Hedge Fund titan Jon Paulson pulled off the greatest trade of all time in 2007, raking in a cool $15 billion in his bet against subprime mortgages - according to the International Business Times who ranked the top ten greatest trades of all-time. Some were brilliant masterminds, others were just plain lucky.
The Top Ten Greatest Trades of All-Time
1. John Paulson’s bet against sub prime mortgages made him $15 billion in 2007
2. Jesse Livermore’s call on the Crash of 1929 (a legendary trader featured in the popular book, Reminiscences of a Stock Operator).
3. John Templeton’s foray into Japan in the 1960s (a true investment pioneer, Templeton foresaw the rise of Japan after World War II and profited hugely from it).
4. George Soros’ breaking of the Bank of England in 1992 (Soros made $1 billion).
5. Paul Tudor Jones’ shorting of Black Monday in October 1987 (he predicted the crash, bet a bundle & tripled his money as the market crashed 22% in one day).
6. Andrew Hall’s $100 oil prediction (with oil trading at $30 per barrel in 2003, Hall bet prices would rise to $100 in 5 years; they did and he took home a personal paycheck of $100 million in 2008).
7. David Tepper’s 2009 bet on financials (as the market hit its low in early 2009, Tepper bought financial services stocks & his fund earned $7 billion that year ($4 billion of that went to Tepper).
8. Jim Chanos’ prescient shorts (his sharp analysis led him to predict the demise of Enron, WorldCom, and other firms, and he is known as the best short-seller in the world).
9. Jim Rogers’ early call on commodities (he was bullish on commodities back in the 1990s & has been riding them to great profits ever since).
10. Louis Bacon’s geopolitical play (he correctly predicted that Saddam Hussein would invade Kuwait in 1990 & profited handsomely by going long on oil & shorting stocks, which helped his fund return 86% that year).
Most of these trades were ‘global macro’ plays where huge, concentrated bets were made by analyzing fundamental economic/business conditions. These investors excelled at turning a great observation about the world into a great investing idea. But, while these make the headlines, you never hear about the other investors who made a big call and missed, and ended up out of business.
It’s almost impossible for regular investor folks to make a ‘big score’ like these traders. Rather than trying to throw a touchdown pass on every play and make a big score like these traders, the smarter game plan is to focus on trying to get consistent first downs. Do your homework, watch market/sector developments, don’t chase stocks up or down. Do that, and the score may take care of itself.
Source: International Business Times
The senior citizens of today are slowly becoming more and more aggravated and increasingly discontented with their current life insurance plans. Part of this is because of the major changes that have taken place. In the past, people believed that life insurance was a necessity and as a result policies were accepted without argument. The reasons senior citizens are becoming more and more aggravated by the life insurance companies is due to the fact that the life insurance policies responsible for insuring individuals are not resourceful and offer little instruction to those interested in selling their policies. Furthermore, others have succumbed to simply receiving a small cash value for their policies, from the insurers themselves.
Due to all these problems, a third alternative has emerged, known as a life settlement. A life settlement is when a life insurance policy is sold to a party other than an insurance company, for more than its cash value, but less than the benefit that would be insured after death. For those who intend to liquidate their policies for financial gain, a life settlement can be an indispensable economic tool.
Currently the problem with life settlements is the fact that most of the population has no idea about what they are or how they work. As a result, many policyholders often resort to surrendering to a life insurance company just because they are not informed. Making such a move could cost you a significant amount of money, on average users can get 8 times the payout vs. surrendering to the life insurance company. That can add up to some serious money so make sure to read our full article as we are here to educate you on how the life settlement process works and how you can take action. We will also provide you with the right resources to take advantage of such an offer yourself.
What Are Life Settlements?
Life settlements function as a profitable source of security for senior citizens unable to afford their current policies. If a life insurance policy doesn’t meet the necessary requirements or if it fails to provide enough death benefits, the senior citizen is able to then sell his or her policy to a third party.
