. Solid stocks like Apple and Google are great examples of buying on the way down and selling on the upside. You don’t make any money until you sell.

If you are any kind of subscriber to a financial newspaper like The Wall Street Journal or Investors Business Daily, chances are you have also had your address sold to other similar news sources.

The problem is, some of these sources aren’t reliable and are only trying to get you to buy into a particular stock because it will benefit the people behind the pressing. I get these full color newsletters all the time. Almost always, these are OTC or Pink Sheet stocks that trade under $10. Most trade far under that, even going sub-penny (never a good investment).

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My overall portfolio sagged today, but I wanted to mention two of my stocks here. First, Bluefly closed up .03 cents at .46 cents on the PR about the stock split. This is action from investors trying to boost the price a little higher pre-split to make the resulting price higher…probably so they can short it after it tops $5 a share.  I don’t care, I’ll have 347 shares after the reverse split.

Next, RUNU as I predicted dropped to .68 cents on just under 70k shares trading. I guess that $1 support level just couldn’t hold against the resistance. Rudy must not be pushing that PR train hard enough yet. I expect some crazy trading in this stock soon…keep an eye on it.

TGIF!

A few weeks ago I had the unfortunate experience of communicating with a trader who asked me to check out his site and give feedback on it, and when I had less than positive things to say about the colors and the design, as well as where this particular site was hosted I was lambasted by the owner as knowing nothing and he then proceeded to dis my blog saying I had “no-info” posts.

Instead of retaliating and starting some kind of flame-war, I decided to ignore the email because I knew I was right. What bothered me a bit was the accusation that posts here are “no-info”. In other words, nothing I write about here has any value or merit? I guess you form opinions and stick to them right?

I am of course going to disagree on the point of this blog having posts with no information. On the contrary. When I write here it is because I have done a lot of research about the stock or company I mention. What I don’t do, and I have said this many times is make stock picks or give tips on trading. Tips are for waiters.

Anyone can make a stock pick. Open up a copy of the Wall Street Journal, place it on the ground, drop a dart and see what it hits. Voila! You’ve just made a stock pick. Now what? Now you need to do what Jim Cramer calls “homework”.

This depends on your trading style and your investment goals of course because everyone is different. You might not like the idea of holding onto a stock for 18 months. Maybe you think even longer term than that. Think about what kind of investment you are going to make, then you can determine your buying and selling points. The thing is, there’s no magic formula for picking winning stocks, it takes time and practice. You’ll see a lot of people tell you they have a system for picking stocks and they have such-and-such percentage of wins vs losses. I say who cares? Most of these claims aren’t true anyway and if we’re talking penny stocks, it’s easy to claim a 20% gain on a thinly traded stock that goes from 5 cents to 7 cents. I don’t care about that.

The problem is that 5 cent stock can just as easily breach the sub-penny level and you end up losing big. With that in mind, if you do want to trade penny stocks you need to realize they can have big swings up or down depending on the volume and buying or selling pressure from market makers.

I’m not saying I don’t have penny stocks in my portfolio. I’ve made money from a few of them but by and large they are difficult to play and you need to pay very close attention. If you are interested in learning more about penny stock trading, I suggest Timothy Sykes DVD “pennystocking” which you can purchase from http://www.timothysykes.com.

So I could go into a lot of detail on where I think you should invest and what to invest in, but who am I to tell you where to put your money. Truth be told I’m in the doghouse with my portfolio because like many others who invested in this market I’m stuck holding my bag until we get a real upturn in the market. I’m fully vested but that’s not always a bad thing. I know why I picked the stocks I picked and I know when I am planning on selling and I’m just going to stick to my guns.

I hope that my no-info post has helped you at least consider why you are investing where you are. Again, I can’t tell you what to do with your money and I don’t think you should listen to anyone that does. They don’t know what’s best for you, only you do. So ignore any of those “hot stock tips” you see out there…if someone says they have a sure thing, they are trying to sell you something.

Its insanity out there.  Stocks that were juggernauts just a month ago are selling off faster than the Fed-Ex guy could finish a commercial in the 80s.

