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Robert McDonald

 
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  • Why Are People Selling Apple? Just Look at the Chart [View article]
    Amen!
    Apr 7, 2011. 02:44 PM | 1 Like Like |Link to Comment
  • 2 Trades: One Bouncing Off a Bottom, Another With Great Momentum [View article]
    Thanks for your post. Seeing the formation of what looks like statistical prediction of a bottom in the recent selloff is useful. There are times when technical analysis provides a good model and gives a reasonable prediction of herd behavior that impacts stock valuations in an irrational manner.

    The only uncertainty about Apples trajectory at this point in time is it's dependence on certain key items in its Japan supply chain. My money is betting that apples leverage over it's suppliers vs it's competition and the versatility of the Japanese in providing solutions to any problems will lead to resolution of any problems in time frame that has minimal impact.
    Apr 4, 2011. 11:33 PM | 1 Like Like |Link to Comment
  • Why I'm Selling Apple [View article]
    I would also add that inappropriate sell offs in stocks present a great opportunity to buy LEAPs at an even greater discount than the underlying stock.
    Apr 4, 2011. 01:26 PM | Likes Like |Link to Comment
  • Waiting to Buy an iPad? Buy Apple Stock Instead [View article]
    Apple is down temporarily because of world events and at this moment, due to folks selling to pay their taxes on the huge capital gains they have made. Buy now while the stock is on sale and you will be smiling in the not too distant future. Inappropriate sell offs in stocks present a great opportunity to buy LEAPs at an even greater discount than the underlying stock.
    Apr 4, 2011. 01:24 PM | 2 Likes Like |Link to Comment
  • Why I'm Selling Apple [View article]
    Apple is down temporarily because of world events and at this moment, due to folks selling to pay their taxes on the huge capital gains they have made. Buy now while the stock is on sale and you will be smiling in the not too distant future.
    Apr 4, 2011. 01:22 PM | Likes Like |Link to Comment
  • Why I'm Selling Apple [View article]
    I need to add that LEAPs split exactly like the underlying stock just like all options. I would not expect a dividend from Apple anytime soon as they have too many other better ways to spend their capital. Those ways potentially grow the stock valuation more than any dividend could. Dividends are for when the growth opportunity diminishes. This is the alternative way of providing returns to investors when that happens.
    Apr 4, 2011. 01:08 PM | Likes Like |Link to Comment
  • Why I'm Selling Apple [View article]
    I see no evidence and do not believe that the American government is influencing stock valuations of any individual company with the possible exceptions of its direct purchases of commodity and services ala the Defense Department. The one exception might be the effect of the Fed's QE2 program in adding liquidity which contributes to overall commodity and stock valuations around the world and even more significantly in the US stock and commodity markets.
    Apr 4, 2011. 12:39 PM | Likes Like |Link to Comment
  • Why I'm Selling Apple [View article]
    As to options strategy, various mixtures of short term call and put strategies have high overhead and limit potential returns. They are also very complicated in every way including the original decision making process and performance tracking. In Apple's case I would recommend the purchase of at the money long term call options called LEAPS as a much better and much less complicated strategy. Simpler is usually better and that applies in this case as well.

    Currently offered LEAP's have expirations out in Jan 2012 and Jan 2013. At the money means the strike price of the LEAP (exercise price) is within a few dollars of the current market price. The advantages are as follows:

    1. You can buy and hold Apple stock at a significant discount to current market value, approximately 20% of the purchase price for the stock.
    2. If the underlying stock goes up in value, your LEAPs will go up about 50% of the increased value of the stock in absolute dollars in the short term. As the strike price goes deeper into the money, at least for a case like Apple, your LEAP valuation increase as a percentage of the underlying stock growth will increase. I refer you to the option price tables on sites like Marketwatch to see the increase in valuation of the deeper in the money options. When the strike price goes deep into the money, say a strike price of 50% of the stock valuation, the LEAP valuation increase in actual dollars approaches that of the underlying stock. Looking at this from the perspective of the percentage growth in the dollars invested, the return will be something like 200-300% that of holding the stock directly as the stock appreciates above the strike price. This return on investment can increase up to 500% as the strike price goes deep into the money. (This of course assumes that the stock is continuing to go up within the active LEAP period. This has been the case for Apple for the last 5 years, at least in the longer term. I broke even on one LEAP during the financial meltdown and lost money on the others as there was not adequate recovery time. However the meltdown was the extreme and represents a fraction of the time I have been investing in Apple. All of the other Apple LEAP's I have been holding over the last 5 years have performed nicely.)
    3. The longer term expiration of a LEAP investment provides the protection of being able to ride through stagnant or market crisis periods, at least in most cases. It does need to be stated that the value of the LEAP will go to zero if the stock goes down and stays down or stays even at the strike price ("at the money") by the time of expiration. I would recommend selling a LEAP early in the last year of its activity just so one does not get caught in some sort of downturn that is not recoverable by expiration.
    4. The longer term holding period allowed by the use of LEAP's allows the tax benefit of conversion into long term vs. short term gain due to the greater than one year holding period that is possible.
    5. Of dubious benefit for a stock like Apple is that the downside will be limited to around 20% of the stock valuation at the time of purchase. That is if the LEAP valuation goes to zero.