Once you have sold your life insurance policy, you are no longer required to pay for insurance premiums. Policy owners posses certain rights. Someone’s life insurances policy is basically their personal property therefore giving that owner the ability to manage or sell it if they wish. As far as sale value is concerned, there are no limitations to this process as a life insurance policy owner may sell their policy for whatever price they want. Life settlements work according to the policy owners’ rights. These liberties include changing the designation of the beneficiary, borrowing against the policy, selling the policy to another company or party, using the policy as collateral for a loan, and naming the beneficiary of the policy.
What Happens After You Sell
Once a sale is made, the seller may user the funds in any way they wish and they are not required to be above or below certain asset or income levels. During the sales process there are no upfront fees or hidden costs associated that might sneak up on a seller. After someone chooses to sell their policy, they then give all their death benefits to the new owner and in return receive a lump sum payment. The total amount of payment is based on the life expectancy of the seller.
How to Get Started
If you are now interested in taking advantage of the life settlement process or just want to learn a little more about how it works and speak to a professional broker then simply go to A Life Settlement’s website and click the ‘FREE! Get Started’ button. To be directed to the website simply click on the link below or go to http://www.alifesettlement.com/
If you haven’t booked your summer plans yet, brace yourself. There’s actually good news this year, for a change. Airfares to many popular U.S. destinations have dropped. This is according to the Wall Street Journal who earlier this week posted an insightful article detailing the best places to fly this summer. WSJ added an entertaining graphic as well which you can see below:
As for the airline industry, as many of you know Stocks on Wall Street has been very bullish the past two years. Most specifically when it comes to the five airline stocks we hold:
Allegiant Travel (NASDAQ: ALGT)
Boeing (NYSE: BA)
Delta Air Lines (NYSE: DAL)
Southwest Airlines (NYSE: LUV)
UAL Corp (NYSE: UAL)
For those of you who haven’t read any of our past articles on the airline industry, simply click on the links below:
Going forward, we think that the airline industry might have seen it’s best days. We will be going into more detail about our thoughts in our article next week so make sure to tune into SWS throughout the week to find out more!
Source: The Wall Street Journal
If you were able to flip a switch & go back a year ago today you know what you would have? A lot of big questions marks & some major unknowns about what to expect from Stocks on Wall Street most recent investment advice. On April 30th, 2012 to a lot of people’s surprise, Stocks on Wall Street published an article titled:
The title is rather self-explanatory but just to make sure it’s clear to everyone we recommended our readers to invest in three relatively unknown, highly speculative small to mid cap Chinese tech stocks.
When we originally made these picks it was an interesting time to be involved in the technology sector. Mark Zuckenburg has just taken Facebook public and thanks to the IPO heard around the world, many analysts and investors alike focused their full attention on Facebook’s IPO not recognizing that there was plenty of better investment opportunities out there, they just needed to be found. At the time, analysts were raving about America’s growing tech boom and all the different strong technology giants we had in the U.S. The thing was, many of these U.S. tech giants had done nothing to prove themselves and really it was the media blowing everything out of proportion most infamously the whole Facebook IPO and it’s 24/7 news coverage. When you looked at the facts, it was really China with the upper hand and the one in the driver seat. With a population of over 1.4 billion and a booming tech industry it was really China who had emerged as the true player in the tech world holding many of the top up and coming tech stocks. At the time our favorite Chinese tech stock was Tencent Holdings who is the equivalent of Facebook to China. All you need to do is put both Tencent Holdings (0700.HK) and Facebook’s (FB) charts next to each other to see which company was leading the way. At the time, we had already been current Tencent shareholders leading even more to our reasoning of finding a completely new investment route than we are use to.
Instead of choosing to invest in what many considered to be China’s three can’t miss, large-cap tech stocks. They are as follows, Baidu (NASDAQ: BIDU), China Mobile (NYSE: CHL), & Sina Corporation (NASDAQ: SINA). We on the other hand decided to take the road less traveled and in this case steep.
