New Trade: Long Apple and Short Blue Nile

 |  Includes: AAPL, NILE
by: Intelligent Speculator

After a good performance in 2009 and even better numbers last year, this is the first stock pick of the new year and it should certainly be a very interesting one! This opening trade for 2011 is a classic one as Apple (NASDAQ:AAPL) is one of those stocks that I have generally been long on and Blue Nile (NASDAQ:NILE) is probably the stock that I have most preferred to short. Both stocks were the most traded last year on this blog, 5 times each, in 2010. In 2011, I will be more cautious about opening trades just before earnings and in this case, Apple will be releasing earnings on January 18, which seems reasonably far from today.

Before getting started, here are the main numbers that I used to decide on this trade:

Ticker Name Price EPS PE Ratio PE Next Year Return YTD Sales Growth Analyst rating Book Value Trend Analysis
(AAPL) Apple Inc 322.08 15.41 21.27 14.29 52.89 52.02 4.75 52.18 85
(NILE) Blue Nile Inc 57.145 0.88 65.45 43.96 (8.02) 2.30 3.11 2.55 75
Click to enlarge

Trend Analysis

Not a big advantage for Apple but its trend analysis score is a bit higher than Blue Nile’s score.

Long Apple (AAPL)

While I did give a few things I would change if I were Apple’s CEO Steve Jobs, the company has generally been run very well in the past few years and has been gaining very strong market share, especially when you consider that its products are fairly high end. I do think that the momentum from sales of Iphones and Ipad’s will keep up but also that the Apple App store will start to become a center of attention as it continues to make bigger sales year after year. Google’s Android is a strong competition but both are in such a big growth market that I do think they can both strive in 2011.

Short Blue Nile (NILE)

Blue Nile has been and remains the biggest mystery to me among the stocks that I follow. How a stock that has displayed so little growth can continue to trade at such a high P/E ratio is stunning to me. There are no strong indications that sales and profits are accelerating and I do expect numbers to remain disappointing. There were some management changes and the stock has risen significantly in the last couple of months, which is cause for some concern. However, I do have to go with the numbers I have right now and those suggest that Blue Nile is simply going at a premium price and that it will continue to under perform.

You can also take a look at the traffic data from for both websites. While it estimates that traffic on has increased 24.06% in the last year, has registered an increase of only 3%.

(Click charts to expand)

Just take a look at the charts for both companies:

Disclosure: No positions