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Dialectical Materialist

Dialectical Materialist
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  • Amazon May Justify Its Market Premium With Future Profits [View article]
    Your shares may do just fine. Amazon is certainly positioning itself to be the dominant retailer for some time to come.

    My problem is not that they will disappear, but rather that margins are so tight for retailers. At the 3% margin of a Walmart or Target, Amazon would need more than double their current revenue to produce the $7b I was talking about. That's an oversimplification, because Amazon has more than just retail going for it, but their retail margins are never likely to be huge. Bezos has said "your margin is my opportunity," so the reverse surely applies. If Amazon's margins get too rich, competitors will come in and undercut them. So I have a hard time seeing the level of growth they would need to really turn on the profit afterburners. You can project numbers into the future that work. It's just a matter of whether those numbers can be achieved.

    And even UPS is not safe from the long arm of Amazon. The drones are coming for them!
    May 7, 2015. 02:36 PM | Likes Like |Link to Comment
  • Amazon May Justify Its Market Premium With Future Profits [View article]

    Your short of AOL did not work out, but your analysis was sound. And if you had shared that analysis in a forum like this, there would have been a chorus of people who would have told you that you didn't know what you were talking about, that Steve Case was the next Bill Gates, and that AOL was going up, up, up. If you had tried to talk earnings, these folks would not have wanted to hear it. It was all about growth. It was all about the future. The internet had changed everything.

    I'm sorry for your sake that you got too far behind on your position to hang on. But being able to sleep is important!

    Amazon would need to make $6.9B in net income to achieve an EPS of 15 and get their PE down around 30. A PE around 30 is high, but if a mature company is growing at a good clip, and has a lot of opportunity ahead of it, it is not terribly unreasonable. GOOG's PE is 25.

    How long will investors wait to see that $7b fall to the bottom line? My guess is it's all about interest rates. When interest rates finally start to rise and this unprecedented period of free money expires, earnings will come into focus. This may take some time, but it is inevitable that any company is one day valued in relation to its earnings. Will Amazon be able to turn on the spigot?
    May 7, 2015. 10:32 AM | 4 Likes Like |Link to Comment
  • Amazon May Justify Its Market Premium With Future Profits [View article]
    That's right Gary, mu comment was not profound. But that hardly addresses any of my points, which I made with complete sincerity.
    May 6, 2015. 12:02 PM | Likes Like |Link to Comment
  • Amazon May Justify Its Market Premium With Future Profits [View article]

    I don't think everyone will lose everything. Smart investors have taken profits on the way up and some may take plenty of profits at the top. History tells us though, that many retail investors will not jump ship until it is too late.

    The reason I think AMZN is destined for a fall has nothing to do with my having missed the boat. There are lots of boats I have missed. It has everything to do with my belief that their valuation is not sustainable. I readily accept that I could be wrong. I read lots of Apple bears while being an AAPL long, so I try not to repeat their tone or futile bitterness.

    I have repeatedly congratulated anyone who has made a killing on AMZN. Way to go. And if you've taken profits on the way up, your winnings are locked in. I sincerely have no problem with others making money. I wish I had done so too, no doubt about that.

    I am simply trying to discuss what I think are some of the risks to this story and this stock.
    May 6, 2015. 12:01 PM | 3 Likes Like |Link to Comment
  • Amazon May Justify Its Market Premium With Future Profits [View article]
    "Betting against Amazon has never worked."

    So far. But we all know that no stock goes up forever.

    "If institutional guys buy the story [...] then that's the way it is."

    But when institutional guys drop this story, they won't care. They will take profits and move on. But will the retail investor be disciplined and nimble enough to do the same? Look at AAPL's decline in 2012. Experienced traders made money on the way up, the way down, and the way up again. Retail investors who had become too aggressive with options of margins lost all of their profits and then some. When AMZN starts to decline, will the retail investor know enough to get off the train? I'm thinking no.

    "Bezos isn't dumb enough to operationally ruin this business."