Collectively we decided we would target three small to mid-cap Chinese tech stocks. The highly speculative nature of the picks was something that intrigued us quite a bit. While these stocks were relatively unknown to the average investor they weren’t to us. Like when making all our investment decisions, we made sure we new the inside and outs of all three picks and while they had some relatively high risks to them we believe the potential gains made them worth the risk. As a result, we invested in the following three Chinese tech stocks and for those of you who have read our original article you would know that we did outline the speculative nature of these picks just so our readers new that they weren’t your typical, conservative investment opportunity. The three stocks we invested in were the following:
- RDA Microelectronics (NASDAQ: RDA)
- Spreadtrum Communications (NASDAQ: SPRD)
- Vimicro International (NASDAQ: VIMC)
Hands down we had made the right decision & no we were lucky we avoided investing in any of the Large Cap Chinese Stock Picks. Instead going the route of our three speculative Chinese tech plays ended up being the right call. You can overlook these things in every possible nature but overall our decision paid off big-time especially when you factor in how our three Large Cap counterparts performed during that same time period.
If we had gone with our large cap tech strategy we would have held positions in the following:
- Baidu (NASDAQ: BIDU)
- China Mobile (NYSE: CHL)
- Sina Corporation (NASDAQ: SINA)
Over the past year, all three stocks performed well below their expectations producing negative overall yields across the board.
- Baidu (NASDAQ: BIDU) -36%
- China Mobile (NYSE: CHL) -2%
- Sina Corporation (NASDAQ: SINA) -6%
How happy do you think our readers would have been if all we had to show them was a total net loss of -44%? Not happy one bit, we can tell you that.
Luckily, we chose the alternative route & as a result we believe our readers will be extremely pleased with our overall performance. Over the past year, all three stocks have taken virtually a different route than planned but the good part is RDA was the only pick that failed to produce any substantial gains. That’s right, RDA really struggled last year & heading into 2013 with the overall share price falling -28%. The good news is that SPRD decided to have an exceptional year grossing +57%, which will put us comfortably back in the lead. Finally, last but not least we have VIMC who performed steady & strong all year long grossing a total of +17%.
1. RDA Microelectronics (NASDAQ: RDA) -28%
2. Spreadtrum Communications (NASDAQ: SPRD) +57%
3. Vimicro International (NASDAQ: VIMC) +17%
As you can see, it was quite a different tale of the two story lines.
A large part of our success comes directly thanks to the exceptional year that SPRD had appreciating over +57%.
You can’t let VIMC’s performance & achievements go unrecognized, as +17% is still a great one-year yield.
As for RDA, there’s not much we can say other than it just wasn’t their year. If anything, they were lucky they got to team up with such a dynamic duo as RDA’s -28% would them only behind BIDU as the worst pick of the group.
Not quite done just yet, there is one last thing we’d still like to analyze. Lets see how our 12-month price targets matched up with each picks actual total net gains.
To start we have VIMC who we originally bought at $1.28 per share. While VIMC had a solid year appreciating +17%, it didn’t come close to our 12-month price target as we set the bar ridiculously high with a price of $2 per share. This would have resulted in a total yield of 56%. C’mon now they’re not SPRD lol!
As for SPRD, they were another pick where we set the bar ridiculously high. We bought our original shares at $13.80 so issuing them a 12-month price target of $21 per share is a tough feat as that’s a total yield of 52%. We sure hope you all remember just how great SPRD performed & the yield they brought in this year as even though we set the bar high, they still beat it by a cool +5%.
Last but not least we have RDA holding up the bottom at -28%. When we first invested in RDA it was trading at $12.87. Originally we had anticipated RDA would at least be trading in the positive territory throughout 2012 & 2013 so we set a modest 12-month price target of $14.50 resulting in a total yield of 12.66%. Sadly even with the modest expectations it just wasn’t RDA’s year at all, lets just hope they come back next year stronger than ever.
To some people the RDA pick will bother them as they have a tough time accepting defeat especially if that was your decision making that let to the defeat. But since all three picks were made collectively together it’s in our best interest to put RDA behind us & focus in on the all the good things that came of today. It’s all about looking at the big picture & seeing that there is nothing worth complaining about as in fact we should be quite satisfied with ourselves & equally impressed as producing a total net yield of +46% is a great achievement. It stands even more impressive when you factor in just how bad the Chinese large cap tech stocks performed. If there is one thing you can still easily see is that our economy is still struggling worldwide & that we are still a ways away from times of economic prosperity. These aren’t your fathers boom years where whatever you put your money into in the markets it just went up. You try that kind of strategy now a days & you’ll be quickly asking where’d your money go. It clearly takes a strategic investment mind & someone with in-depth knowledge about the markets & what they’re doing to produce consistent gains trade after trade.
