Market Manipulation bites Apple Inc.

Shares of Apple (AAPL) sank almost $10 in regular market trading (down almost 7%) on news that appeared to be no news at all. An article this morning on TheStreet.com (Link) referenced a "research note" from Miller Tabak & Co.

The note referenced chatter between Goldman Sachs traders that Apple had cut production on iPhone from 9 million to 4.5 million units. There was also further speculation that Apple had cut production in their iPod line also. For a company, as hush-hush about its supply-demand dynamics, Apple really let something slip, or did they? Where did this rumor come from?
With earnings barely behind the company does this make any sense? Earnings showed over 20% iPod growth and reiterated a sales goal of 10Million iPhones in 2008, so why the apparent production cut? I think the other question that has to be asked is what is really going on here? And who is Miller Tabak and Co.

Directly from the website of Miller Tabak and Co. one reads the following excerpt.
"Miller Tabak + Co., LLC (MT) is a twenty-four year old institutional trading firm specializing in the discrete handling of stock purchases and sales, portfolio rebalancings and listed options. We act as agent on behalf of sophisticated institutional investors, executing trading and hedging strategies imaginatively and aggressively."

I for one would call creating rumors out of speculative trader talk as both imaginative and aggressive. With the stock trading down heavily in the morning there was some talk out of Miller Tabak and one analyst, Peter Boockvar, in particular who noted that no research note was issued and simply gossip was passed down. If that's all it takes to shave almost $8Billion in market cap from this leading technology company than the market is more fickle than most would like to even imagine.

Granted the overall slide in technology stocks late in the day only compounded the problem but the seeds of doubt had already been planted. And on a day where Apple announced it had sold its 3Billionth song on iTunes.

Taking a hard look at this "research report" can point an investor only one of two ways. On one hand, if the rumors were in fact totally made up to stir selling so heavy-hitters can buy in at lower prices and extend profits further into the holiday season then that's complete and utter market manipulation. On the other hand, if there's any shred of truth to a production cut for iPhone, then maybe Apple's in serious trouble. But for this to come out only days after earnings with the company reiterating its sales goals for all of 2008, make little to no sense. The company did say several times during their conference call that product transitions would take place this quarter, which to several analysts meant either new iMacs, new iPods or both. So if Apple's cutting production on some iPods lines how could that be considered a bad thing? If this is to lead to a model refresh of the top of the line video iPod, or mid-range iPod nano or both, common sense would dictate that this would spark sales and growth rather than stunt it.

Perhaps the worst is not over yet in this drop from inflated highs for Apple stock, but those faithful Apple investors who believe in the company products and growth strategy should remain patient. And in fact have to use these opportunities to add to current positions so they too can play the game and be competitive with the "Big Bad Wolves" on the street.

Disclosure: Author is long AAPL

The Time is Right to Invest in NYSE Euronext

You're a trader, investor, market-maker, whatever title suits you. It's virtually all identical to NYSE Euronext (NYX), since a lot of your trading action goes through them. This mortgage crisis has led stocks lower lately, but with it has also brought virtually record trading volumes to the exchanges. This is a very sustainable business, the business of running an exchange. More individuals are getting into the investing game each and every day and this type of organic growth bodes well for the future as the market, through the Internet, becomes more accessible to a next generation of investors.

The markets have always had the perception of being smug, and a game for the big boys on the floor of the exchange. Not anymore as any kid with an online trading account can bump shoulders with the heavyweights in the volatile after-market. As the world expands, its only getting smaller. This is the type of philosophy management has taken with NYX. Their purchase of Euronext, which provides exchange services in the UK, Belgium, France, The Netherlands and Portugal, is a big step in consolidating trading worldwide. It's a lofty goal, but management is focused on this growth through acquisition mind state.

This stock was a Jim Cramer favourite on his CNBC Mad Money show and he even called it his growth stock of the year in the past. The market wasn't kind to the Old SkeeDaddy as NYX was pushed down from a high of $112 to it's current valuation in the high $70s. However, I think now is the time to really jump into this company as it prepares to announce quarterly earnings on Aug. 2nd. And hey it was just upgraded by Banc Of America from Sell to Neutral!
All the abuse that Jim takes over his daily changing picks, he's still right more times than he is wrong and the work he does to get the investing message out there has to be commended, even if NYX didn't turn out to be a star over the last 8 months. The fundamentals have not changed for this growth business and with a forward P/E in the 20s it is certainly time to consider investing. In fact it might be one of the only times to get in before the company leaves those on the sidelines in the dust.

Analysts targets vary from $76 to $113, with an average of about $92 over the next 6-12 months. That's an average estimated upside of 18% return according to the professionals. The sentiment about the company is increasing and hey they even payed out a dividend last month.
Oh and the company just made $550Million from the sale of LCH Clearnet, its clearing house. This will allow the company more flexibility as it meets requirements and regulations in Europe.

