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Promod Radhakrishnan
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Promod Radhakrishnan has been associated with the financial services industry for over 12 years, with a background in wholesale banking, capital markets & risk management. He is also passionate about technology solutions and process optimization for the industry. Being an active investor for... More
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Market Passion - Macros. Fundamentals
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  • A Relatively Easy Call - Time To Accumulate Apple

    If you haven't picked it already, AAPL is a good bet if you have a horizon at least as long as Q1 2013.

    From a record high of $705.07 a share in September 2012, Apple has lost close to a quarter of its value. From a technical indicators angle, the stock is trading well below 200-day moving average of $610 and it's 50-day moving average of $607. Though it is tempting to reach a judgment that Apple's heady growth days are over and hence the stock needs to be priced sub-500, even a quick glance at numbers reveal otherwise.

    As of close of market on Nov 16 2012, Apple's stock price of $527.68 implies a P/E of 11.95 on an EPS of $44.15 for the 12-month period ended September 2012. That's not a bad deal for a company which produced an EPS growth of over 59% even in the past full y-o-y period. And, considering year ending Sep 20-13 consensus forecast of ~$50, the current price implies a P/E of just a little over 10 and a pretty impressive PEG even if EPS growth slows down compared to the past over the next 1-2 years.

    From a business fundamentals perspective, Apple still retains a healthy share of the smart phone and hence mobile operating system wallet share, despite the rapid rise of Android-based systems, led by Samsung. Though Android OS market share increased from 57.5% in Q3 2011 to 75% in Q3 2012, Apple in fact increased iOS market share from 13.8% to 14.9% in the same period - most of Android's gains has been at the expense of Blackberry and Symbian OS, which fell from a combined 24.1% to 6.6%! More importantly, if we included non-phone devices like tablets, iOS in fact still leads with a 30% market share as against Android's 27%. As Tim Cook remembered to mention in the iphone5 launch event, iOS in fact increased tablet market share from 62% in Q2 2011 to 68% in Q2 2012! And it remains to be seen if late players like Microsoft can create an impact, if any. To top it all, the overall smart mobile and tablet market (especially) is still growing at a healthy clip to avoid concerns on a 'crowded' market.

    Not that there has not been chinks in Apple's armor off late - not-so-great reviews on the ipad mini followed wide-spread criticism of maps in the iphone 5. In fact, a recent management shake-up involving Scott Forstall (responsible for iOS, blamed for response to the maps problem) and John Browett (retail chief who tried stepping in to the shoes of Ron Johnson!) is pointed out as an ominous signal. But, we did hear similar rumblings after Steve Jobs passed away in Oct 2011. As long as the internal customer-focused design-heavy culture continues uninhibited and as long we don't see Tim Cook and Jonathan Ive going anywhere, there is little reason to generate any significant worry.

    So, what's actually causing the recent sell-off? As many have already pointed out, this is most likely driven by profit taking linked to concerns around a capital gains tax hike in 2013 - thanks to recent election results, combined with the need to solve the country's fiscal problem in the near-term! The timing of the sell-off and the fact that daily volumes have been significantly higher than the 50-day average of 20.6 million shares a day (Nov 16 volume was over 45 million!) support this hypothesis.

    In short, this is a good time to accumulate as long as you are not going in with a very short-term horizon. Despite the significant number of downward EPS and share price forecasts over the past 4 weeks, 12-month analyst forecasts still range from a low of $600 to a high of $1,111 with a median of $765!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 17 8:26 PM | Link | Comment!
  • Value-plays: Some interesting retail option picks for Feb & March
    Though the market's still catching up with New Year blues and the Dubai-Greece debt story, there has been little to change the belief that a fundamental improvement in business and consumer sentiment is still underway. Except for a few aberrations, statistics related to Industrial supply, inventory, home sales and retail spending has been showing clear signs of improvement. Though employment numbers are not picking up as fast as one would wish for, consumer confidence has clearly reversed the downward trend - I would hence see the recent DJIA fall to 10K levels as an opportunity to increase exposure to some retail stock plays.

