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  • Getting A Healthy Bite Out Of Markets Best Plays During Bull Corrections 0 comments
    Apr 18, 2013 7:39 AM | about stocks: AAPL, ACG, F, GDX, GLD, IAU, AMZN, CRUS

    Getting proper vibes of the markets are critical. The best vibes comes from a few sources. One source happens to be within Seeking Alpha. The other source comes with Todd Harrison of the Minyanville.com. Harrison has been critical on the markets moving forward. We are approaching the "Go away in May Mantra" per Harrison. He sees the storms moving in the markets much sooner then later.

    What do the Point & Figure (P&F) charting systems produced by Dorsey Wright and Associates say to market internals? Are they supporting or causing opposing opinion to Harrison and others thinking full retreat is on the table?

    We see the P&F signals opposing Harrison and others thinking its full retreat time. We are seeing levels of large dip buying programs being run by the professional institutional investors. Most seasoned pros know the best money is made on market corrections. The choice of which stocks and funds should be on your shopping list are our mission to uncover for you in this article.

    By using the P&F charts we have provided below. You should look for true conviction of large institutional supply side (shorting the market or position) or programs buying on demand (long the market or positions).

    (click to enlarge)

    Currently, our P&F World BP (BPWORLD) shows investors retreating.

    The P&F World PT (PTWORLD) and DJ Corp Bond Index give a shift or move towards safety of investors buying on dips within emerging growth / value plays.

    (click to enlarge)

    The Point & Figure charts of the Dow Jones Bond Index Fund give reason to defend safe money moving to corporate bonds.

    Remember, P&F charting uses signals of either Defense or Os are the team coming onto the field ie, supply. The Supply issue is supporting Harrison's current view. But the problem still remains why are the Os coming into Barclay Bond Fund (NYSE:ACG) and the Money Market Index Fund?

    Our real signals for the daily and short term P&F using the Barclay Bond Fund and Money Market Index DWA (MNYMKT) are saying the Offense is on the field with Os seen with Double Bottoms established within both charts giving the caution but buy on dip signal.

    The consistent move lower for these index's are quite spot on in calling equities over cash or vise versa. And right now they are saying buying equities over cash.

    What do our broader world averages tell us from the P&F charting systems? You can find the bullish or bearish price targets and how to position yourself in the prospective country's from what is green (Lower Risk) to red (Higher risk)as shown in the graph above.

    You want to be able to reveal where there is heavy demand, as seen with Xs, or heavy supply, with Os.

    This was stated in one of my prior published articles for your review "Watching For A Pullback, Finding Signs Of Hope".

    Taking a Long Bite of The Apple Getting Hit With Negative News

    (click to enlarge)

    The recent news of (NASDAQ:CRUS) missing estimates has caused Apple to retreat on Wednesday, as low as $398.11 around 12:56 PM US Eastern time zone.

    The problem for all who want to jump off the Apple train is somewhat premature in our view. Buying on the dips is our suggestion. Best profits are bought on down markets and not up markets. We see Apple jumping back up above the $545.00 levels on the principal of many investors are waiting for the after earnings announcement to Buy Apple. If the news and future dividend announcements along with probable share repurchase programs will be the catalyst along with the fact that if they miss on estimates, it doesn't matter, because it has already been priced in. And don't forget Netflix purchase offer by Apple to shore up their lead on Amazon (NASDAQ:AMZN) and others in that space for replacing the old fashioned cable operators.

    Apples (NASDAQ:AAPL) last Reports Reflected Solid Top and Bottom Growth with total revenue of $164.35 billion in the 12 months ended last quarter, an outstanding increase of 291.64% from the same period ended three years earlier, in which it recorded $41.96 billion in total sales. Remember, Apple is reporting in just a few weeks that even if they miss estimates, their value of assets to book holds at $648.00 a share price point. Look at the Point & Figure chart above for true sense of buying on the dips call of why we are making it today.

