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Adam Betancourt
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I am a graduate student at Fordham University's Graduate School of Business. I have personally been investing for roughly 8 years, and have managed a portion of my Undergraduate University's (Roger Williams University) endowment fund. Follow me on Twitter @Adam_Betancourt
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  • Apple: A Better Than Buy-And-Hold Strategy

    If you have purchased or held shares of Apple over the past year, you are more than likely feeling a bit discouraged, as shares have experienced violent 20%+ swings four times and 10% moves nine times. My goal in this Instablog Post is to identify a strong trend in Apple's chart and to supply a powerful tool for cashing in on these volatile periods.

    Below is a 1-year comparison of Apple, Google, Microsoft, and Yahoo!: (click to enlarge)It is clear that Apple has been left behind, and the aforementioned volatility is readily apparent. If you own shares, the frustration of seeing your holding's value fluctuate so drastically can leave you anxious to arrive at the exit. However, there are ways to determine profitable short-run entry and exit points that exist in this very same chart. Low and behold: The Stochastic Oscillator.

    The Stochastic Oscillator is a powerful technical tool that is somewhat surprisingly easy to understand. In a basic sense, it is used by technicians to measure the "speed or momentum" of the price movement. It represents the location of the previous close relative to the price range over a set number of periods. This can be more easily understood, however, by pulling apart the two lines on the stochastic oscillator and explaining the simple underlying mathematical formulas. The first line is called the "%K" line, which analyzes the actual price movements in the shares and can be defined as: %K = (Current Close - Lowest Low)/(Highest High - Lowest Low) * 100. The second line, the "%D" line is simple a 3-day moving average of the "%K" line.

    There are three primary ways to read the Stochastic Oscillator in search of entry points, but I will only address the two more easily understood signals. The first way to spot an attractive entry point is when the "%K" or "%D" lines fall below the "oversold" level of 20. On the Stochastic, you will notice the x-axis is measured from 20-80. These levels represent an oversold and overbought condition, respectively. The second way to read the Stochastic Oscillator is to look for the "%K" line to cross the "%D" line from below. When both of these conditions occur simultaneously, a strong bullish setup exists. When the opposite occurs, as you may have guessed, a bearish setup exists.

    How does this help you?

    Apple has been trading in near lockstep with the Stochastic Oscillator over the past year, and if you had traded on the Stochastic, you would have drastically outperformed a buy and hold investor. Check out the following chart with the buy and sell signals from the Stochastic:

    If you were to buy at every entry signal and sell at every exit signal, you would have avoided nearly 50% in downside. Even better, if you were to have gone long at each bullish setup and gone short at each bearish setup, you would have outperformed the buy-and-hold investor by 104% (excluding fees), returning you roughly 123%. Not bad.

    I normally use the Stochastic Oscillator to spot reversals, and it is one of the most widely used indicators by chartists and technicians alike. It is, however, a bit rare to find a stock that produces such strong buy and sell signals in the Stochastic. I strongly recommend trading based on this technical indicator to supplement your long position in Apple. In other words, protect yourself a bit by holding a long position while you trade a smaller proportion of your holding (long/short) using the Stochastic. This will help to lower your downside volatility while supplementing your capital gains.

    Disclosure: I am long AAPL.

    Feb 25 3:12 PM | Link | 2 Comments
  • Federal Budget Update: CBO

    The Congressional Budget Office has released its most recent report on our nation's budget and deficit figures. The report confirms that, should federal tax rates and government outlays remain the same, the ever-scrutinized budget deficit will fall to $642 billion this year. The overall deficit, in relation to GDP, will fall to 4% in 2013, and 2.1% by the end of 2015. The report states that before the 2008 economic quake, the 40-year average deficit relative to GDP was 2.4%. It also addressed the fact that "Under current law, the debt (held by the public) is projected to decline from about 76% of GDP in 2014 to slightly below 71% in 2018 but then to start rising again; by 2023, if current laws remain in place, debt will equal 74% of GDP and continue to be on an upward path (CBO)."

