Friday, April 04, 2008


Apple and Wal-Mart are two of the all time great growth stocks. Both stocks are on the move, again. Over the past 6 months, Wal-Mart is up 22% while Apple is down 4% but over the past month Apple is up 25% while WMT is up only 10%. Pick a long time frame and you can understand how the Walton Family became the richest in the world, however, in the last 5 years, WMT is up only 2% while Apple is up 1,996%!

Apple is currently hot because the store shelves of the old 2G iPhone have been depleted. The expectation is that the 3G model is about to arrive. Another reason for the heat is that iTunes just took over Wal-Mart as the number one seller of music.

While it might be easy to conclude that Wal-Mart is "old school" and Apple represents the "new economy", the past is known but the future is not. We only get to guess at the future.


We know that scores of new wireless computer devices are in various stages of design. We know that high speed networks are in various stages of construction. We know that substantial traffic growth is occurring in streaming video. We know that Qualcomm is offering mobile video services in more markets. We know that Google's new "phone" software is likely to be available on scores of new devices but we do not know what services will be required to qualify "for the brand name". We know that RIMM has out performed Apple by 2 and a half times over the past 5 years. The RIMM performance tells us that businesses have and will invest large sums of capital to wirelessly connect their employees.

Google, at 535% appreciation since going public, has increased its value at only about 10% as much as RIMM. Qualcomm, one of the huge leaders of the prior boom has only seen 144% appreciation in 5 years. INTC is up 25% over 5 years while the big cap drug stock PFE is down over every period for the past 5 years, including down 34% for the entire term. Wachovia bank is in the same boat as PFE but to be fair to these two companies it should be mentioned that they have each paid out substantial dividends over the years and that their current yields are 9.8% (WB) and 6.1%.


Every dog has its day. John Maynard Keynes, one of the most successful investors of all time, had an interesting way of looking at stocks. He compared buying stocks to guessing which of 30 beautiful women would win a beauty contest. The winner of the guessing game was not the person adept at identifying beauty but rather the person who identified the taste of the guessers. Apple is believed to be beautiful by the many whereas the public opinion of Wal-Mart, PFE or WB is not what it used to be. In the case of Ford Motor, the opinion has gotten so low that jokes are being made about the company.

The problem is that Keynes was a rare person in a former time. Today, we do not know of people who can accurately predict the "taste of the guessers". Warren Buffet has showed time and again that the path to investment success today is to buy for the longer haul. Buffet would not consider buying AAPL because the price discounts high growth way into the future. You have to be pretty darn sure that AAPL will continue to grow very fast for a very long time if you want to buy it for a hold or you have to guess when to jump off the moving train if you what to buy for a short term trade.

Steve Jobs has without doubt done a good job of building the Apple brand. I still have trouble seeing extremely high profit growth for the hardware side of Apple accompanied with rapidly falling prices and substantial competition from all corners of the globe. OOPS! I must confess. My 2 year old grand daughter owns a few shares of AAPL and it is my hope that she holds them for all of her life.

Wachovia Bank, Ford, Wal-Mart, Pfizer

I feel very comfortable buying into the old dogs listed above. I believe these stocks are cheap relative to their earnings potential. I believe the public disdain for them is a contrarian signal that screams the word BUY. One of the old pros of the newsletter business (I'm having a senior moment and cannot remember his name), just made a contrarian airline call. Here again, I am confident that patient investors will do well. I have less confidence in AAPL at a time when it is one of the top performers.


The turn in the transportation index tells me that good economic times are just around the corner. Preceding and during these good times, almost all stocks will "work". Lagging indicators, such as the decline in jobs, are also screaming that it is time to be 100% invested in stocks.

Gold, oil and the dollar continue to gyrate in sych with the news out of Iran/Iraq. Amadenijhad is determined to build nuclear power while Nato is gearing up to build an anti-ballistic missile system. Meanwhile the Iraqi government continues to try to consolidate its power. In the short run, the jumping around of gold, oil and the dollar are like the Keynes beauty contest. In the long run, the actual real supply and demand will reset prices. While the potential for conflict in Iran is real, it is not likely to come to all out war. The build-out of high speed "phone networks" is happening in the US no matter what is happening in Iran. The market upturn will not be sunk by the short term gyrations caused by the potential conflict with Iran. As the people of Iran fall further behind in the availability of Apple iPhones and goods and services at low prices from Wal-Mart, the pressure will intensify to cooperate with the UN and the US.