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Tuba Ted Buys an Apple

Recs

5

January 17, 2011 – Comments (1) | RELATED TICKERS: AAPL , GOOGL , NFLX

Earnings reports continue this week, with several notable companies reporting. We call them notable for a couple of reasons.

First they are notable, at least to us, because their current price levels far exceed their ability to create viable investments returns. In other words, they are just to expensive.

The other thing that makes them notable is that investors are simply unable to resist owning them. They tell their co-workers they own them just so they can watch their reactions.

Never mind that the word notable has really become the words not able, as in not able to make a penny owning these stocks because they over paid for them. That's just a mere formality. No sir they own the big Kahunas and that's that.

In the past when we have mentioned that an investment in these notable stocks may not be a wise choice, mainly because of their high prices, it was as if we had desecrated the Wall Street Bull.

Not surprisingly when we have been less than enthusiastic about the prices being paid for some of these companies, we discover new found authorities that will argue almost vehemently that our valuations are ridiculously conservative, while offering nothing to support their valuation positions.

It seems that last time some flap developed it was over our valuation of Netflix, Inc. (Nasdaq: NFLX) What surprised us the most was the number of number of comments we received from the newsletter analysts.

We aren't exactly sure why, but the newsletter analysts remind us of television evangelists. While the information the produce may indeed be of some benefit to the true believer, the greater benefit it seems to us, is for the producer of the information.

At any rate, since we do not produce a newsletter, we were a bit surprised when the newsletter analysts also commented that we were clueless boobs that had no idea what we were talking about.

After all these were notable companies and as such, worthy of investment. We tried to point out that we were valuing the entire business, not just the company's most recent earnings, and that at current price levels we felt they were quite a poor investment, but the newsletter evangelists were not real interested in what we had to say.

Finally we decided that although we didn't produce a newsletter, we did produce an investment worksheet, which from a risk capital perspective was probably more valuable than a newsletter, something we will never know since most people that loose money with an investment never want to admit that their only research was to read a newsletter, or ask a cabbie.

Basis

At Wax Ink, our valuation work is based on audited or annual financial information as taken from a company's most recent SEC Form 10-K filing. Unaudited, or quarterly financial information as taken from a company's SEC Form 10-Q filing, is not used unless otherwise noted.

This Week's Notable Companies

Fastenal Company - (Nasdaq: FAST) The company sells industrial and commercial construction supplies at wholesale from approximately 2400 stores located throughout North America, Europe, and Asia. The stock closed recently at $59.89, with Resistance at $61.53 and Support at $56.76.

Our Reasonable Value Estimate for the stock at this time is $34.00, with a Buy Target of $20.50, a First Sell Target of $40.00, and a Close Target of $42.00, based on a 5 year hold.

Consensus earnings scheduled to be announced on Tuesday are listed at $0.45 compared to year ago earnings over the same period of $0.30.

***

Apple, Inc. - (Nasdaq: AAPL) The company designs, manufactures and markets a range of personal computers, mobile communication and media devices, and portable digital music players. The company also develops and markets software. The stock closed recently at $348.48, with Resistance at $348.48 and Support at $320.84.

Our Reasonable Value Estimate for the stock at this time is $100.00, with a Buy Target of $60.00, a First Sell Target of $117.00, and a Close Target of $123.00, based on a 5 year hold.

Consensus earnings scheduled to be announced on Tuesday are listed at $5.31 compared to year ago earnings over the same period of $3.67.

***

Amphenol Corporation - (NYSE: APH) The company is a designer, manufacturer and marketer of electrical, electronic and fiber optic connectors, interconnect systems, and coaxial and high-speed specialty cable. The stock closed recently at $52.56, with Resistance at $54.07 and Support at $52.08.

Our Reasonable Value Estimate for the stock at this time is $36.26, with a Buy Target of $22.00, a First Sell Target of $42.50, and a Close Target of $45.00, based on a 5 year hold.

Consensus earnings scheduled to be announced on Wednesday are listed at $0.73 compared to year ago earnings over the same period of $0.52.

***

Google, Inc. - (Nasdaq: GOOG) The company maintains an index of Websites and other on-line content, and makes this information freely available through its search engine to anyone with an Internet connection, generating revenue primarily through advertising. The stock closed recently at $624.18, with Resistance at $630.85 and Support at $598.70.

Our Reasonable Value Estimate for the stock at this time is $126.00, with a Buy Target of $75.00, a First Sell Target of $147.00, and a Close Target of $155.00, based on a 5 year hold.

Consensus earnings scheduled to be announced on Thursday are listed at $8.06 compared to year ago earnings over the same period of $6.79.

Final Thoughts

Our goal continues to be what it has always been, to provide reasonable valuation information for the average working class investor in hopes that they will use the information to create a baseline for their own investment research.

What we are not interested in becoming are investment pundits, soothsayers, scuba divers, or tuba players on parade, just as we are not interested in becoming mango farmers, learning to speak a foreign language, putting lipstick on a pig, or that Brittany Spears' doesn't wear underwear.

Over the last several weeks, the stock market has factored in to current prices all sorts of hopeful information. And as has happened in the past, many investors, afraid they are missing the next big rally, are jumping into the market with no understanding of what they are buying or what they intend these investments to do for their portfolio.

Certainly we wonder how many of the investments these folks are buying will become 10 baggers, just as we wonder if the yellow brick road really lead to Oz.

Wax

1 Comments – Post Your Own

#1) On January 24, 2011 at 10:55 AM, JakilaTheHun (99.93) wrote:

Wow, you might be the only human being on Earth with a lower valuation of AAPL than me. :)

Though, I'm confused by where your earnings numbers are coming from, because they are way off from the actual earnings.  From the 10-K, AAPL's FY '10 EPS was $15.15 per share.  And they are growing right now. 

My low valuation has to do with the fact I believe AAPL's current earnings are overly dependent on sales of the iPhone, which have abnormally high margins due to carrier subsidies.  My belief is that those margins will eventually be undermined and revert to more normalized margins; which will hit AAPL's earnings hard at some point down the line. 

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