    I do need to also make the point that few stocks have the long term performance record and future performance opportunity that Apple offers. It also has a low P/E and PEG ratio which limits downside excursion. In other words Apple is an ideal opportunity to make significant leveraged returns on an option vehicle like LEAPs. I have had a number of LEAP's that returned over 200% over a one to two year holding period in Apple's case. A LEAP strategy on stocks with poorer performance prospects could be a lot riskier.

    Due disclosure: Long on Apple stock and very long on Apple 2012 and 2013 LEAP's.
    Apr 4, 2011. 12:34 PM | 1 Like Like |Link to Comment
  • Waiting to Buy an iPad? Buy Apple Stock Instead [View article]
    I agree that Apple is a screaming buy at these levels and with the other comments by PedroG.

    As to options strategy, various mixtures of short term call and put strategies have high overhead and limit potential returns. They are also very complicated in every way including the original decision making process and performance tracking. In Apple's case I would recommend the purchase of at the money long term call options called LEAPS as a much better and much less complicated strategy. Simpler is usually better and that applies in this case as well.

    Currently offered LEAP's have expirations out in Jan 2012 and Jan 2013. At the money means the strike price of the LEAP (exercise price) is within a few dollars of the current market price. The advantages are as follows:

    1. You can buy and hold Apple stock at a significant discount to current market value, approximately 20% of the purchase price for the stock.
    2. If the underlying stock goes up in value, your LEAPs will go up about 50% of the increased value of the stock in absolute dollars in the short term. As the strike price goes deeper into the money, at least for a case like Apple, your LEAP valuation increase as a percentage of the underlying stock growth will increase. I refer you to the option price tables on sites like Marketwatch to see the increase in valuation of the deeper in the money options. When the strike price goes deep into the money, say a strike price of 50% of the stock valuation, the LEAP valuation increase in actual dollars approaches that of the underlying stock. Looking at this from the perspective of the percentage growth in the dollars invested, the return will be something like 200-300% that of holding the stock directly as the stock appreciates above the strike price. This return on investment can increase up to 500% as the strike price goes deep into the money. (This of course assumes that the stock is continuing to go up within the active LEAP period. This has been the case for Apple for the last 5 years, at least in the longer term. I broke even on one LEAP during the financial meltdown and lost money on the others as there was not adequate recovery time. However the meltdown was the extreme and represents a fraction of the time I have been investing in Apple. All of the other Apple LEAP's I have been holding over the last 5 years have performed nicely.)
    3. The longer term expiration of a LEAP investment provides the protection of being able to ride through stagnant or market crisis periods, at least in most cases. It does need to be stated that the value of the LEAP will go to zero if the stock goes down and stays down or stays even at the strike price ("at the money") by the time of expiration. I would recommend selling a LEAP early in the last year of its activity just so one does not get caught in some sort of downturn that is not recoverable by expiration.
    4. The longer term holding period allowed by the use of LEAP's allows the tax benefit of conversion into long term vs. short term gain due to the greater than one year holding period that is possible.
    5. Of dubious benefit for a stock like Apple is that the downside will be limited to around 20% of the stock valuation at the time of purchase. That is if the LEAP valuation goes to zero.

    I do need to also make the point that few stocks have the long term performance record and future performance opportunity that Apple offers. It also has a low P/E and PEG ratio which limits downside excursion. In other words Apple is an ideal opportunity to make significant leveraged returns on an option vehicle like LEAPs. I have had a number of LEAP's that returned over 200% over a one to two year holding period in Apple's case. A LEAP strategy on stocks with poorer performance prospects could be a lot riskier.

    Due disclosure: Long on Apple stock and very long on Apple 2012 and 2013 LEAP's.
    Apr 4, 2011. 11:59 AM | 3 Likes Like |Link to Comment
  • Why I'm Selling Apple [View article]
    I bought some short term call options during the Friday sell off. At first it looked like a flash crash and why not take advantage. Now I see it may have been an April fool crash -- same difference. I would expect to make some money on this purchase and dump it in the not too distant future. I regard short term option activity as too risky or if covered, putting too much upside limit and too much overhead on potential gains.
    Apr 3, 2011. 06:34 PM | 2 Likes Like |Link to Comment
  • Why I'm Selling Apple [View article]
    I have been investing in tech stocks since 1984. Yes there are no sure things and regular due diligence is required if one is to get good returns and avoid having their shirt handed to them.