Analysts estimate sales growth of over 116% this quarter, 122% next quarter and an even 100% for the year. This kind of growth from a company that runs stock exchanges? Yes, and the expansion plans will only continue for NYX as it will try to keep ahead of its major competitors here in North America and abroad. Add this to the fact that trading volumes have never been higher for the company than they have been over the last month and the prospects are bright for future upside earnings surprises and an appreciation in the stock as analyst after analyst will have no choice but to issue an upgrade.

I expect this cycle to begin as earnings are announced later this week. The old adage of "Invest in what you know and use" creeps up again. Chances are many companies you hold and trade are listed on the New York Stock Exchange.

Disclosure: Author is long NYSE

Gambling on gambling: Investing in Casino Stocks

Red, Black, Hit, Stand, the sound of slots ringing in every direction. The magic and lust of the casino. Las Vegas is an adult playground for sure, but is there money to be made when you're not at the table getting free drinks and losing another hand at blackjack? Perhaps you have an unbeatable strategy for Roulette, or maybe some Texas Hold 'Em is more your style, or maybe you're a sports nut and know the intangibles that will beat the bookies? Either way the casinos profit, and barring a real life Ocean-esque crew knocking over half of Las Vegas they'll continue to profit.

As a gambler, you might know some Casino names like the Bellagio, MGM Grand, The Luxor, Mirage. All owned by MGM Mirage (MGM). Harrah's Entertainment (HET) operates 48 casinos including Harrah's and Caesars Palace. Las Vegas Sands (LVS) operates The Sands and The Venetian, among others. But Vegas isn't the only party anymore, and to be a player in the expanding world of casino entertainment you need to be in Macau. This worldly entertainment center in Asia has exploded over the years as the large Vegas casinos migrate over to cover both ends of the world. But that's not the only place these firms are looking, Europe, Singapore, you name it they are thinking of expanding there.

So where do the investment opportunities lie? Well there's all kinds of buying and selling rumors hitting this sector of late and the one left out of the party seems to be the Donald himself. Trump Entertainment (TRMP) was on the block but reported being unable to find an attractive offer. Regulations problems have also plagued the company of late as it was denied a license in Pennsylvania. These troubles have led shares downwards from the 20s to $7 and change over the past year. Harrah's was in talks and is now going through the process of being sold to Apollo Management.

The Vegas heavy hitters MGM-Mirage, Las Vegas Sands and Wynn Resorts (WYNN) are worth taking a look at. A very high P/E plagues LVS as its growth through expansion led the stock to triple since mid 2005. The stock has since come back from it's high of $109 to a more reasonable $83/share. Still however, the stock seems pricey as earnings estimates for this year put its P/E at over 50. Forward P/E is more reasonable in the 20s and for a company with the expansion plan that it has unfolding in Singapore it just might be worth the gamble.

MGM sports more modest ratios but has also seen a double in market cap over the last year. It will also look for future expansion to increase it's stable of 23 casinos. Wynn is going full force into Macau with it's Wynn flagship resort and its stock has not fallen as hard as the others from their year highs.

Each of these fine casino operators are making money hand over fist and the competition to expand into the rest of the world will see cash flows tighten and margins contract. However the road to major profitability and market cap expansion lies in opening and operating more resorts in exotic and touristic locales. With LVS, MGM and WYNN all sporting market caps under $30Billion the possibility of growth accelerating through these expansions will only be beneficial to the stocks. If LVS is the hare, and WYNN is the tortoise it just seems to me that the steadiest ship in this race is the lion. And MGM can certainly roar!

Disclosure: Author holds no positions in any of the above mentioned companies

Apple Rides Strong Computer Sales to Blowout Quarter

One of the most anticipated earnings numbers of the season are in. Apple's (AAPL) quarter, which blew past street expectations showed that the company has got the motors running. The company reported $0.92/share vs. the $0.72/share the street was expecting.

First the raw numbers: 1,764,000 Mac computers, 33% growth year-over-year, which is 150,000 more than any other quarter in the company's history
9,815,000 iPods, showing that this business is still very good and growing at 21% year-over-year
270,000 iPhones sold in the first 30 hours of launch (June 29th from 6pm and June 30th), not half bad however with Wall Street expectations going from 200K to 700K this could be an area of contention.

Apple earned $818 million on $5.41 billion in revenues with gross margins increasing from 30% to almost 37% with management releasing a statement applauding the company results. However Apple shareholders know that this stock has been fueled in recent months by the announcement and build-up to the launch of the iPhone, and if this rocket is to continue to justify it's high valuation, the iPhone will have to be part of that limelight alongside the Mac and iPod businesses. One thing the iPhone hype did very well was get people talking about and looking at Apple's computers. With foot traffic in Apple stores at all time highs, how many patrons asking about iPhones and iPods thought to themselves "Wow, that's a pretty cool computer". I think it was plenty. As well as computers are selling for Apple this is admittedly only one leg of their 3 business strategy so part of management's opening statement may be troublesome for short-term investors.

Steve Jobs
"iPhone is off to a great start -- we hope to sell our one- millionth iPhone by the end of its first full quarter of sales -- and our new product pipeline is very strong."