I’ll talk a little about the Fed rate cuts, but first…what the heck is going on at Google? By the 8% downturn after hours today you’d think Google execs announced they were losing money hand over fist but they actually reported Q4 2007 revenue was  51% higher than the same quarter last year. After adjustments, they earned $4.43 a share. Analysts expected $4.44 a share.

Ok, hold the phone!  Just stop it right there!  Google misses by a penny and everyone jumps ship? Are you kidding me? So you really think that $314k makes a difference to a $1.5 billion company? Really? Heck, sell the damn thing, I’ll just get my shares cheaper.

Let me paint a picture for you. Google is at $564 down from almost $750 in November 2007. It wasn’t a straight line but it’s down nonetheless. If you look at their earnings though, and I hardly call 1 cent a catastrophic miss. Based on growth of 38% in the next year, this stock should have a PE of at least 75. Multiply that by the current EPS and you have a $960 stock.  Dare I say, $1000.00 stock when momentum gets going. Of course you can blame the price action on recession worries and people that made money but forgot to take it off the table panicked on the news Google missed by a penny.  Or maybe it’s the Fed. Yeah, blame them. They don’t know what’s going on anyway right?

Well, lets talk about the Fed. How do the Fed rate cuts apply to you? That’s a trick question.  They don’t apply to you. The federal funds rates that are being cut affect how banks loan money to each other. This isn’t going to affect your mortgage or the price of groceries. Your mortgage rates are tied to the Prime lending rate banks use. Currently its around 6.5% and you can bet that’s not changing much anytime soon. No doubt you’ve been hearing about all this sub-prime business. Sub-prime rates are those that are given to more risky borrowers because the bank has a greater chance of losing money if the borrower defaults on the loan.

It’s this situation, banks not following their own rules designed to protect their bottom line that led to so much trouble. Loans were being given to individuals that had no right to borrow that kind of money and with no real plan to afford it in the first place.

The lesson to learn here is you need to do your research when you buy stocks. I see something like Google drop like this and it looks like a fire sale to me. I say keep driving the price down so I can get it around $200 (I know that’s not going to happen). Then I can make out like a bandit when i hit my $950 target next year.

I do not own stock in Google.

I can’t make heads or tails of the market lately. Good news seems to be bad for stocks and bad news seems bad…you just can’t win.

Ameritrade reported profits were up and raised their guidance for the year but because of credit worries elsewhere in the market, the stock has taken a hit. Down nearly a dollar in intraday trading, there just doesn’t seem to be anything any of these financial companies can say or do to keep their prices up.

Retail is down, tech is down, financials are down, this is truly a bear market and it’s not going to be easy to find growth to invest in.  I’ve got some Apple at $163 and some in the industry are predicting a drop to $150 but I’m not too worried about it.  A fall to that price just puts the stock on sale for me, which is how I like to buy anyway.

The hardest part of this market is that being on the sidelines isn’t much better because the value of the dollar is so bad, you just can’t earn much staying in cash. I’d rather stay in the stocks I like and get some of them on sale here.

I just have a few things to say about the following video:

http://link.brightcove.com/services/link/bcpid1155328549/
bclid1137812485/bctid1352499644

First of all, I think it’s great that more movie studios are getting on board and understanding that delivering media over the internet is where things are going in the future. I also think it’s great that customers have a choice on where they want to get their media.

What I completely disagree with is that the Netflix(NFLX) business model no longer works. In the video they say that since Apple(AAPL) is offering so many downloadable movies to rent, why would you need a netflix subscription. Since you can rent a movie for 30 days for $3 you don’t need a subscription? That’s such an arrogant stance to take on this whole thing. Let’s do some math.

Using Apple’s iTunes to rent movies, I can rent 6 movies for a month for $18 (the equivalent that I pay for a Netflix subscription). Now with Netflix, there is no limit to how many movies I can rent in a given month, but I can only have 3 out at a time. Well, I can watch about 9 movies in a week. If I did that for 4 weeks that’s 36 movies I get for $18 vs. 6 from iTunes. Still think iTunes is the better deal because occasionally you don’t return some movies for a few days, maybe you have 3 movies for 2 weeks. I still get 6 movies for the same price. On top of that I can watch up to 18 hours of content online from Netflix included in my subscription.

