Alexander Wissel's  Instablog

 After the beating that markets took Friday, Wall Street seems to have taken a slight step back to ask whether if this is the beginning of the dreaded “double dip” or if Friday’s pullback was a normal action after 8 months of double-digit gains.

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This morning traders on the NYSE were greeting with the executives from the Eldorado Gold Corporation (NYSE: EGO) starting the session with the opening bell. It marked EGO’s move from the AMEX listing to the NYSE.  

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 The country’s largest mutual fund, also know as General Electric (NYSE: GE), is starting to see renewed interest from small investors and institutional traders alike with a small gain today.

 

GE is also the ultimate recovery play on the United States and the global economy.

 

Through General Electric’s fourteen divisions, it reaches into almost every aspect of our lives. From the trains, planes and automobiles that move people and products to consumer goods, technologies, financial services, utilities and entertainment they have a hand in just about every major industry around the world.

 

But you don’t need to know everything about the intricacies of each division. You just need to know that if separated, each unit would be a leader in its industry.

 

These multiple units make GE incredibly diverse and more like a mutual fund than a single company. It also leaves GE more prone to broad economic cycles. This is a good thing, because as the economy turns the corner, GE will as well.

 

Here’s why GE is a great buy under $16, why the street still hasn’t jumped back in, and what they simply can’t seem to get through their heads.

 

General Electric’s Capital Finance Problem

 

GE has been trading in a range tight range since August, and while more than doubled in value from its March lows, it sits well off its 2007 high of $41.

 

There are a number of reasons for the General’s situation, but the biggest reason is debt. Specifically the debt from GE’s Capital Finance unit, which has been plagued by concerns it would drag the company down with it.

 

While the impact of their finance unit was severe – a major concern earlier this year – the likelihood of a full-blown collapse now seems improbable. In fact, GE has been shoring up its balance sheets with asset sales and capital infusions.

 

The real estate division is now the only unprofitable unit and, as Immelt reported, they have funded those debt obligations for almost all of next year.

 

And GE isn’t done there. CEO Jeff Immelt has been very public about his desire to turn around the struggling NBC Universal unit, over the course of sales negotiations with Comcast (NASDAQ: CMCSA) and could possibly sell its entire interest in the next few years. GE owns 80% of NBC.

 

A few of the highlights from the webcast last week include increased cash flow from operating activities to $4.4 billion and a shrinking of the Finance unit’s balance sheet – and it’s potential negative impact on the stock. In addition, its backlog of industrial products now sits at $174 billion – that’s a lot of product to produce, and income yet to be booked.

 

Why GE Is a Great Buy Right Now

 

At the height of the market mayhem last year, the world’s greatest investor – Warren Buffett, through Berkshire Hathaway (NYSE: BRK.A) invested $3 billion as a measure of confident in GE and its directors. He received a 10% interest payments and warrants to purchase over 134 million shares of GE stock at $22.25. These options expire in 2013.

 

At the current market price, that’s a 41% increase in the stock.

 

And it gets even better. While GE has cut its dividend, which angered a lot of shareholders and dividend funds, at .10 a share it’s still a respectable 2.55%.

 

GE is going to fly under the radar for a while as it siphons large amounts of its cash flow to pay down that finance unit debt and reduce its loss exposures. This will take some time. In the meantime, earnings will look like they’re in park.

 

The reality will be like a motorcycle whose rear wheel drive has been held off the ground while at full speed. When the bike is lowered back down – in our case, when the Capital Finance unit’s cash siphoning stops – this stock will take off.

 

As these capital obligations from the finance unit clear up, it won’t be too improbable to see GE’s dividend start creeping back up. However, GE’s story doesn’t stop with its Capital Finance unit. Here are four more reasons this stock is set to move higher.

 

• Stimulus. The full impact of the stimulus hasn’t been seen yet in the United States or in many of the countries around the world. These efforts should start to take affect in the Q4 and into 2010. GE’s focus on infrastructure and energy are going to pay off big for them.

 

• Green energy. Shipping roughly 1000 wind turbines for each of the last two years puts GE in a good place for domestic energy initiatives. While wind turbines won’t reignite this stock by themselves, their existence, along with the rest of GE’s green energy programs and products give them a leadership position in the sector. 

 

• Global economies. Strong emerging markets positions around the world. Because of their global market approach to customers, it makes GE a great way to capitalize on growth around the world without investing in specific economies.

 

• Exchange rates. GE books a large amount of total revenues from overseas. With the dollar in a free fall not seen since earlier this year, a weak dollar helps income earned overseas impact the bottom line better.

 

After factoring in these, an improved economic outlook and Buffett’s investment, one of the biggest reasons that General Electric stock will climb much higher is simply the return of the baby boomers to the markets. There are still trillions sitting in Treasuries earning little, if no interest.

 

As these ‘soon to retire-es’ look to rebuild their portfolios, they will be looking for dividend bearing stocks that can offer them security, income and the potential for price appreciation. GE fits the bill for all three.

 

And at any price under $16 a share, it’s a bargain.

 

Market making ideas,

 

Alexander Wissel

 

Full Disclosure: No positions in any security mentioned above.