No one can argue that it's off to a great start but with expectations being what they are, will this be trouble in the short term. This is either a case of analysts having no idea about supply and demand, or that the iPhone really is not as successful as initially hoped? Some street numbers called for as many as 700K iPhones to be sold over the first weekend, and there were rumors flying around that within a week 1 Million had been activated. Where these rumors were coming from, and their validity is certainly up in the air, but it seems like analysts really just had no clue. When the expectation window for 2 days of sales spans the range of 200K to 700K units, you know no one's reading the same book, let alone the same page. Either way selling almost 300,000, in a day and a half, of a device that fits in your pocket and costs as much as a Playstation 3 is certainly impressive.

With a stock that's fueled on expectations, lofty as they are, any signs of chinks in the armor will not be treated well. Apple's stock was halted upon the numbers release and when trading resumed after hours the shares found themselves down almost $4 to $133. Shares climbed back strongly and have been on the rise breaking new all-time highs essentially every minute as the conference call reveals more details about future iPhone software plans, and all other things Apple. Apple's shares are up almost $13 from their close of trading today.

Apple plays the guidance game very conservatively. The street thinks that $0.82/share is a decent estimate for next quarter and Apple executives low-balled everyone once again with $0.65/share and $5.7 billion in revenue. Apple continues to believe their high margins on things like flash memory are unsustainable, and they may be right. Those deals they cut for very large-scale continuous orders of memory are certainly paying dividends now, but it'll be difficult for the company to secure all the memory it needs with their growing sales and product base of iPods and iPhones. Analysts expect low-balled guidance from Apple and certainly will shrug this off.

What will end up being a big deal is the payment deal with AT&T for iPhones. Not only is Apple booking revenue over a 2 year period (Each iPhone sale will contribute 1/8th of its sale price in revenue each quarter over the 2 years), but AT&T is also reported to be paying Apple a hefty exclusive fee for each unit and a portion of the monthly service plan. According to executives, none of this revenue is seen yet or being counted. This is the type of news that could have Short Sellers running for the hills buying back their stock in the next couple of sessions.

In a recent article I wrote about putting the Muleta away and letting the Bull ride on Apple stock, well it certainly seems that management have put the company on a road to profitability never before seen in its history. This is something that has to be rewarded, and in After Hours trading the company sees its stock hit the landmark $150 per share number.

Bulls have seized control.

Disclosure: Author is long AAPL

Amazon Rewarded for Earnings Beat, but is the Party Over Now?

Amazon (AMZN) has stepped back into the good books of Wall St. with a run of increasing profitability that's making all those short sellers very nervous and is leading the stock to highs it hasn't seen since the Internet boom. Prior to yesterday's post-market-close earnings results, Amazon held an outrageous P/E in the 140s. Now that's paying for growth! But the company is delivering on this growth promise as it reported $0.19/share vs. the estimate of $0.16/share, and handily topping last year earnings of $0.05/share during the same quarter.

Current year-end estimates, which are bound to be raised by analysts soon enough put earnings just north of $1/share, which at current levels has Amazon sporting a P/E in the 80s when it reports for the December quarter. Do growth prospects continue to justify this valuation or is this a classic example of a tightly held company in a sudden short squeeze after a solid quarter. About 15% of outstanding shares were shorted as of mid June and it seems like that has something to do with today's 25% spike northwards. There has been contention over the last couple of years that the company is spending too much on internal technologies and off-shoot ventures like the UnBox movie downloads and the ever-popular music store in development rumors. A deal with TiVo to stream movie downloads to owners of the popular DVR device in tow and consecutive blowout quarters with ever increasing guidance has certainly silenced the critics.

Back in April when the company blew earnings out of the water it upped guidance to $13.40-14 billion in revenue for the year, and with the latest results lifted guidance to yearly revenue of $13.80-14.30 billion. Notice the pattern here? Everything seems rosy here doesn't it, but as any growth company can attest to, playing the ever increasing expectation game can be like walking a tightrope with a safety net made out of razor wire. Not only would the fall hurt, but the landing would as well.

Amazon's Prime service seems to be a big hit, it allows customers to pay a yearly fee for free shipping, and it is ideas like this that will eventually drive margins higher as Amazon cuts prices to sell more goods. The brick and mortar retailers, especially on electronics have been pushing these high-margin extended service/care warranties for years. Best Buy and Apple, through the ProCare program, love the revenue these services bring their respective companies.

All in all, while a compelling story, I for one think the Amazon boat has sailed for now and needs to dock before I would board. There was a great opportunity here for stock and option players and it should be time to profit take as I can surely see a downward spike coming before another one happens that would continue the climb. The market stays irrational for much longer than people usually think and while there might still be something here, I don't like the odds at these levels with a P/E that can seemingly only come down. If Amazon were to double profitability next year to $2/share you're still looking at a company with a forward P/E right now of almost 50. Now with Analyst estimates, likely to rise for 2008 from $1.30 per share the company has a lot of work to do to justify its price tag.

Disclosure: Author holds no position in AMZN