    During more recent quarters the company has continued to grow its revenue at a similar rate, which suggests it might be taking market share from rivals. It booked total sales of $54.52 billion last quarter, 18.15% more than what it sold in the same quarter a year ago. It will important to monitor the company's next few quarterly results closely for signs of any slowdown in such remarkable top line growth and to determine if this sales momentum being carried through to the company's bottom line.

    The company's positive earnings surprise on January 24, 2013, 2.52% above the consensus view, failed to excite investors as the stock fell 14.42% following the announcement, suggesting the report offered poor guidance for future quarters. Despite investors' adverse reaction to this report, it continued a trend of beating earnings estimates, with an average 8.14% positive surprise over the last six quarters, which puts the stock's decline following this latest announcement in perspective given such strong record.

    The Stock's Valuation is Attractive Based on the Company's Overall Financial Strength Trading currently at 9.75 times trailing 12-month earnings per share, Apple's stock is priced inexpensively relative to its EPS growth rate in the last two years. Our indicator looks at the 12-month period ended in each quarter within the last two years and calculates the company's annualized growth rate, which is then used to compute the stock's "optimum" P/E. Based on this analysis, Apple's earnings per share have grown strongly at an annualized rate of 56.92%. which translates into an optimum P/E ratio of 49.96, 80.82% higher than where the stock trades now.

    This growth has resulted in strong financial performance, evidenced by the company's Profitability grade. For this to continue, it must reverse its recent margin slide soon. The stock also trades at 8.42 times forward earnings estimates for the next four quarters, lower than its trailing P/E and the S&P 500 index's forward P/E of 15.20. By placing a lower multiple on the company's future earnings than it does on the market as a whole, investors may see the company as financially strong but with relatively poor growth prospects. This may offer a valuable opportunity for patient investors willing to wait for future earnings reports.

    Apple's current market value is 3.27 times its tangible book value, which excludes intangible assets such as goodwill; this valuation seems attractive, especially considering that only 4.59% of the company's total stockholders' equity is based on intangible assets. When the value of those assets is added back into total book value, the price to book ratio is an even lower 3.12. Based on the $59.89 in cash flow per share generated by the company in the last twelve months, at the current price of $419.85 the stock trades at 7.01 times cash flow, an attractive valuation considering the strength of its overall fundamentals. Its shares also trade at 2.40 times its trailing 12-month sales, a small 26.90% discount to the Computer Processing Hardware industry average price to sales ratio of 1.89. Our final value indicator looks at the relationship between the company's current market capitalization and its operating profits after deducting taxes. Based on this measure Apple's $407.86 billion market cap is an acceptable valuation, representing a modest multiple of 27.81 times its latest quarterly net income plus depreciation.

    The company has no debt, which gives it plenty of room to find capital if necessary in light of the recent downturn in its numbers. However, it is still very profitable and nothing currently indicates it would need to take such a step. Apple's $60.07 billion in twelve month trailing core earnings, or EBITDA, shows a remarkable increase of 30.14% from the twelve months ended a year earlier, in which its core operations generated $46.16 billion. EBITDA is used to measure the company's true earnings power by including interest costs, income taxes, depreciation and amortization, all non-operating charges, which are nevertheless accounted for in several EPS and net income measures of our fundamental analysis.

    Apple, reported a 33.45% growth in cash flow during the latest quarter to $23.43 billion, an impressive increase from the $17.55 billion in the same period last year. This represents a faster growth pace than when measured on a trailing twelve month basis considering cash flow rose 25.20% over this period compared to the twelve months ended a year earlier. This continued improvement should benefit the company's margins and provide a boost to the bottom line. The company clearly has very strong liquidity having no debt to finance, $39.82 billion in cash on hand as of last quarter and a business that generated $30.60 billion in earnings before interest, taxes, depreciation and amortization in the same period. This affords it significant flexibility to take on debt if it wanted to pursue new growth opportunities such as an acquisition. The company had $39.82 billion in cash on hand last quarter compared to $30.60 billion a year earlier, a 30.13% increase. It continues to have no debt.