A comparison we always like to make is to see how both the NASDAQ & Dow Jones Industrial Average have been performing during the same time period. Over the past year it was actually the NASDAQ who slightly edged out the Dow Jones appreciating +14% compared to +12.15%. That’s where I like to factor in our average yield per pick which was +15.33% & you can see that even with RDA’s struggles we were able to beat the markets & that we made the right overall decision in investing our money. Now the next question is where to next?
Everyone make sure to tune in later this week for more in-depth analysis on all three of our picks. Stocks on Wall Street will be reassessing our overall position on each of them, offering new analysis & guidance going forward, we will be again handing out our 12-month price targets along with offering our final overall decision on whether we are going to hold onto any of the three stock picks or whether we decide to take our gains & relocate somewhere else to find the next great investment opportunity.
Mark Cuban went onto CNBC to discuss the current state of the markets and Cuban responded by saying ’I rarely invest in stocks as there are no new names, new energy or new opportunities in stocks because of a lack of trust in the market.’ Does Cuban have a valid point with his call on the markets lack of new products, names, or opportunities?
Here are three of the biggest risks and threats to your financial future and your wealth today. Also read for advice on how you can exert more control over each one and enjoy more of what’s yours.
Risk #1: Currency Fluctuation. The U.S. dollar has taken a real beating this past year and is expected to stay down over the long term. Having all of your assets in U.S. dollars (or any single currency) is not sound financial planning. You don’t have a diversified portfolio if all your assets are in one currency. By going offshore and holding portions of your assets in other currencies, you are truly diversifying and protecting yourself from the ups and downs of one currency.
Investing in currencies on your own, without an ETF, can be difficult. Most retail investors are better off with currency ETFs (exchange-traded funds) which track a single foreign currency or basket of currencies by using foreign cash deposits or futures contracts. Currency ETF’s allow investors to speculate in the currency market without the risk of investing directly in currencies and without entering the forex market. Some of the most popular currency ETFs are offered by Wisdom Tree Dreyfus, Rydex, PowerShares, Market Vector and Barclays. But you need to do your homework before diving in.
Risk #2: Rising Taxes. Beginning Jan. 1, 2013, all American citizens will experience significant tax increases, many in the form of hidden taxes and fees. At the same time, U.S. citizens with foreign bank accounts may pay a withholding tax of 30% on transfers of funds to and from these accounts (a provision of the recently amended and little-known HIRE Act). So, if you run your own business, it makes great sense right now to think about moving your business to a more tax-friendly environment offshore. Or, you could stay in the U.S. and keep an account offshore where it is free of U.S. tax obligations.
The key point is that, whatever you’re going to do, you should do it as soon as possible and well in advance of 2013.
Risk #3: Litigation. The U.S. is a litigious society; a new litigation suit is filed every 17 seconds. This may or may not affect everybody. But, if you’re a doctor, for example, or someone with a high profile who’s more susceptible to being sued, then you understand the increased risk. In this case, the best solution is to protect your assets by moving them offshore. Your offshore assets will be outside the realm of U.S. judgment and, therefore, far more difficult for creditors to get at. This should not be confused with the fact that U.S. citizens and green card holders will continue to be taxed on their worldwide income, no matter where they reside or hold their assets. Income tax is unavoidable other than legitimate tax reduction strategies. However, you can minimize litigation risk to your assets by going offshore.
Back on July 2nd, Stocks on Wall Street released an article on Rex Energy (NASDAQ: REXX) recommending the stock as a ‘BUY’ and signaling to investors to purchase shares at the price of $11.62. Due to overall strong performance and increased optimism around both Rex Energy and the growing region they drill in we decided to upgrade our position and offer some new changes and updated guidance on Rex.
How Has Rex Energy Actually Performed?
