MightyMo's Blog : My Prediction for the 'Market Darling'

My Prediction for the ‘Market Darling’

Cable. It was nice knowing you.

I enjoyed Cable during it’s heyday. Well, most of it.

Being a sports nut, it bothered me that I couldn’t get the NFL network on Time Warner. Yes, I’m going to miss cable about as much as I miss Kodak film. Some of you might remember, that at one time, in order to take pictures, you needed to buy and pay for
film, maybe enough film for 8 measy pictures, and put it in your Kodak camera, and then pay again to get it developed and cross your fingers that they came out good!
Some of you might remember, that back in the day, you would go to Blockbuster and pay $4.50 for a one-day rental and if you returned it 25 hours later, ended up paying a penalty time return fee.
It’s nice knowing those days are over!

First there was person-to-person story telling. This was followed by printed books one could read. Then silent movies came aboard. These were only in black and white. This was followed with ‘talking movies’, followed by ‘talking movies’ in color, followed by black and white TV, followed by TV in color, followed by cable and satellite TV, followed by the ability to purchase rental movies to take home and watch on TV, followed by rental movies purchased over the internet and mailed to your home to watch on TV, followed by streaming video with the ability to watch it on your PC, followed by streaming video (movies, music, TV programs) from a PC to watching on a TV device or other connected device.

So the next natural progression is entire TV channels and TV networks wirelessly connected from your online device to your TV device.
…..and who has the infra-structure to do this?
Apple (AAPL)

Yes, Apple, the market darling! The prettiest girl in town!


Now Apple has ‘apple-tv’ but that is a minor sideline to what this would become. Let’s call it iTVchannels.

When it is all said and done, one would have access to any TV channel basically on the planet. You can select Russian TV, china music channel, the Hungarian news, whatever. Yes, I could even get the NFL network!
….and these channels will be available. If the channel is not available online, it will not survive, it will die.
So now does Apple do this. They don’t need to but it’ll be easier is they buy some of the infra-structure. Apple is loaded with billions in cash and no debt. They are growing on-going in revenue and earnings. They are the market darlings.

First, Apple buys Netflex.

The process already works with Netflex. It needs the funding and power-base and market savvy and legal ligitation abilities and patents that Apple already enjoys. Apple could use their infra-structure instead of developing it’s own.
Believe me, Comcast and Time Warner will fight this to the end. However, in the end, technology, innovation, and creativity will win out.

Apple also will need to buy or control other components as enjoyed by companies , for example. LULU and APKT.

ITVchannels could change the way we watch video and media such as Apple changed the music industry.

There will be bumps on the road. GOOG and MSFT will make attempts in this market. Barron’s will continue to weekly report negative reviews on growth companies. In the end, Apple will win. Barron’s worthless analysis, for example, said this about Apple. “It is the most over-valued stock”. It said this about Amazon a few years ago, “bashed Amazon.com as an overvalued, overhyped symbol of irrational e-commerce exuberance”.
It said this about GOOG, “
“Barron’s said the company trades at 37 times next year’s expected earnings – a price-earnings ratio that it says is two to three times higher than for similar-sized firms
“Most worrisome, according to Barron’s, is Google’s slowing rate of growth.
Google’s price was around 500 at time article was written. Within a year, it ended at 702.”
Barron’s ratted on NFLX this past weekend. The timing was interesting, during a holiday weekend. The little guys are unloading NFLX this week due to the Barron's article. The big boys will come in a week or two from now and clean up on NFLX. It happens time and time again. The little guys don't get it. The big boys know how to win. NFLX. Don’t worry about it.

So where does this leave Apple, share price wise?
Apple is in the 320-330 range with a relatively low P/E 21 for a growth company. No debt. Billions of cash. It’s products overall all successful. It’s projected new products expected to cash in. Apple has barely tapped the international market.
Massive room to grow. ...and here's the thing....Apple did all this in a decade with two big recessions! In a 5-year period, from 2004 to the end of 2008 Apple had a 700% return! Remember 2008 is when the market tanked. Apple's innovative product line is superior to competitors, it's marketing efforts are unparalleled! It's products are reliable, durable, easy-to-us and most importantly, as advertised!
It's ipod last quarter sold over 11 million (expectations were less than 10 million), the iphone in hands of 50 million, it's highly successful ipad sold over 1 million in 28 days.
Apple also charges higher prices and consumers are happy to pay for them. ...and they're doing this in 'hard' economic times!
Growth? The 'i' products are basically sold domestically. Global market penetration is still a new market for apple.
Apple even gets 30% revenue for all mobile application products sold (apps).
Apple growth continues as it 'cross sells' it's product line.

Is Apple 500 too low? Is apple 1000 too low? Is apple 5000 too high?
Whatever it’s share price ends up being at the end of 2011, end of 2012, end of 2014. Whatever it’s price, expect it to be higher than it is today. That’s makes it a buy. It’ll drop greatly at times but the overall trend is up. Just stay with it and add to positions.

BUT WAIT, THERE'S MORE...........MAKE MONEY WITH LITTLE RISK....
(Sorry, just had to use the above telemarketing phrase)

I know, I know. I've been told Apple is just too 'expensive' for the average Joe.
OK, for you gamers out there. Here's a way to play apple without dishing out too much coin.
Go the option route, specifically a bull spread.
When you execute a bull spread, you buy a call option at a lower strike price and sell a call option against it at a higher strike price. The difference between the two strike prices is called the spread.

Here's what you do based on today's price.
Buy the AAPL Jan 2012 $400 call, trading around $19 per contract.
Sell the AAPL Jan 2012 $450 call, trading around $10 per contract.

My target price for Apple is a respectfull 435-450 for Jan 2012.
Apple earnings are growing by a factor of 50% year-over-year. The stock is currently at a P/E of 21 - less than half of it's projected growth rate. Based on a P/E of just 20, Apple could easily trade in the 435-450 range by 2012 by easily earning $20 per share - a number most analyst are stating and a number that reflects its growth rate.

Your net cost will be the $9 per contract ($19 minus $10). The most you can lose is $9 if you hold the trade until expiration.

Your upside is the spread. The difference in this case between the two strike prices is $50. So the risk is $9 to make $50. Nice, huh.


Cable. It was nice knowing you. You can tell (or text) your grandchildren about it some day. They’ll think it a fairy tale.