    However, given that, Apple has been and remains the best relatively conservative high growth investment opportunity of my investing career. I would submit that getting out of the stock at these valuations (P/E = 18, PEG at <0.5) is an emotional decision vs. a decision made on business and market fundamentals. It is also one of the best long term option plays (LEAPs) for the same reasons.
    Apr 3, 2011. 02:14 PM | 11 Likes Like |Link to Comment
  • Why I'm Selling Apple [View article]
    Just look at Apple's chart for the last 3 years. Apple has had multiple flat spots in its long term growth curve where the valuation has been flat or even a little down:

    o During the '08/'09 meltdown where it hung out between $90 and $100/share for about 6 months
    o During the first quarter of 2010 where it hung out at about $200/share for about 3 months
    o During the May - Sept period of 2010 period (for about 4 months!) where it hung out between $250 - $260 share

    The current flat spot has existed for about 6 short weeks when we have had at least 3 major issues negatively affecting worldwide stock valuations : middle east instability;the Japan earthquake, tsunami and nuclear reactor disaster; and more Eurozone financial problems.

    In all previous cases back to at least 2005, Apple's so far unstoppable business growth eventually overrules other market anxieties and investor negativity and the stock resumes its growth.

    So I would ask this article's author what is different about this period that would result in a permanent break in Apple's stock growth trajectory? Or was it just time to pipe off on Seeking Alpha? Apple business fundamentals are running on all cylinders with all growth areas having plenty of new area as well as existing market share to grab.

    I would submit that the glass ceiling that might exist with the assumption of the largest market valuation of any publically traded company in the world will turn out to be a red herring.

    I would agree that Apple may never be valued at would be normal P/E and PEG valuations. I believe that this is because the rate of growth of such a large company is historically unprecedented and the usual rules do not apply. Plus there is also the problem with $350/share plus sticker shock which could be addressed by a stock split of on the order of 5:1. I would also add that investor confidence in tech stocks is still below where it should be due to the overhang from the year 2000 dot.com bust.

    I would also submit that the potential gain one would make by buying and holding long term 2013 Apple call options (LEAPS) will overwhelm any returns you might make on your heavy overhead short term call and put trading strategies.

    Due disclosure: Very long on APPL LEAPS
    Apr 3, 2011. 01:14 PM | 21 Likes Like |Link to Comment
  • Why I'm Selling Apple [View article]
    Oh -- let's forget everything we ever knew about investing fundamentals and shuck Apple. How does anyone ever get editorial approval to post emotional wailing (garbage) like this on Seeking Alpha -- or is a way of getting reader attention like many talking heads do? If you use the name Apple right now it is a sure way to increase your readership.
    Apr 3, 2011. 12:18 PM | 15 Likes Like |Link to Comment
  • What's Ahead for Apple: More Noise or a Return to Reality? [View article]
    It is not likely that the SEC is going to deal with the talking head problem. These folks have been an ingrained part of the financial industry for many decades. They make their money by getting attention and/or manipulating stock valuations so that they, their firms, their clients and/or others can make some extra money. Every investor should be aware of the talking head problem and make their investment decisions based on multiple sources of information. In particular they should always be up to speed on the companies that they are investing in and related business fundamentals. If you want to get attention right now, the Apple name rings more bells than most any other company so it comes with the territory.
    Mar 21, 2011. 07:54 PM | Likes Like |Link to Comment
  • These Early Players Stand to Gain From NFC Mobile Payments [View article]
    I agree that NXPI and Broadcom (BRCM) are the only pure plays on what can be expected to be the widespread adoption of mobile phone payment and customer card relationship systems. And of course there will also be many other uses for NFC capability; e.g., paperless event tickets, special discounts for certain customers such as contractors, etc.

    Broadcom is on sale right now at $40 down from its Jan 2011 high of $47 along with a lot of other tech stocks. You can buy 2013 strike price 40 call options (called "LEAPS") for $7.90/share. If BRCM goes back to its January high you will come close to a >50% return. Sounds like a no brainer investment to me.

    Unfortunately you cannot buy LEAPs on NXPI but normal short term call options are available.

    Due disclosure: Long on NXPI call options and BRCM LEAPs as well as the underlying stock.
    Mar 20, 2011. 03:53 PM | 1 Like Like |Link to Comment
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