What I see here is a lack of investigation and understanding of consumer wants and needs.

I use iTunes for music, podcasts and some video content, but I have yet to purchase a movie because frankly, they just don’t play on my desktop. Part of the reason is Apple doesn’t really care about how their products run on anything other than Apple computers. iTunes videos are choppy on my system and if you try to run them full screen, the whole app freezes. Even after upgrading video cards and memory and a new processor this is still the case. Their software just isn’t very good on a windows platform.

Netflix on the other hand, runs perfectly. I’ve never had an online Netflix movie crash or lock up. So in my opinion, this battle isn’t decided yet. Apple may have some of the big studios on board but I’m going to stick with what works for me.

No position in Netflix, but I do have some Apple shares.

I sold my paltry 8 shares in Apple today at $191 netting a gain of $28. I decided I would sell into this strength and free up the cash to invest elsewhere. Of course I could hold it long, hoping it would get to $200 but even though I think this holiday season is going to be good for Apple, the stock just can’t seem to find stable ground. Sure it’s climbing now but it dropped to $160 shortly after I bought in on my position.

It’s possible the stock will again come down at which point I will examine the trade again.

I tried to buy another 1000 shares of Bluefly (NASDAQ:BFLY) but couldn’t get the order filled on such low volume. I’m expecting the stock to break the $1.00 barrier this month. Last year on the 14th the stock closed at $1.64 but it has yet to show that kind of momentum.

Infospace (NASDAQ:INSP) is performing well after announcing the special $9 dividend and closed today at $18.91 down $.37 cents.

I’m currently up $10 on EMC as well, which I fully expect to go to $22 or $23 by the end of the year.

This week has been all about Etrade. After losing over half the value of the stock on Monday, I bought a position of 50 shares at $3.55 realizing that was just about the bottom for the sell-off. Of course all the analysts and long term investors are going to tell you to stay away from a stock like that but bottom-fishing is one of the best ways to make money in the market.

Don’t be fooled, it’s not easy to do. I spotted the bottom on Etrade partly because of luck, but really I was counting on the volume to keep the stock on the uptick. Monday, Tuesday and Wednesday saw over 100-200 million shares trading but today that volume winded down to under 40 million. That signals much of the end of the run for me. The 10 day moving average for Etrade had been 20 million, so as we near that number again I decided to exit my position and book the small gain.

Most of my portfolio has been in the red over the past year, mainly because of a few bad picks but also because I held on too long to some positions that I felt should be doing much better. For those stocks, I actually bought more shares on the way down as a way of buying the weak stock of good companies. Ameritrade is one of those stocks. Two years later the stock is finally recovering. So be it.

With Etrade, I knew I was only going to be holding onto the stock for a couple days at best. Some analysts put the stock at 9-12 but I don’t care. Who knows what’s going on with the banking arm and until Q4 earnings come out, I am done with that trade. Momentum plays can pay off big when you spot them…that’s the tricky part.

I should also mention I booked gains on Netflix. I still believe in Netflix long term and I am looking to get back in at a lower cost. The PE is too high considering their earnings and I want to wait until Q4 earnings are stated before I take another solid position. If you must own it here, buy a quarter of your position and wait for it to come in.

What’s Next?

Right now is a great time to be looking at retail in both tech and apparel. Names like Gamestop (GME) and Best Buy (BBY) come to mind as does American Eagle Outfitters (AEO) which I wrote about in October.

I also still think Apple and Google are good buys because their growth and fundamentals haven’t changed. Apple is rumored to have a new notebook computer to unveil at MacWorld in January and sales of the iPod and iPhone should pan out nicely this holiday season.

Bottom line, if you are looking for quick profits on something like Etrade make sure you have an exit strategy in mind before you buy the stock and make sure the volume is there to support it otherwise you might be left “holding the bag”.

Of course, had you subscribed to my Newsletter, The Proficient Investor Alerts! you would have known these trades even before I made them and you would have made the same mad cash I have.  Subscribe today and get the first month free.