Monday, January 28, 2013
The following are the notes I submitted for today's now canceled CNBC appearance. They usually ask for a writeup of some sort and since I am on their D-list, or lower I try to be thorough.
The equity market has obviously had an outstanding January so far. In thinking about the next couple of months, there is clearly momentum to the upside, the first quarter had been a good time to own stocks for the last few years and this year is starting out the same way, the Fed still has the pedal to the floor, interest rates are still very low and other than Apple the earnings season has not been a catastrophe. This sets the stage for the momentum to continue for a little while longer like the rest of the quarter. I would feel better about the momentum lasting that long if we had one bad week to work off some very short term overbought conditions. Also contributing to confidence for the next couple of months is that the S&P 500 is only 7% above its 200 day moving average which is not that much.
The rest of the year may not be as good.
There has obviously been a meaningful rotation out of Apple (AAPL) and this could be very good for the rest of the tech sector. To the extent that portfolio managers are or were long AAPL, are selling that stock and will want to keep those proceeds in the tech sector then other large cap tech stocks could see serious buying. YTD AAPL is down 17% while the First Trust Equal Weight NASDAQ 100 ETF (QQEW) which is very underweight AAPL is up 7% which supports the idea that other tech stocks will benefit from the rotation out of AAPL.
Our History with AAPL
We had a 4% position in AAPL by virtue of our position in IYW. In late August we sold half of IYW for the express purpose of reducing our AAPL position, the stock was at $675 and on the way up when we did this. We then bought the stock directly in early November at $573 on the way down thinking the selling was overdone. From that point the story and the chart began to deteriorate at an accelerating rate and so we sold at $505 a week and half before the recent earnings report after it was reported that iPhone component ordering had been cut in half.
After years of poor execution and CEO musical chairs the market thinks that Marissa Mayer will be the person to make the company the powerhouse it once was. The stock is up 28% since she was hired in July versus a gain of 8.5% for the Nasdaq. YHOO has made great strides in content, especially Yahoo Finance. It seems like they have permanently ceded search to Google. Yahoo Mail seems to have fallen very far behind gmail which I think is can be a huge opportunity because many people have Yahoo Mail accounts but don’t necessarily use them like they once did. It also seems obvious that they will want to create some sort of presence in Social Media which could be another huge opportunity. All of this will be difficult to pull off but again the market seems to think Mayer can do it.
Names we like
From the top down, tech has become a great source for yield as many companies have matured into cash flow machines. One name we like is semiconductor equipment manufacturer KLA Tencor (KLAC) which we own in RRGR and for separate accounts that we manage. It is just about every segment where there are chips but not overly dependent on any single type of product. It has no net debt, it yields more than 3% and analysts have high growth expectations.
Posted by Roger Nusbaum at 6:34 AM