Since our recommendation REXX has performed exceptionally well soaring over 39% in a 9-month period all the way to $16.11. At its peak, shares hit $17.33 a total yield of well over 50%. After further examining REXX’s financial statements we are still optimistic especially since overall numbers have improved, better positioning the company for the long-run. Below are some five reasons to continue to be bullish on Rex.
Five Reasons to Continue to Be Bullish on Rex Energy
- REXX’s PEG Ratio improved substantially rising from 0.96 back in July 2012 to currently 0.51. This is direct proof that management’s overall strategy and efficiency have been very effective positioning the company for a strong year going forward.
- The company has beat earnings estimates the last two quarters and as a result consensus earnings estimates for 2013 and 2014 have increased.
- Three initial test results from the Utica prove to be hugely successful and big wins for Rex indicating the liquid-rich area is even more prosperous than they originally projected.
- As a result of all the positive feedback, strong numbers, & overall consistent performance analysts across the board have raised their price target for REXX from $16 to well over $19 a share while continuing to maintain an ‘Outperform” rating on the stock. Overall 82% of the analysts watching the stock have issued a ‘BUY’ rating or higher.
- Like we have mentioned before REXX continues to be a logical acquisition candidate for a bigger player. Why? It’s due to the fact that REXX is a small cap company worth a little over $1B however their robust production, growth and valuable set of assets make them a very desirable company in the eyes of the big players.
What Risk Factors to Account For
REXX is not immune to everything and if there is a weakness it’s the concern in their liquidity going forward especially if gas prices were to fall much lower. Investors shouldn’t be all to concerned however as we continue to see management effectively combatting this issue and in the past they have always found ways to keep production fully up and running so we have no reason to doubt that they would stop such efficient business practices now. In addition, Rex still has various assets for sale, which have helped provide a safety net if liquidity issues were to ever arises. After examining the books, it looks like REXX is in a much better financial situation now then it was just 9-months ago which is a good indicator going forward. When we first recommend Rex, the company had about three years of liquidity before they would have had to start cutting back on their drilling program or finding other sources of cash. Today’s current rate shows Rex has well over four years worth of liquidity, an optimistic sign for investors and further proof of management’s effectiveness.
Increased Spending Followed By Increased Expectations
Going forward expect Rex to continue to perform exceptionally well as they increase the amount of capital they’re spending on production, which in return should deliver much higher revenue numbers. When talking about the successful recent tests and the future potential in the region Rex’s CEO, Tom Stabley, said, “that the company believes the past results demonstrate the huge opportunity that exists for continued superior well performance in this region going forward.” Stabley used these tests as a key reasoning behind the company’s huge capital spending program. Rex isn’t the only one increasing their spending either as both Gulfport and Magnum Hunter Resources are following suit and spending a large portion of their 2013 capital budget on the play. With such a huge increase in capital spending, expectations are very high, as hopefully the move will prove it’s worth generating significant liquids-rich growth for all three companies.
Overall Long-Term Outlook
Overall, we continue to be very Bullish about Rex Energy anticipating huge liquids growth production coming from the Utica shale. As a result we expect REXX shares to continue to outperform their peers and as a result we are raising our original 12-month price target from $18.50 to $20 per share, a total net yield of 72% on the year and an additional 32% from the current stock price.
Delaying making investments in order to launch your career can cost you dearly later on. Smaller investments made between the ages of 18-25 will yield much greater returns than larger investments made later on over a longer period from ages 26-65. Consider the classic parable taught in many basic economic courses:
Jack decided not to go to college. He got a job at 18 and invested $4,000 each year into an IRA. He stopped after eight years after investing a total of $32,000. His sister, Jill, went to medical school, started her medical practice at age 26, at which point she began contributing $4,000 to her IRA. Jill did this for 40 years from 26 to 65. She invested a total of $160,000 and put her money into the same investment as her brother. Jill started investing the same year Jack stopped, and she saved for 40 years compared to just eight years for her brother.
By age 65, whose IRA account do you thing was worth more money?
