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How College Student Sentiment Can Predict Equity Performance (Part 3)

Jan. 04, 2011 11:27 PM ETQCOM, NOK, ATVI, AAPL, BB, GOOG3 Comments
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Tracking the Popular/Unpopular Products for Young Consumers        
Sometimes you don’t even need the older masses to catch on for a stock to post solid gains. Let’s take a something that nearly ALL males ages 18-24 have heard of/purchased and that is the Call of Duty video game series. Published by Activision Blizzard, Inc (ATVI), this game absolutely took off in 2007/2008 reaching a high of $17 a share and although it has come down some since then, it has posted a very strong 2010 up more than 10% and I feel it still has a lot of room to grow. It doesn’t take a rocket scientist to figure out that a popular online video game not only has a highly addictive mentality to it, but it also possesses a strong social aspect to it that encourages others to purchase it so friends can play online together. Now this military first-person shooter game has absolutely no mainstream appeal, but you can walk down any college hallway at any time of the day/night and you will most likely hear gunshots and explosions coming from behind a door or two.  With their latest release “Call of Duty Black Ops” netting over a billion in sales alone in less than two months, the momentum for this series continues to grow. According to Gamasutra, an online gaming magazine, more then 20 million Black Ops players have already logged more than 600 million hours online and that number is sure to increase, as it will be almost a year before a new series is released. Those are the type of dedicated consumers that many companies strive to accumulate, and Activision has a strong base to build on moving into 2011. A stock unknown to many, ATVI is up more than 600% since the Call of Duty series was released in 2003. I would say it’s sake to assume that ATVI will post another solid 2011, and perhaps catch up for the some what uneventful 2010 it had. Some might say it’s ready to explode. (Badoom shhh)
       It’s just as important to follow what young people are NOT doing as much as what they are doing. Had you asked any college/high school aged student in 2008 or 2009 what kind of cell phone they want/own/desire and I can bet you that nine times of out ten the word “Nokia” was not going to be heard. Now this can be written off as a foul and completely hypothetical example, one that absolutely no research was done for, but Nokia is only good at one thing and that is selling cheap cell phones. The problem is, young people in America don’t want cheap cell phones and that will continue to cut into their dominant market share. They have pretty much given up on America as far as I’m concerned. It’s easy to kick this dog while it is down, so I will make it brief. Nokia’s top three regions by unit sales are Western Europe, Middle East, and Asia Developing (includes China, India, Indonesia). Notice that America is nowhere to be seen on the list, and if unit sales were the entire story, then Nokia’s stock would be a monster. Unfortunately, it’s all about the profit derived from each sale and that’s where Nokia is severely slacking.  The nice thing about selling expensive smartphones to Americans is that with the average price of a smartphone being $322, there is a LOT of room for profits. Unfortunately for Nokia it seems like they are figuring out the hard way that selling a lot phones at an extremely low price isn’t nearly as profitable as selling less phones at a more expensive price. January 2008 was the start of a long and ugly slide for them going from nearly $40 a share down to $10 a share to start 2011. Those that tried their luck buying on a dip in 2009 have been taken on an ugly ride in 2010, starting the year off with a nice 15% boost followed by losses of more than 50% before ending the year only down 20%. I can only expect that with increasing competition from Apple, RIM, Android (goo), and now Samsung’s Bada, their global share will slowly but surely follow the same trends that they are experiencing domestically unless Nokia makes some drastic changes to their game plan. I’m not sure how much lower it can go, so things just may turn up for NOK in 2011 especially with a new CEO and an enticing dividend of nearly 5%, but I think the domestic consumer’s, especially the young ones, have made up their mind as far as what is the cell phone they don’t want. As long as stocks are based on earnings and not on market share, I’ll continue to stay away from Nokia moving into the New Year.

A Macro Recommendation
Next up is a tech recommendation for 2011 that may be a company only a handful of kids my age know about, but who’s products and services are used by the majority of them on an almost daily basis and that is Qualcomm. This is a company that I absolutely love, and I really like their prospects moving into this year. The demand for faster mobile connectivity and innovation is only going to be growing in the next coming years and Qualcomm has positioned themselves as a dominant force moving into the mobile internet era. They have a pretty impressive balance sheet, and when you net out the 6 dollars in cash they have per share you are looking at a current p/e of only around 22. Not a bad play on mobile and wireless innovation and growth, and the number of people accessing the internet from their mobile phones and tablet are only going to increase in the next couple of years. QCOM has stayed under Wall Street's radar for the majority of 2010, but it's providing a lot of the hardware that the big names like "Apple" and "Android" are currently running on. At a forward p/e of a tad over 16 it still seems like it still has an awful lot of room to grow. I wouldn’t be surprised one bit if QCOM broke 65 in 2011, representing almost a 30% increase over today’s closing price.

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

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