Michael Kramer and the clients of Mott Capital own Apple

The stock market fell today, are you surprised? I hope note, this is precisely what I had expected to happen and I noted it in Friday’s write-up.  Futures were already pointing to losses before the Caterpillar and Nvidia disasters. But the S&P 500 fell right to support around 2,630, held, bounced and finished the day at 2,642. The good news is that now there is a giant gap to fill on the upside around 2,660. How much you want to bet we are trading around 2,660 tomorrow at some point? I really hate to be overconfident, because that is when the market just makes you look like a complete fool. But based on the current trends in the market it would not surprise me the least.  Just look at the chart!

Nvidia (NVDA)

Nvidia was the significant weight on stocks today after it pre-released what looks to be not a bad quarter, but a horrible quarter. Revenue is expected to be nearly 20% below their November guidance.  How bad is Nvidia? It is so bad that the company is guiding revenue to $2.2 billion down from its previous guidance of $2.7 billion. But before that November guidance, which was a major disappointment, analysts had been looking for fourth quarter revenue of $3.4 billion.  The revenue today is 35% below what investors had been forecasting just three months ago. You can see in the chart below with my annotations of course.

Then factor in the margins of 56%! That is down from prior guidance of 62.5%! So not only are they are selling fewer “widgets,” but it is costing them even more to make it. Or even worse than that,  they are making the same number of widgets and not adjusting their production for the slowing demand. Remember this is Gross Profit Margin, Revenue minus COGS = Gross Profit. Either way, it is a disaster in my opinion.

And for this mess, you get to pay 19 times next year earnings estimates for it! That is higher than the average PE ratio of the top 25 holdings in iShares PHLX Semiconductor ETF of about 13. But wait there is more because the lower revenue and lower margins mean EPS estimates are likely too high for this year and next year, and that means the valuation is going to go up! That is right, as earning go down PE ratio’s go up! Unless of course, the stock falls further. Here is what I wrote in my free Seeking Alpha today. 

Did you find the resistance level on the stock? It is back at $139.

AMD

It was bad news for AMD too, and I had thought over the weekend this stock was going higher after rising above $21 last week. Today the shares fell back below $21, putting that breakout into question. But the good news for AMD is that they report results tomorrow. Why is it good news? First, they will have a conference call to help defuse any issues to some extent, should there be any. Second, unlike Nvidia, AMD did not preannounce the quarter. It doesn’t mean that they can’t miss or disappoint, but it likely means they don’t have a complete disaster on their hands either. Perhaps it also indicates AMD’s business is doing better than Nvidia too.  I guess we will find out tomorrow.

Square (SQ)

Square did pullback some today, but it managed to stay above support at $75. The outlook for square at this point remains unchanged. I continue to believe it can head towards $83.

Micron (MU)

Micron dropped today too, but the trend remains higher and the stock appears to be heading towards $40.

Amazon (AMZN)

Amazon continues to hold above $1620. I think the stock stays here until results this week. There is really no reason for the stock to do much of anything at this point until after results.

Apple (AAPL)

Apple is continuing to look better. The good news is that Apple’s China slowness is not only contained to the iPhone, at least based on results from companies that have operations in China, like Caterpillar and Nvidia. So perhaps that should ease some nerves. But the big news tomorrow will be Apple’s quarterly guidance.  The chart continues to look stronger, and I think still see this one rising to around $165.

PayPal (PYPL)

There were some bullish options bets placed on PayPal, with the open interest rising today by almost 7,000 contracts for the February 100 calls. The company reports results on January 30, and the stock is trying to break out and rise above $93. For the buyer of those calls to earn a profit the stock would need to increase to around $101.

The chart also has what likes like a nice triple bottom in place.

Until tomorrow. At least you can tell I’m starting to feel better. I’m getting my sense of humor back.  😛

-Mike

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