    Having said that, there's little reason to hurry and increase/build exposure to high-end retail...that is, I would still not bet on Abercrombie or American Eagle or Saks at this point! In line with the notion of a new normal for the economy, i am willing to bet on a continued trend of increased spending on discount stores and value-for-money plays as against higher-end retail.
    Some interesting picks in value-for-money retail players in the current market scenario:

    Walmart @ 52.90 - 25% below 52 week high, P/E of 15.29 (PEG 5-year of 1.24) is interesting. Even after we move back to sustained positive economic growth, consumers would stick to their new found buying pattern. With quarterly results expected on Feb 18, March options at 52.5 are attractive at ~1.40. COSTCO is also attractive, but i am not as upbeat considerable its near its 52 week high and trades at a PE of 24 (PEG of over 1.5).

    JCP @ 24.89 - 48% below 52 week high, P/E of 21.54 (High PEG though of 2.5+) might be worth a look. In line with its recent drop from the 35-levels, Godlman moved JCP to the buy list as of early January. Though it might not be a long-term bet, recent weakness means there's enough upside potential short-to-medium term. With quarterly results expected on Feb 19, Feb. options at 25.0 are attractive at 0.5 levels and March options at 26.0 are attractive at ~0.70.

    I am even more bullish on two other niche plays - Ross Stores and Kirkland:
    ROST @ 46.43 - 19% below 52-week high, P/E of 14.75 (PEG of 0.89!) is a strong pick. Their strong value-for-money positioning has led to an increasing base of loyal clientele, and i would bet on richer valuations. With quarterly results expected on Mar 18, March 45 options at 2.2 and March 47.5 options at 1.05 are attractive.

    KIRK @ 16.67 - 16% below 52-week high, P/E of 11.89 (PEG of 1.01) is a very strong pick. With quarterly results expected on March 12,  March 15 options at 2.2 (though they have doubled in the last week) and March 17.5 options at 0.50-levels are attarctive.

    Disclosure: Long in WMT & KIRK. No positions in the rest at this point.
    Feb 15 1:35 PM | Link | 1 Comment
  • A view - The new normal & impact on Retail over the next 12 months
    As compared to earlier expectations, the main indices saw a remarkable rally over the last 2 months, fuelled by arguably good third quarter results from a majority of companies across sectors. Now that the DJIA hovers around the 10,400 mark and emerging markets have mostly recovered from the Dubai World impact, the rest of the year and early 2010 does look rosy for the optimists. Especially given the reasonably welcoming statistics on unemployment released last Friday, which saw unemployment dropping to 10% (the first ever drop in the last several quarters i guess) and employers cutting fewer jobs than in prior months.

    I do personally believe and agree to the fact that a recovery is very well underway - but still stick to the view point that we are going to continue to see a new normal with lower consumer spending, greater savings & investments and a more tempered retail and construction growth. WIth unemployment still set to stay above 9% at least for the next 12 months & the impact that the down turn has had on consumer psyche, i will bet on a few trends continuing to hold momentum [as compared to averages over the 5 years pre-recession]. Just to highlight a few which outline the line o:
    • A higher proportion will continue to shop for perishables and consumer durables from lower-prices department chains (read Walmart, Costco, BJ, Aldi etc). But niche health-oriented stores like Whole Foods should continue to draw new customers though.
    • Given the significant price differentials, online retailers like Amazon and to a lower extent ebay will continue to build their consumer base across segments - but, especially on consumer electronics and even some high-value retail items like perfumes!
    • In the broadline retail segment, low-price should still continue to draw customers - JC Penney should hold ground against a Macys for example
    • Though the teen segment still has some strength in higher-priced apparel, i still would bet on an Aeropostale (P/E of below-10!) as against Abercrombie & Fitch or American Eagle for example
    • On the Food sector, food-at-home players like General Mills, Campbell should see increased growth (globally in this case) as compared to restaurant chains.

    Having said that, there still is enough steam in the very high end to perk up valuations further - Tiffany's, Saks for example. It's the higher-priced mass-market retailers that should underperform if a new normal is indeed the reality. With the same view, housing prices in the low-to-mid and extremely high end should see a higher uptick over the next year as against the upper middle segment - the incentive expiring by April 2010 will create a big 'non-seasonal' fluctuation in buying staistics though.

    On a more-macro angle, discretion is probably the better option. Like Dubai World was an eye opener to bulls in the high-yield/high-risk bond market, there are probably several skeletons to come out in many sectors, especially commercial real estate for example. To sum up, it's still better to bet on price-value plays and fundamentals as against exuberant growth in higher-end sectors which rely on a rapid uptick in consumer spending.


    Disclosure: Long ARO, will be long WMT!
    Dec 06 11:46 AM | Link | Comment!
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