    Where do the charts put Apple in target price from actual fair value, even if they miss on this upcoming earnings report. We have value near $648.00 with giving a huge undervalued play. Morningstar has a narrow moat established, but they give a fair value estimate at $600.00 with consider selling at price target of $930.00 over the next 12 or more months.

    Why Then Gold Makes Sense for Hedging Moving Forward

    (click to enlarge)

    Forget about Larry Kudlow out of CNBC statements of Gold is out. Economic stability of the G-20, and the investors reaction to why commodities want to move lower, is best looked at from two points.

    If you are forced to sell your reserves, or to fend off debt collapse, then Cyprus is our example; as you have the extra supply hitting the open markets. Supply of Os as seen in the (NYSEARCA:GLD). The other side of the gold coin comes with the need to buy up and bolster gold reserves for a world about ready to experience "Global Meltdown" in 2014 - 2020. A meltdown through systematic debt collapses on the radar of other nations. Why is there possibility of a meltdown on the horizon moving into 2014 to 2020?

    First reason is with G-20s debt-cutting pact struck in Toronto in 2010. But this pact will expire this year. Wow, if leaders fail to agree to extend it at a G20 summit in St Petersburg, September of 2013 then all bets are off and Gold will go through the roof.

    Brushing up on recent G-20 notes brings European Economic and Monetary Affairs Commissioner Olli Rehn said "he expected concrete debt targets to be agreed at the September meeting".

    The United States says it is on track to meet its Toronto pledge, but argues that the pace of future fiscal restraints by "consolidation must not snuff out demand". Germany and others are pressing for another round of binding debt-cutting goals as seen in the EU constraints over the past several months of dealing within their debtor EU partners.

    Backing all of these activities come with unprecedented QE printing of dollars and other central banks following suit around the world. These central banks use of domestic monetary policy to support economic recovery in a world experiment never seen in anyone's lifetime. An extremely risky economics experiment taking place on the worlds stage. And clearly, the US Federal Reserves commitment to monetary stimulus through quantitative easing, or QE, to promote recovery and jobs sets the standard for our arguments full support.

    A quick review of QE entails large-scale bond buying -- 85 billion a month in the Fed's case -- that helps economic growth but creates money, much of which has leaked into emerging markets, threatening to destabilize them causing the Gold Hedge to come into view.

    That was offset in the communique by a commitment to minimize "negative spillovers" of the resulting financial flows that emerging markets fear may pump up asset bubbles and ruin their export competitiveness.

    "Major developed nations (should) pay attention to their monetary policy spillovers," Vice Finance Minister Zhu Guangyao was quoted by state news agency Xinhua as saying in Moscow. Major developed countries' implementation of excessively relaxed currency policy has an influence on the world economy."

    The G20 put together a huge financial backstop to halt a market meltdown in 2009, but has failed to reach those heights since. These concerns pin the precious metals to be important to hedge debt collapse of emerging growth countries and G-20 nations.

    At successive meetings, Germany has pressed the United States and others to do more to tackle their by debts. Washington in turn has urged Berlin to do more to increase demand. This is the story meeting headline after headline daily.

    On currencies, the G20 text reiterated its commitment last November, "to move more rapidly toward mores market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments". It said disorderly exchange rate movements and excess volatility in financial flows could harm economic and financial stability.

    Reviewing who makes up the G20 is a forum of 19 countries and the European Union, which was established on the wake of the 2008 global economic meltdown to work out a road map for crisis management and to establish the comprehensive mechanism for joint efforts by the Western and major Asia-Pacific powers as well as South America's and Africa rising economic giants.

    G20 members' record is impressive as it accounts for 90 percent of the global GDP, 80 percent of world trade and two-thirds of the world's population. "The G-20 is not the G-8. It possesses greater legitimacy because of its broader representation of different countries," explains Fyodor Lukyanov, the Head of Russians Council on Foreign and Defense Policy and the editor-in-chief of the journal Russia in Global Affairs.

