The Comcast-iPad app announcement to stream live television along with 3,000 hours of video on demand demonstrated another catalyst capable of bringing down defenseless Netflix (NFLX). Keep in mind, I love everything Netflix has done, but the investor side of my brain recognizes that they are defenseless against competition. If Netflix had exclusive content and if Netflix owned a patent on streaming video then I would load up the portfolio. Unfortunately Netflix has neither and Time Warner CEO Jeffrey Bewkes was right when he referred to them as the Albanian Army trying to take over the world.
On Wednesday Netflix dropped $1.60 as Apple (AAPL) rose $2.70, BAIDU (BIDU) rose $3.66, Google (GOOG) rose $7, and the Nasdaq was up 20 points. There is a high probability that this early year performance will be indicative of a 2011 trend. We are getting ready to add Netflix puts to the portfolio. The problem with shorting Netflix right now is that the market is so strong. Even though it's the right play it still isn't the right time.
Another 2010 momentum play that is having a rough start in 2011 is gold. I chuckled as I browsed today's headlines of gold articles that relied on ideas like ‘faith’ and ‘mania’ to justify holding the position. The most difficult job in the media right now is to concoct an argument in favor of higher gold prices, when you end up with stories about ‘faith’ and ‘mania’ you find yourself in uneasy territory.
The ultimate irony is that typically conservative investors are the ones who buy gold. Ever since the potential of a euro collapse was dismissed back in August I was one of the first to sound the alarm on the gold bubble. In the absence of fear, gold is a speculative momentum play destined for the same fate as its volatile predecessors. Anyone who thinks differently is looking too far back into the annals of history. I agree that gold isn’t as speculative when it’s actually utilized as a currency standard, but I have a news flash for everybody, there is no more gold standard! It’s like that scene in the movie Dumb and Dumber when Harry realizes (25 years after the fact) that man actually landed on the moon! The early action in 2011 suggests this bubble is preparing to burst as gold is off its $1420 high and looking vulnerable.
Next on the list is Sirius (SIRI). Our SIRI options are up 37% since purchasing them on December 9th and we still feel that investors haven’t caught the magnitude of this opportunity. Everything that Netflix has going against it, Sirius has going for it. Sirius has always had exclusive content and as of January 1, 2011 it now has exclusive mobile streaming rights to Howard Stern. The first thing you see when you click on Stern’s website is an offer for the premium online package that enables streaming to your Apple iPhone, Google Android, or RIMM (RIM) smartphone. In 2011, mobile users are showing an obsession for such content.
The details of Stern’s new contract have yet to be released but we expect that Sirius is planning a video iPad app as part of its Sirius 2.0 initiative. We’re not sure if it will include Stern because he already offers Howard TV but it should include multiple other video feeds that people want on their iPads. If Sirius can enhance its service by providing an iPad video app, this stock will double and triple over the next two years. This should be a no brainer for the company, it's like somebody telling a tire manufacturer to add air to the tire in order to enhance the ride. If Sirius doesn't come out with a video iPad app as part of Sirius 2.0 than CEO Mel Karmazin deserves a depressed stock price.
Last of all we have Apple (AAPL) stock waking up from its November/December death march. Our move to add an 8% allocation of short term AAPL calls on the first day of 2011 trading has worked out remarkably well.
Apple is a stock that you want to own at the right time because when it moves, it really moves. As gold headlines try to justify its move with speculative jargon, Apple headlines are immersed in fundamentals.
The iPad wave is sweeping the world, all analysts are raising targets, NY public schools are joining others across the USA ordering iPads, and the tablets being shown at CES are a comparable joke. Apple’s decision to move its event to the end of January has turned CES into a non event. Remember last year when Steve Ballmer tried to show the world what a tablet looked like? Ouch.
In 2011 Apple will continue its crusade into critical mass which will result in an explosion of iData consumption. We really like Verizon (VZ) on this thesis as well. These 2011 trends are in line with our list of 14 projections outlined here, and the portfolio is benefitting. This year has gotten off to a great start if you know where to invest.
Disclosure: I am long AAPL, SIRI, VZ
Additional disclosure: Also own GLD puts