Stephen Rosenman's  Instablog

   What's gone up the most over the last 3 months?  Gold? Copper? The Baltic Dry Index? Wheat? Corn? Oil? Oil Tanker Charter Rates?
   Answer: Oil Tanker Charter Rates.  
   Oil tanker rates as measured by the DBTI (Dirty Baltic Tanker Index) are up 38% over the last 3 months.  Wasn't the oil tanker business supposed to be dead with all the new ships.  The DBTI kills the performance of everything else listed above.   Corn futures gained 32%.  Wheat rose 10%, oil by 18%, gold up 15%, copper climbed 21%.  The Baltic Dry Index collapsed 25%.
    You wouldn't know oil tanker rates are up big by looking at the companies.   NAT is off 6%.  FRO is down 9%.  Traders haven't been looking at the recent boom in   rates.  Those rising charter rates will translate into higher earnings down the road. Investors need to look again at these companies.

 

Disclosure: I am Long NAT.

    Apple has grown its revenue and operating income by 238% and 636% respectively since FY 2006.  That achievement is due to selling more "devices" at increasingly higher prices and margins as well as obtaining "added value" from software, apps, and music.  Thus, the straightforward equations:
        
                Devices Sold times Revenue/Device equals Revenue.
                Devices Sold times Operating Income/Device equals Operating Income.
     
     We'll look at devices sold and operating income/device, a metric no one follows.
     1. Devices Sold
        Apple has been on a tear selling its devices: iPods, iPhones, computers, and iPads.  FY 2006, Apple sold 45 million devices.  This year, the number climbed to 112 million.  The company has been bringing on whole new categories, the iPad and iPhone, moving beyond its traditional computer and iPod business.

 
            (Number of Devices in K units:  for example, 60,000 = 60 million)

     2. Operating income Per Device Sold

      Equally impressive are Apple's climbing operating income per device and net income per device.    Operating income per device rose from $56 in 2006 to $164 in 2010. A large share of the increase has to do with the mix of products sold: an iPhones brings in a lot more cash than one shuffle.  Increasingly, some of this is coming from "added value" sales. For instance, Apple's sale of an iPad doesn't end there; the iPad goes on to generate ads, downloaded books, apps, and music.  Thus, every device creates an earnings stream.  Currently, this production is small but growing.  
        During Apple's most recent quarter, operating income/device blasted to $174.  Here we see the impressive drive:

                    (Blue line represents Operating Income Per Device,
                     Red line represents Net Income Per Device)


      In contrast, despite selling a ton of phones, RIMM lost ground with its operating income/device ratio.  Its number came in at $125 in FY 2007 and dropped to $86 and $94 in FY 2010 and FY 2011 respectively.
 
    
                        (Number of Phones in Millions)



 <a:>               (Blue Line Represents Operating Income Per Device,
                        Red Line Represents Net Income Per Device)


                             (FY 2011 YTD: 23 million phones with OID $94)
    
      RIMM has struggled in its OPD and NPD.  It doesn't have Apple's ability of keep average selling prices high.  It doesn't have the cross-selling abilities of Apple.  It doesn't have the Apple ecosystem.          

     Apple will be able to produce more income out of every device it sells. Currently, most of the increasing OPD and NPD has to do with selling higher ASP and margin products.  In the future, these number will accelerate because of  the "added value" of ads, Ebooks, music, or apps that is occurring.  My prediction:  Apple makes $190 and $150 with its OPD and NPD respectively in FY 2011.



Disclosure: Long AAPL No position RIMM

Disclosure: Long AAPL

  In July, pundits heralded the collapse of the market due to the dreaded "death cross", a pattern in which the 50 day crosses below the 200 day moving average. Since then, the S&P and NASDAQ are up 4%.  Today, the QQQQ 50 dma crossed back over the 200 dma in a "golden cross" formation, a bullish predictor of brighter days ahead. I'm going to call this new pattern, the "double cross", as I am sure the bears are feeling as they retreat back into their caves.

Disclosure: none needed