    The basic understanding of many topical issues of global economy by Russia and her BRICS partners is quite different from the understanding, voiced at the West. There are different views on how to stimulate growth, by "reduce debt, etc, those views often clash. We have not yet agreed even on the definitions of key terms, like "investment incentives", "trust and transparency in markets", "effective regulation". This supports US Equities moving forward by seeing the bullish objective for the S&P 500.

    (click to enlarge)

    The Point & Figure reveals many nations still coming to the US S&P 500 to hedge their emerging exposure to inflation and even worse; deflation. So, it is to be seen whose ideas and vision would finally prevail and dominate during Russian's year term as G20 President. The question is up in the air. The problem is explained by Gennady Chufrin, a professor with the Institute of International Economy and International Relations (IMEMO): "At present, we see an obvious pro-Western tilt in the activities of the IMF and the World Bank. That tilt needs to be corrected in favor of the developing countries and BRICS, and Russia as president of the G20 has such a chance".

    Obviously, Russia would try to articulate her vision of the global economy with the support of BRICS partners. And this is the reason why BRICS summit in St-Petersburg is to be held on the sidelines of G20 forum. Russia needs BRICS to fully throw its weight behind her, so that her G20 presidency would be a success. On the other hand, BRICS partners would also try to capitalize on Russian's G20 chairmanship to articulate their own agendas.

    So, all in all, the main theme of the Moscow G20 chairmanship looks like expanding Russian and BRICS agenda of crisis prevention, promoting growth and the restructuring of the global economy. You can see by the Russell 2000 (RUT) P&F it has become a supply over Demand play for the next few months.

    (click to enlarge)

    A great article piece from Sean Williams was published out of the Motley Fool titled "5 Reasons Why Gold Is a screaming Buy Right Now". It gives critical arguments supporting why we suggest still keeping some of the shiny stuff as part of your diversified portfolio.

    1. Follow Warren Buffett's advice

    2. Record-low lending rates will spur gold buying

    3. World economies are still weak as gathered from G-20 and G-8 on going concerns to avoid market meltdowns.

    4. Retirement savings caps present an opportunity for upper-income earners

    5. Trends are your friend

    Williams delivers great arguments for the trend that the U.S. is going to infinitely expand the U.S. money supply. The Fed's $85 billion monthly bond purchases has done well to keep lending rates and inflation under control, but a constantly expansive money supply is going to eventually push the inflation rate higher and provide yet another reason for investors to buy into gold, the ultimate inflation hedge.

    Where to invest?

    (click to enlarge)

    Now that you understand why we are so excited about gold, let me share with you a few of the ways you can buy the yellow metal with varying levels of risk Williams conveyed.

    The first method is by purchasing an ETF that closely tracks the underlying price of gold. The iShares Gold Trust (NYSEMKT IAU ) and SPDR Gold Shares (NYSEMKT) are two easy ways of buying into an ETF that holds physical gold without having to go through a physical gold dealer and taking delivery of the product. Also, both ETFs are extremely liquid, which means that you can access your money through your favorite brokerage by buying or selling anytime you need. The downside, of course, is that physical gold offers no dividend yield, so it's all about the price appreciation potential here.

    If you're willing to take on a bit more risk in exchange for a dividend, I'd suggest a basket ETF like the Market Vectors Gold Miners ETF (NYSEMKT: GDX ) which has 31 different holdings in its portfolio and a net expense ratio of just 0.52% while yielding 1.2%. You'll get good exposure to plenty of North American gold miners as well as plenty of global gold mining leaders.

    What is are other current play?

    Other good plays for your portfolio comes with Ford Motor Company (NYSE:F). The Point & Figure charts give a great Price Target and with a lot of the good news piling in, it's a good buy on the dip candidate.

    (click to enlarge)

    Stay tuned for more of our plays during the next few weeks and months. As always, keep your trades safe as we move forward in this Bull Correction.

    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.

    Themes: long-ideas, dont-tag-as-pro Stocks: AAPL, ACG, F, GDX, GLD, IAU, AMZN, CRUS
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