    Plenty of smart CEO's have made mistakes due to poor judgment, overconfidence, or just not understanding changes in the competitive landscape. But in Bezos's case, I'm not sure if any of that matters. He is very rich and will remain very rich even if he has to roll up Amazon and walk away at some point.

    Bezos is not running this company in a way that makes me think he cares at all about its future. He understands how to sell the story, and if he's right and they can grow fast enough, everyone wins. If he's wrong, and the whole thing crashes and burns, he still wins. There are plenty of examples of companies run aggressively by wealthy risk taking CEO's. Sometimes common investors are left holding the bag trying to figure out what went wrong. Do you trust Bezos to care for your investment? Or is at just as likely that he won't give a hoot as long as he gets his.

    That to me is the biggest concern about a stock that is held aloft by very smart Wall Street money that is buying the story. The big boys know how this story ends. They know when to exit. Retail investors who believe in Amazon because "it has always been a winner" and "Bezos will not allow this to fail" sound like people who are going to lose a great deal of money.

    I was one of those retail investors who thought I would be smart enough not to ride AAPL all the way down, btw. But I was simply not experienced enough to see what was happening. The numbers still looked good to me. But when the narrative is driving a stock, fundamentals don't matter. In Amazon's case, this has been great so far. When the story changes, will long time retail winners understand? Time will tell.
    May 6, 2015. 10:52 AM | 1 Like Like |Link to Comment
  • Apple: We May See 3 New iPhones In September [View article] could growing sales in the App Store as more Chinese users come on line, China Mobile's ongoing buildout of 4g, Apple TV, and Beats music streaming service. The record quarter in the history of capitalism will be a tough compare, but there are many factors which could allow Apple to beat it.

    But they don't have to guide higher than q1-2015 results, they only need to guide higher than q1-2015 guidance.
    May 5, 2015. 03:45 PM | 1 Like Like |Link to Comment
  • Here's Why Apple's Huge Cash Pile Is Now One Of Its Biggest Problems [View article]
    I found the source of my vague memories that resulted in my comment. If I had remembered these details, my comment would have been more specific and helpful. But as you can see, what I was describing is pretty accurate.

    From NY Times in 2013:

    "Apple’s $102 billion in offshore profits is actually managed by one of its wholly owned subsidiaries in Reno, Nev., according to the Senate report on the company’s tax avoidance. The money is tracked by Apple company bookkeepers in Austin, Tex. What’s more, the funds are held in bank accounts in New York."
    May 5, 2015. 12:40 AM | Likes Like |Link to Comment
  • Here's Why Apple's Huge Cash Pile Is Now One Of Its Biggest Problems [View article]
    DarkHorses, much of "offshore" money is not actually located overseas. In this digital age money often has no location at all. It would be fair to say that a huge amount of money that Apple and other corporations designate as foreign earnings is actually in accounts of banks that are based in New York.

    Repatriation happens when Apple moves the money to a different pocket. Repatriated cash is available for dividends, for example. So Apple could pay dividends from any account they pleased. But as soon as they did, it would be effectively repatriating that money and they would owe taxes.

    Offshore money is an abstract concept, like maybe how you would view your "vacation fund". It doesn't need to be physically separate, just has to be kept separate on a ledger.
    May 4, 2015. 08:37 PM | Likes Like |Link to Comment
  • Apple: We May See 3 New iPhones In September [View article]
    As to the notion that Apple needs a new naming convention because consumers will not want to talk about the iPhone 12 in a few years...

    If they stick with the "s" cycle on their upgrade (meaning what is coming this year is not the 7 but the 6s. 6s+, and possibly 6c), then they are 8 years away from the iPhone 10. I do think the naming convention will change eventually, but they have many years to address this. What will the iPhone market even look like in 8 years? I am sure no one knows.
    May 4, 2015. 10:51 AM | 2 Likes Like |Link to Comment
  • Apple: Here's Why The Stock Will Take Out $140 Before The End Of May [View article]
    How far are you expecting it to decline, wolfe911? I'd like to see how much enthusiasm you have for your short position. A drop to 120 is a tradable decline but hardly something to write home about. Are we talking 100? 90? 80?