    (click to enlarge)

    (source: Congressional Budget Office)

    While growth in federal revenues is expected to outpace the growth rate in capital outlays in the coming years, the deficit should contract. In 2013, revenues are now expected to grow at a rate of 15%, as opposed to previous estimates of 11%. The report cited that this "robust" growth in revenues is partially due to the expiration of a 2% payroll tax that occurred in January and the subsequent increase in the average tax rate on corporate domestic profits. In 2014, these federal revenues will spike to 18.3% of GDP and 19.3% in 2015.

    There are some ominous undertones in the report in the form of warnings and risk factors moving forward in the long-run. The report states that "When interest rates return to higher (more typical) levels, federal spending on interest payments would increase substantially. Moreover, because federal borrowing reduces national saving, over time the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced. In addition, lawmakers would have less flexibility than they would have if debt levels were lower to use tax and spending policy to respond to unexpected challenges. Finally, a large debt increases the risk of a fiscal crisis, during which investors would lose so much confidence in the government's ability to manage its budget that the government would be unable to borrow at affordable rates."

    Read the full report at http://www.cbo.gov/publication/44172

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: economy
    May 15 9:25 AM | Link | Comment!
  • Should You Buy Tesla Here?

    Is this the pullback you have been waiting for? Over the Past week or so, I have written a few articles regarding Tesla Motors Inc. (TSLA) and it's recently drastic fluctuations in per-share value. Since last Thursday, the stock has appreciated roughly 60%, and many investors have been left clueless as to what to do from here. Today, I published an article (Tesla: Up, Up and Away) stating that there is still value in owning shares, even at their newly elevated levels. For those uncertain whether Tesla could continue higher, or uncertain regarding an entry point, today may have provided a prime opportunity. Although shares surged in pre-market trading and at the beginning of the day, they have pulled back significantly since the high of $97.12, providing a solid entry point for new long positions.

    Shares slid this afternoon after reports that the state of North Carolina's State Commerce Committee approved legislation that could potentially curb the company's ability to direct-sell its automobiles to customers- a practice that the North Carolina Automobile Dealer's Association has deemed threatening to the current stability of existing auto dealerships. While this report has caused a noticeable ripple in shares of Tesla, it should be noted that this is a small speed bump for a company that is growing at a very impressive rate.

    To recap the underlying growth story:

    The future for Tesla is exciting, and growth is ramping at tremendous rates. Last Thursday, the company reported its first ever profit of $0.12 on revenues of $562 million. The company, which is now cash flow positive, has been taking aggressive measures to grow efficiency and to more effectively manage costs. With Elon Musk at the helm, the company has spent virtually zero dollars on advertising, and has realized a lower raw material cost- both of which helped to pad last quarter's earnings. Production capacity has doubled over the past few months, rising to 400 cars per week (20,800 per year). In his letter to shareholders last week, Elon Musk mentioned that orders for the Model S this year are projected to come in at roughly 21,000 units, meaning that the company is perfectly prepared to capitalize on the high demand for the Model S. Even gross margins have doubled over the most recent quarter, showing quality management and increased profitability. Musk offered guidance for a margin of 25% for the full year (currently 17%).

    The fact is- Tesla has a ton of room to grow. In terms of sales, the company is a boy among men, as there is currently only one model in the fleet. With the overseas launch of the Model S coming in the fall of this year, demand in Europe has already outpaced demand here in the United States. Also, the Model S has been receiving rave reviews from rating companies and customers alike. In fact, Consumer Reports claims that the Model S is the "best car [they] have ever tested" and that "if it could recharge in any gas station in three minutes, this car would score about 110," giving it a rating of 99 out of 100, a rating only shared by only the Lexus LS460 (TM). There is real growth in the future for Tesla, and at a share price of roughly $85, it still looks attractive.

    The fact of the matter is- this is a tremendous (and real) growth story. Tesla has the potential to double capacity and output year over year, and is expected to do so (as it achieves economies of scale, margins will increase as well). Earnings per share expectations for the year signal that the company will grow earnings by 20x in 2014. Today's roughly 6% pullback has leveled off the technical, and shows a strong entry point around $82. For those who have missed out on this historic run in shares of Tesla, it may not be too late to cash in the company's growth.

    Disclosure: I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: long-ideas
    May 14 3:19 PM | Link | Comment!
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