Assuming both Jack and Jill earned a 10% annual return, Jill accumulated $1,327,778. But Jack had $1,552,739 – $224,961 more than his sister!
|8 Investments ($4,000/yr) – Ages 18-25||40 Investments ($4,000/yr) – Ages 26-65|
Ultimate value at age 65:
Ultimate Value at age 65:
Jack’s account grows to a higher value because he started sooner!
Jack stopped investing at age 26 having invested only $32,000 to Jill’s $160,000. But Jack’s money earned interest for eight years longer than his sister. It wasn’t the money that made him successful – it was the time value of money. Jack didn’t put off investing when he first launched his career. By investing sooner than Jill, his account grew larger.
The moral of this story is not to forego a college education and its promise of higher earning potential. No doubt, Jill earned more disposable income during her career. But Jack’s investment head start was far superior, resulting in substantially greater savings.
Without question, procrastination is the most common cause of financial failure.
Hope everyone had a solid work week & are ready to enjoy a great weekend! For those of you who love to read we have a great list of articles for you. So sit back, relax, and enjoy the articles below. Like always, if you have any investment questions or need advice on a specific stock, Stocks on Wall Street is always here for you so feel free to Contact Us at anytime. We always love to hear from our readers so please shoot us an email. Also let us know what you think about the articles below and your thoughts on the market’s current climate by either commenting below, posting on our Facebook Fan Page or by sending either Stocks on Wall Street or our Founder a Tweet.
Apple’s Next Big Thing (Slate)
Why Does Apple Care About Its Share Price? (Businessweek)
Apple to Tap a Hungry Debt Market (WSJ)
The second coming of Facebook (CNNMoney)
Facebook Leans In (Vanity Fair)
What If We Never Run Out of Oil? (Atlantic)
Everything Is Rigged: The Biggest Price-Fixing Scandal Ever (Rolling Stone)
Talkin’ ’bout a revolution: Why Occupy Wall Street Failed (FT.com)
This Bud’s for You! Legal Pot in the U.S. (GQ.com)
Everything you ‘know’ about the Fed is wrong (Minyanville)
Consumers Are Just Fine, Thank You. (WSJ)
Dixon’s Take: Traders Beware, ‘News’ Ain’t What It Used to Be (Minyanville)
What’s everyone think about the new $100 bill that will be coming out this year?
Source: New Money
Apple’s stock has taken a beating since reaching all-time highs over $700. Apple may be down but it’s by no means out. I believe the stock will finish 2013 with a strong rally somewhere above the $500 mark. The best Apple present this Christmas may not be an iPad Mini but rather Apple stock.
Analysts are mixed on Apple (AAPL). Schwab’s Equity Rating is D, Underperform. Ned Davis is Neutral. Credit Suisses rates Apple an Outperform. And the Reuters average rating is Outperform. So, let’s examine the pro and cons of owning Apple stock.
Concerns center around pace of innovation, supply problems and structural issues around gross margins. And, of course, there’s the never-ending grumbling about capital allocation of its $140 billion hoard of cash and whether Apple should issue a dividend. Many analysts worry Apple cannot sustain its gross margins, which has historically been well above industry competitors.
Other concerns hover around the increased competitive scenario and the fact that Apple no longer enjoys a monopoly. People are excited about new products from Samsung (SSNLF.PK) which seems determined to continue its onslaught in spite of lawsuit setbacks against Apple. And let’s not forget new forays into hardware offerings from Google and Facebook. Apple is very dependent on iPhone for sales — about 70% comes from iPhone. Plus, Apple has no recurring revenue stream other than iTunes and their revenues are based on what they sell. We saw this in the 1980s with Sony when Sony was conquering the world of technology innovation. The world loves Apple. But people are waiting for a dramatic new product from Apple. The world owns it. But haven’t we seen this before with IBM or Cisco?
Apple’s lucrative margins are under attack, forcing it to protect its profits by pressuring its suppliers. It’s not that Apple is doomed though. It’s only likely to become less profitable.
Apple is going through a transition from a hyper-growth story to a more traditional, high quality branded company. It grew earnings at +45%+ per year for ten consecutive quarters. Recently, it has grown earnings a little above 20%. Apple will have over $200 billion in annual revenue this year. It’s impossible to keep growing at that rate. So, it will be a more traditional growth company with a great consumer brand and with great products.
