Diamond Insights Among The Coal Piles

by: Paulo Santos

One of the hardest things to do is to sift through the enormous pile of content the web produces on a daily basis, to find those simple insights which might make you money. To make things easier for those who follow me, I will thus periodically produce a summary of valuable insights I found elsewhere (in other people's articles).

I doubt this can be done on a daily basis, not only is there an enormous quantity of content, but the truly valuable insights are a rare breed. Still, I do hope that I'll find gems consistently, backed by my long market experience as well as my academic background. My basic criteria for choosing these insights will be market impact and the likelihood that they can drive profitable trades/investments. Not all of the insight will be short term, their nature will vary widely.

The insights will fit into many different categories, such as:

  • Providing a significant surprise not yet expected by the market;
  • Having mechanical consequences which will be hard for the market to ignore;
  • Leading to significant valuation attractiveness/ugliness;
  • Being part of an identifiable mispricing/arbitrage.

Here are three I found recently, classified by stock:

Mellanox Technologies (NASDAQ:MLNX)

This is a bit old and untimely, since MLNX has already taken a significant beating. The beating took place after the article I'm going to highlight, but I have a reason for doing so. Akram's Razor from Seeking Alpha, wrote in his article "Mellanox On The Road To Technological Obsolescence" that Mellanox has a difficult future ahead. The reason is simple, Intel (NASDAQ:INTC) has plans to integrate the fabric controller into the CPU, which will instantly obsolete Mellanox's present business in high-performance fabric controllers.

Although MLNX has already taken a beating due to earnings, this threat is a long term one, so I felt the article continues to be relevant. This threat should materialize within the next 2 years, since Intel should manage to incorporate the fabric controller into its CPUs within that timeframe.


Adam Gefvert from Seeking Alpha writes in his article "Amazon Has Discontinued Using Neonode's Technology, Will Others Follow?" a very simple insight. Amazon.com (NASDAQ:AMZN) ending the commercialization of the Kindle Touch has significant implications for Neonode . The Kindle Touch used Neonode's infrared-enabled touchscreen technology, the Kindle Paperwhite doesn't (it used a capacitive touchscreen). Amazon.com was Neonode's largest customer recently accounting for more than 50% of its revenues so revenue and earnings impact is sure to be gigantic and hit on the short term. This impact is not yet on the company's guidance (though in the last earnings report the company didn't re-iterate the guidance) and obviously other customers such as Barnes & Noble (NYSE:BKS) might follow might follow Amazon.com's lead and use capacitive touchscreens as well.

Either way, the loss of a customer accounting for more than 50% of revenues is hugely relevant and looking at NEON's market price when the event took place, one can't say the event has been discounted yet.


Evan Niu from Motley Fool, writes in his article "Apple Just Dropped a Major Earnings Clue -- Is an iPad Miss in Store?" that Apple might have exposed an iPad miss in its latest presentation where it unveiled the 4th Generation iPad and the iPad mini. Basically Tim Cook said that Apple had sold 100 million iPads as of 2 weeks ago. Evan Niu summed up all the iPads sold since inception until Q3 and he came up with 84.1 million iPads. This would put the iPads sold on Q4 at around 15 million and below the Street's 18 million expectation for the quarter.

IAC/InterActiveCorp (IACI)

Bret Jensen from Seeking Alpha writes in his article "Pick Up This Fast Growing Internet Content Provider On The Cheap After Reporting Glitch" that IAC/InterActiveCorp was penalized yesterday due to a reporting glitch which happened into an already nervous and pessimistic market. Given IACI's valuation and trend, taking advantage of this glitch to establish a long investment position at a discount seems like a winning preposition.


I feel that I can add value not only in writing about my own insights, but also conveying others I find in the tons of content I sift through. This series will be about those "third party" insights I find most useful. I hope those following me like this idea.

Disclosure: I am short AMZN. 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.

Additional disclosure: I might also short NEON in the next 72 hours, and MLNX eventually. I am also long IACI.