We got the rally we were waiting for today...
The S&P 500 is up 20 points (1.5%) to just over 1,380.
Last week, S&A Short Report editor Jeff Clark told readers via his subscribers-only live update service, the Direct Line, that the benchmark S&P 500 stock index had support at 1,346... On Friday, the S&P 500 hit a low of 1,343. It bounced back to end the day just below 1,360.
Where do we stand after today's rally? Jeff sees the market working higher through the end of the year… encountering pullbacks along the way.
Today, one of our favorite, beaten-down tech stocks may have reached its "puke point" – when the last holdout shareholders finally sell and the stock has nowhere to go but up…
We wrote about semiconductor giant Intel last Thursday. The stock has been crushed this year. And we argued it was oversold. Here's what we wrote…
|
Intel is trading about 30% below its 52-week high. The stock yields 4.4%, making it the highest-yielding stock in the Dow Jones Industrial Average. It's got $14.4 billion in cash and just $7 billion in debt. It's got an 80% share of the global microprocessor market. It generated $8.1 billion in free cash flow the last four quarters. Its largest competitor, AMD, has been absolutely crushed... Its stock is down 77% since March. |
|
With a fortress balance sheet, a dominant market share, sickly competition (at best), and gushing free cash flows... Is Intel's business really worth 30% less than it was in May? I seriously doubt it. |
Today, Intel CEO Paul Otellini unexpectedly said he would step down in May. Markets rarely cheer an executive resignation... And this case was no different. Intel dropped nearly 3% at market open to less than $20 a share – a 52-week low.
But Intel rebounded to $20.40 a share by 11 a.m. That action, rallying off lows in the face of bad news, means Intel could be carving out a bottom.
I asked Jeff for his thoughts on Intel at today's prices... He says the stock is cheap, but he's not biting yet...
|
Intel's dirt-cheap fundamentally. And I think it's an excellent longer-term "buy" right here. It may need to take one more trip down below $20 per share in the short term before setting up a longer-term bullish move. |
Another cheap, blue-chip tech stock – Apple – rallied today... Apple sold off 25% from its September highs of $700 a share. It was the most-loved stock in the world a couple months ago. Talk of Apple reaching a $1 trillion market cap abounded.
Then, every financial talking head and news source started trashing the stock... Many feared the company couldn't continue to "wow" the market with new products without the late CEO Steve Jobs. Others said the company was losing market share to competitors like Samsung, and it was unlikely to ever gain that back.
The whipsaw in sentiment was overblown.
At its low last week of around $520 per share, Apple was trading at 7.5 times 2013 earnings, minus the company's $30 billion in cash. That's compared to the S&P 500 trading at 12.5 times 2013 earnings.
Apple's risk/reward profile at $520 per share was enough for some big investors to start buying. For example, hedge-fund manager Doug Kass of Seabreeze Capital believed the big Apple selloff was due to hedge funds unloading shares, which previously made up a huge percentage of their assets...
"There's chatter that several hedge funds were over their skis in Apple," Kass told financial cable network CNBC. "I know a number of hedge funds that have in excess of a 15% weighting."
As Apple tanked, these funds dumped stock. "It's been acting as an ATM for hedge funds – a good way to raise cash," Kass added.
Another fund manager, Brian White of Topeka Capital Market, said Apple's low valuation was "insanely insane," considering the company's growth rates. He wrote in a note to clients…
|
Apple's discount to the S&P 500 becomes even more of a "head scratcher" when you compare growth rates. For example, between CY03 through CY11, Apple has grown [earnings per share (EPS)] by 92% per year versus just 7% growth for the S&P 500 Index. Essentially, Apple has delivered annual growth that is 13-fold the S&P 500 over the past eight years but trades at a 20% P/E discount (or 40% discount ex-cash). |
|
While we don't expect Apple to grow EPS by 92% per annum over the next five years, we believe 20-30% growth is reasonable based on the company's low market share in mobile phones and PCs, combined with growth opportunities in tablets and new potential areas such as Apple TV. |
I asked one of our contacts, an executive in the tech industry, what he thought of Apple at current prices. He agreed the stock was oversold...
He said the market was scared of management turnover. (The company recently lost a senior software executive and its new head of retail.) But the key hardware and software designers are still intact.
He also said much of Apple's future growth will come from its services – like Passbook (a digital wallet application) and iTunes.
And the company will still dominate the high-end market segment for smartphones and tablets, which is growing every year.
"There is a lot of life left in Apple," he concluded.
Apple is up nearly 6% to $558 as I write.
In late October, when Apple was trading in the $590s, Dan Ferris said he wouldn't recommend the stock. He acknowledged how cheap it was, but said it could go the way of Dell (the former PC darling)...
|
Apple's business trades at less than 10 times earnings, once you factor out its excess cash holdings. That seems pretty cheap for such an iconic business... but I doubt I'll ever recommend the stock. I have this nagging fear it will end up like Dell. The computer-maker was the darling of the 1990s. I even heard one analyst say Dell was the best-performing stock of the 1990s. |
|
But today, Dell is struggling. It turned out, PCs and laptops were more like commodity products than branded consumer products. Apple has more than 60% of the tablet market today. How long will that last? Definitely not forever... and maybe not much longer. |
Apple shares remain cheap and – prior to today's rally – severely oversold. Still, we're not recommending Apple here. We think you can find better buys in the market today, like Steve Sjuggerud's latest True Wealth recommendation…
Steve Sjuggerud has been bullish on housing all year. He thinks buying single-family homes is the best investment you can make today. Prices are below replacement cost, mortgage rates are at all-time lows, and prices are improving.
But we know most folks can't just buy a house... It requires a lot of capital. So in his latest True Wealth issue, Steve showed readers how to invest in a huge portfolio of residential real estate controlled by one of the best investors in the world.
In the company's 27-year history, it has generated 28% net annualized returns on realized investments in its global real-estate business. And it sold $60 billion of real-estate assets in 2005-2007.
But since 2009, the company has invested $17.6 billion in real estate. And just this year, it has spent more than $1 billion buying houses. The company is using a "buy it, fix it, sell it" strategy with the homes it's purchasing.
Steve thinks his readers could make hundreds of percent buying this stock today... It's super-cheap, trading at less than five times forward earnings. And it's one of the best real-estate investors in the world. (Steve is confident in the company's ability to make a fortune on its housing assets.) If you're looking for a way to gain exposure to the U.S. real estate market, you should read Steve's latest True Wealth. If you're not a subscriber, you can learn more about Steve's newsletter – and how to access his latest issue – here...
New 52-week highs (as of 11/16/12): None.
It was a quiet weekend in the mailbag... Perhaps Porter's Friday Digest wasn't controversial enough. If you missed it, check it out here... And send your notes to feedback@stansberryresearch.com.
"I thought your Digest on Friday, Nov. 16 was spot on. In my 72 years on this Earth, I cannot believe how stupid people can be on so many common sense issues." – Paid-up subscriber Tom
Regards,
Sean Goldsmith
New York, New York
November 19, 2012
Here's our rally... Did Intel bottom today?... Big move in Apple... Steve's latest on housing...