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How College Student Sentiment Can Predict Equity Performance (Part 2)

|Includes: Apple Inc. (AAPL), AMZN, BB, CSCO, DECK
What Do I Mean By "Tech Trenches"?

I am currently enrolled at the University of Connecticut as a Finance Major. With over twenty thousand undergraduates enrolled, there seems to be a fairly large sample size when it comes to observing the relationship between youth and technology. One can quickly identify many current and emerging trends simply by walking around with an observant eye. An example of this would be the new sensation of tablets and e-readers. Let me be the first to say that the footprint of this new trend has yet to be felt by the college community. Out of my five classes, each containing roughly 20-30 students, there is currently one student who owns a tablet and uses it in class. Now this is an extremely small sample size, but I am willing to bet that you that number will jump to 10-20 students by next year alone. I for one have already purchased an Ipad that I will use on a daily basis next semester. A study done in July by Britain’s The Independent, stated that 50% of college students plan on owning an E-reader by next year (2011). The same study determined that number is currently 2%, which falls in line pretty close to my in-class observation of roughly 1%.  Many of the reader’s out there have long been removed from college, but let me inform you that the average book price is currently around $100 per book, with student-spending on books totaling an average of $900-$1000 per year. With e-textbooks priced at 60% of what hard copies cost, students will easily be able to justify the need for a tablet to their parents (the real consumers in this equation). It is for this reason that I truly believe that out of the three estimates for 2011 global wide tablets sold, my gut is telling my DigiTimes estimate of 100 million will be the closest. The other two estimates made by Citigroup and FBR Capital fall at 35 and 70 million, respectively. For many people, looking at these estimates there is no tangible way to gauge how obtainable/unobtainable those numbers are. But when you are in a young, tech-savvy environment that is known as “college” and you still see no footprint of a juggernaut trend that tablets seem to be, an investor like myself is able to truly see the unrecognized potential. Amazon has found success in their Kindle, Samsung has been decent with their Galaxy pad, and a slew of others including RIMM, Microsoft, Cisco plan on rolling out versions in 2011.  It seems like AAPL is by far the "best-in-class" in this category, and many analysts agree with me with most having unite lofty expectations for this tech giant to post solid 2011 EPS growth. It's hard to blame them, with many attributing a large percentage of EPS growth to the iPad.

This goes beyond technology, but covers consumer and retail brands as well.  It doesn’t take a genius to recognize that if 6 out of every 10 girls walking around campus are wearing UGG Boots (by Decker’s Outdoor), that not only is it a strong trend, but that is more than likely putting pressure on the minority 40% to cave in and buy a pair for themselves. DECK is currently up 155% in 2010, as these $150-$200 boots continue to rack up huge profits for the company. I won't go into too much detail on UGG Boots, and I haven't done that much research on the company or their financials, but I know that young people have been frantic over them for quite a few years now, and it seems like Wall St has only caught on to this fact within the last year. Not sure how saturated the market has become, but they definitely deserve a mention on a topic such as this.

How and When Does a “ Youthful” Trend Correlate With a Move in Stock

Hindsight is 20/20. It is easy for me to sit here and name off a dozen stocks that absolutely exploded this year and say that young people were the icebreakers on transferring their respective product’s success to the mainstream, thus causing a huge increase in prices. It’s also easy to group many of these stocks into the larger market and attribute their success to the general uptrend we are experiencing in the back half of 2010.  This may be true in many cases, but the true studs have stuck out amongst the rest of the pack, and many of these stocks have pulled far away from the S&P’s mere 11% yearly gain. Now when I mention the word “trend”, I am not talking about the global masses, nor am I even talking about the domestic population. This article is all about using the young people around me to identify changes in stock prices, both positive and negative. Contrary to what many believe, not only are college students a driving factor in many retail and tech trends, but they possess an extremely powerful consumer buying power. They are well educated, in-the-know consumers, with many having access and influence on what their parent’s buy for not only their kids but themselves as well. This connection to mainstream is a huge link to the success of many products, and I assume it will only continue to grow as more and more young people are helping their “mature” counterparts use technology and discover products that were no’t available years if not months prior. Facebook is a textbook example of this, but it is one of many cases where young people are paving the way for the older generation to sweep in and both use and consume these new products and technology.

 



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.