Portfolio positions analysis
Let’s do a review of a bunch of our longs and shorts.
IBM – IBM has a long and questionable history of growing their earnings much faster than their topline. In 2010, the company reported about $100 billion in sales. This year, three years later, they are supposed to report a whopping $102 billion in sales with estimates for next year looking for growth of a whole ‘nother 2%. Meanwhile, earnings per share were $14 in 2003 and this year it’s supposed to come in closer to $19 per share. Breaking those numbers down, you see that the company has somehow been able to “grow” earnings by more than 35% while the topline grew only 4% over the last four years. The markets are up huge but we have already been rewarded on our IBM short as the stock is near two year lows. I continue to expect that IBM’s got very little upside potential from these levels and that if there’s any downturn in their topline, the stock could easily drop another $50 or 25-30% or so. That makes IBM an ideal hedge to our technology long stocks that have huge upside potential and topline growth ahead.
Sandisk – Sandisk is part of a shrinking oligopoly that sells flash drive chips and chipsets and technologies mostly to consumers and smartphone/tablet vendors. Flash drive supplies from Samsung and Sandisk are the biggest factors in Sandisk’s ability to grow their topline and bottomline. The less capacity in the industry, the higher the selling prices and the higher the margins and the higher the profits for shareholders. Sandisk, unlike IBM, has seen their topline grow and next year should report over $6.6 billion up from $4.8 billion in 2010. Earnings leverage is large as the topline grows and because flash drives are so much more cheaper, ligher, and efficient than the old disk drives, they are in secular growth mode. And because the smartphone/tablet/computer future is all built upon flash drive technology, Sandisk remains a classic “Revolution Investing” theme.
Apollo – We nailed this short and it has been a huge winner as its collapsed while the rest of the market and most of our individual stocks have rallied huge over the last couple years. The company’s faced falling sales and earnings as enrollment and prices at their flagship Phoenix University fall. I’d highlighted CECO and COCO as great shorting ideas back at the same time and they have also collapsed. Meanwhile, DeVry another educational competitor has hung tough. It’s tempting to move into DV and/or to add DV as a short with the Apollo here, but I think Apollo’s still got even more downside and will eventually be a penny stock.
Lindsay – Probably the single purest play on water shortage and irrigation technologies in the market. The company is still a small cap, having just recently breached the $1 billion market cap threshold for the first time. Sales have been exploding higher over the last four years, as the company will nearly double 2010’s revenues this year. Analysts are actually modeling a decline in sales next year, dropping about 5% from the $700 million estimate for 2013. I would be surprised if Lindsay doesn’t get some more orders and even maybe some new distribution for their products around the globe. In five years, I fully expect Lindsay to be up over $1.5 billion in sales.
Facebook – Turns out I was right. Turns out Facebook’s IPO strategy and tactics don’t even matter any more, except for the extra billions of dollars we shareholders have on our balance sheet in FB’s bank account by selling their stock at the highest level they could at the time. Facebook’s potential to create new revenue streams and to simply get a penny or two a day in profits from each of their daily users makes this a must-own for every growth fund now that the stock and the fundamentals show growth. We were loading up on this thing in the $20s and even in the teens and I do think you should have taken some serious profits on those gains so far, but that this should remain a biggest position in the portfolio overall.
Amazon – Amazon is the anti-IBM. Amazing Amazon by this time next year will have grown their topline almost 200% since 2010. But Jeff Bezos continues to invest in technology, infrastructure and customer service that is keeping the earnings leverage from showing. With Amazon Prime keeping customers like me addicted to free two-day shipping and with Amazon’s ability to build its growing Kindle consumer platform, Amazon’s got a lot of topline growth ahead still. And don’t overlook the company’s cloud presence and wholesale Internet services, which are also growing exponentially. In the near-term, I could see Amazon struggling to make a meaningful move over $300, but five years from now I think this could be nearly a $1000 stock.