It’s time we sat down and had a talk about Apple (Nasdaq: AAPL). I know you kids like each other, you love its products, and that it announced strong numbers showing a 46% increase in earnings. Nevertheless, Apple isn’t for you.

Not at this price, and not right now.

It fact, it may be time to short one infinite loop – Apple’s campus address.

The time to invest in Apple was January, not now.

We’ve seen this story before, a company that is blowing the doors off its earnings numbers, growing like crazy and beating every competitor like a Rocky vs. kindergartener grudge match. But it won’t last.

Five ‘Reasons’ Apple Won’t Continue to Climb

We’ve seen these stories with Microsoft (Nasdaq: MSFT), Qualcomm (Nasdaq: QCOM), Google (Nasdaq: GOOG), Intel (Nasdaq: INTC), IBM (NYSE: IBM), and the list goes on.

Each company had at one point appeared invincible and looked like it would revolutionize our lives, and many did and still do. But stock prices are built on future earnings expectations, and the fact of the matter is that Apple cannot grow indefinitely.

Can they continue another 20% to 30% upwards – absolutely. However, the higher the stock moves up, the greater risk that we take that a severe pullback becomes more likely. 

The Wall Street Journal made a good point earlier this morning “According to Thomson Financial, there are 37 analysts on Wall Street, and around the world, who follow Apple stock. 32 of those are already bullish. Three are neutral. Only two analysts out of 37 give the stock a sell rating.”

And they’re right anyone whose wanted to get into apple is probably already in. In other words, If you’re not at this party already, it’s took late to crash now.

I already know what you’re about to say, And Yes, I understand the potential for the iPhone and Macs and iPods and the iWorld etc, etc…

Yes, Mac has a distinct and growing line of products all equally worshipped by their owners. But like Microsoft found out, growth is not infinite. 

Let me ask if you would buy Google at its all time high of $714? Because one could arguably say Google has the same unlimited potential that Apple does, if not greater. And yet Google stock couldn’t keep climbing forever. It fell and is still sitting 20% off it’s highs.

For the same reason I wouldn’t suggest buying Google at its peak, I’d recommend against buying or adding to Apple. It’s just too expensive when there are other companies out there with the potential for greater profits.

Let’s face it, Apple’s products are well designed and equally well liked. They will continue to be a strong leader in the tech space for quite some time. Apple isn’t going to collapse under its own weight and it will remain a premium brand.

Having said that, and preparing for the onslaught of hate mail, stop buying Apple. It may not be this week. But Apple will pull back. And those that buy at these levels – and higher – aren’t making sound investment decisions.

If Apple makes another aggressive run up in the next few weeks, adding 15% to 20% more, it will be a screaming sell. If you’re uneasy about shorting, at least buy some puts to protect yourself.

When everyone has jumped into the pool, pushing the water levels as high as they will go, the only direction this stock price can go is down – Not because the fundamentals are any better or worse, but because there are better profit opportunities elsewhere. 

Market making ideas,

Alexander Wissel

Full Disclosure: No positions in any security mentioned above.

PetMed Express (Nasdaq: PETS) took a trip to the doghouse this morning as it’s earnings forecast disappointed, even as numbers were higher than last year. The

The concern for many analysts was the decrease in new customer acquisitions and lowered advertising spending. While cost per acquisition was 8% lower, so was total spending. It resulted in a 3% decrease in new customers in the third quarter compared to the same period last year.  

While this is troubling, when you factor in that PetMed purchases its TV airtime in remnants – sections of commercial airtime that aren’t bought in large bulk purchases by major advertisers – and that many of these major advertisers are looking to remnant purchasing to buy their airtime, you start to see why their acquisitions have dropped off.

This tells us two things about the PetMed that reminds us why this company should continue to be on investors radars.  

One, that management has a close understanding of what it takes to add new customers. Two, that the management has the discipline not to chase inflated airtime costs with its advertising dollars. Hmm… management acting cautiously and prudently, it’s a new concept.

While these are good by themselves, the earnings numbers tell us a number of other pertinent details that give us renewed optimism for this stock.

For the last two quarters, year over year, net sales moved up 9% and reorder sales were up 14% from last year.  

Quite simply, a growing list of loyal customers who are purchasing medications for beloved pets and ‘family’ members is a great space to be in.

I’ve seen everyone from poverty stricken individuals to extended family members place their pet’s health ahead of their own. You might have a treasured pet of your own and know exactly what I’m talking about.

If you do, you also may have witnessed the extent people will go in pet care and paying for these pet’s medications. This loyalty and devotion isn’t going anywhere.

And PetMed’s message will continue to play well for the bargain conscious. 

As the undisputed leader in this space, PetMed Express should rebound nicely from its current position. A few simple changes in advertising allocations and redeployment of capital to add new customers will easily erase a small drop in new sales.  

While this isn’t entirely “buy the rumor and sell the news” earnings action on the stock price, its real close.

The stock dropped to $16.89 before rebounding slightly at around $17.30. This may take a couple of days to shake out, but PetMeds should start moving positively before too long.

Full Disclosure: No positions in any security mentioned above.