    I'd not want to be short when I know Apple itself is poised to unleash billions on any real pullback. Seems like picking up nickels in front of a steam roller to me.
    May 4, 2015. 01:51 AM | 6 Likes Like |Link to Comment
  • Netflix Priced Above Perfection [View article]
    scott, I think a huge catastrophe would be bad for the markets, but that degree of catastrophe would fell most stocks more or less evenly. I was thinking more about the kind of market resistance we might see as part of the business cycle. Right now everyone (or most everyone) seems content to invest in companies that are leveraged to the hilt and making little or no money. The reason this is supposedly okay is "growth".

    But when we the economic cycle ebbs, and growth is viewed more suspiciously, these stocks will get slammed especially hard.

    I agree it does seem like we are just emerging from a big macro event. The Great Recession and the credit crunch that preceded it left a divot in the labor market we are only now crawling out of. Still, we will eventually see another dip in our economy as part of the normal business cycle. A recession is inevitable. It may not be in 2015 or even 2016, but it will come and when it does if these growth stocks haven't caught up to their valuations with some meaningful profits, the wrecking ball will take them much lower.

    On my own watch list of recession vulnerable stocks are CRM, AMZN, and NFLX. I now there are others as well. Social media stocks probably all belong on the list as well.
    May 4, 2015. 01:43 AM | 1 Like Like |Link to Comment
  • Netflix Priced Above Perfection [View article]
    "Eventually the weighing machine kicks in- question is when?"

    When there is a macro-economic shift. If the market starts to shutter, people will run for the exits. But how likely is this? I can't say when it will happen, but I wouldn't want to take the bet that it will never happen.

    Stocks held aloft by long term bets on growth and deferred profitability will get slammed if we enter a recession. There are some who believe that the junk bond market will collapse if interest rates are increased any time soon.

    So maybe interests rates won't rise. Maybe companies that have been leveraged to the hilt in a zero interest rate environment have nothing to fear. Maybe a macro-market event is many years off...
    May 3, 2015. 09:22 PM | Likes Like |Link to Comment
  • Apple Earnings Call: Under The Radar Gems [View article]

    I'm not sure if I understand the question well enough to answer. Your question may be clear, but not to someone with my limited financial education.

    However, I think the difference may lie in earnings per diluted share. Buybacks that retire shares drive up earnings per share.

    Fully diluted shares = "The total number of shares that would be outstanding if all possible sources of conversion, such as convertible bonds and stock options, were exercised." (from investopedia)

    Is treasury stock convertible? Can the company sell it to raise money? If so, it would be included in the diluted share count, so buying stock in this way would not drive up EPS.

    But I'd love to read from someone (yourself included) who may know more about this.
    May 3, 2015. 06:46 PM | 1 Like Like |Link to Comment
  • Apple: Here's Why The Stock Will Take Out $140 Before The End Of May [View article]
    Richard, I liked the article and here is why:

    No one comes to Seeking Alpha looking for one article that contains a complete analysis of everything about a company. And certainly anyone who is well read about Apple would have a hard time discovering anything shocking in any nuts and bolts piece anyway.

    I read SA to get a range of opinions and perspectives. Your article about Friday's pop is like color commentary. It gives a little extra flavor to the story.

    Stocks are like sports. Everyone has their favorites, everyone claims to know what will happen, and everyone can explain in detail why everything happened the way it did. Except in reality we can't. No one knows what will happen and no one can really why AAPL moved the way it did last week.

    If the worst thing that can be said about your article is that it is a cheerleading piece and you have not provided 100% proof for why AAPL will break $140 before the end of the month, I'm okay with that.

    I read a lot of articles on SA and I'm certain if AAPL had dropped 3% on Friday there would be a parade of writers ready to sing funeral dirges and bury the stock. So I have no problem with a little cheerleading piece now and then.
    May 3, 2015. 12:15 PM | 14 Likes Like |Link to Comment
  • Apple Earnings Call: Under The Radar Gems [View article]
    They could, with a foreign subsidiary. But they could not retire the shares they purchase.
    May 2, 2015. 06:42 PM | 1 Like Like |Link to Comment