Most of Apple’s cash is offshore – a constraint to returning cash to shareholders in the form of dividends. Coke trades at a higher multiple than Apple. People have expectations of growth from Apple that they can’t live up to.
Are Apple’s days of growth over? Is Apple the new Coke? Are its days of hyperbolic growth over? Is Apple now the great new value play? Or, is it a value trap?
Apple may well continue a bumpy ride in the near term. However, Apple’s fundamentals are still fantastic going forward if you take an outlook of more than a quarter or two. Apple’s second quarter 2013 results are expected to beat expectations. Credit Suise’s Kulbinder Garcha put an Outperform rating and a price target of $600 on Apple.
New iPhone demand will be strong
While 2013 may not have enough new products from Apple to satisfy everyone, the next iPhone will begin production this quarter according to a recent Wall Street Journal report. Apple is reportedly working on a less expensive version with a plastic case that could be on the market before Christmas. Regardless of which features are included, the new iPhone will be better than the last one. The iPhone 5 has sold more than the 4S and Apple sold a record 47.8 million iPhones in the first fiscal quarter of 2013 – up 29% from a year ago. The first iPhone 4S customers who bought in October, 2011 will be primed for a new phone now that their 2-year contact is about to end. So, according to Morningstar analyst Brian Collello, the upgrade cycle will likely keep demand strong. He maintains that the smartphone market is still in the “early-to-middle innings.”
Apple continues to lead in tablets
Apple remains the undisputed leader in the tablet market. With more iPad and iPad mini models to come, expect tablets to bring in more app revenue for Apple than from smartphones. iPads are also predicted to show strong sales for the second quarter – an increase of 61% year over year to 19 million units. iPad minis will account for more than half of that.
Apple Apps remains the heavyweight
iPads are pulling in more revenue from each app than the iPhone, most likely due to higher-priced apps or apps that get more in-app purchases. It’s also possible that games are playing into this because the iPad’s bigger screen lends itself to more complex games. According to research by App Annie, app store downloads from iPad users doubled from 100 million in January 2012 to 200 million in January 2013. More surprising was the amount of revenue the iPads generated from app downloads. In January 2012, iPad has less than 20% the app downloads of the iPhone, but had nearly 50% the app store revenue. In January 2013, the gap narrowed with the iPad accounting for 30% less app store revenue than the iPhone.
Canalys issued a report on app downloads at the four major mobile stores: Apple, Google (GOOG), Microsoft (MSFT) Windows Phone Store and Research in Motion’s (BBRY) BlackBerry World. Apple’s App Store accounted for the largest share of revenue among the four stores, around 74%. Google saw the greatest number of downloads (about 51%) with Apple close behind.
Apple trades below intrinsic value
Apple has an attractive valuation and is currently trading well below intrinsic value. Apple’s revenue growth should continue to be robust in the 20% range and is trading at PE ratio estimated at 9.6 and just 8.38 times next year’s earnings. Compare that to the S&P 500 PE ratios which Robert Shiller estimates is currently trading at 18.17.
With the shares hovering around $425, there seems to be little downside, especially when you take into account about $100 in net cash per share if Apple were to bring all the overseas cash back and pay U.S. taxes on it. Apple’s capital allocation is a continuing source of speculation. With an estimated $140 billion in cash hoard – 75% of which is trapped overseas – a buy back would be viewed very positively.
Other pros for Apple include a potential China upside that has not yet played out, strong cash flow and the “leveragability” of iTunes.
If you missed the opportunity to buy Apple before, take a hard look now. There is little downside at $425. Even if there is no big new product announcement, iPhones and iPads continue to sell well. Apple is a well-managed, cash-rich company that’s proven it can juggle the profit margin pressures inherent with the transition to new, lower-priced product innovations. While Apple may not climb back to it’s record-high levels, I expect it to hit somewhere north of the $500 mark by Christmas.
Smart investors will continue to profit from Apple and might be wise to consider putting Apple stock in their Christmas stockings rather than just another iPhone or iPad upgrade. Awesome Stock. Awesome Products. Awesome Potential.