MorningWord 1/25/13: With the AAPL equity bubble clearly bursting, tech growth money needs to find a new home as the gravy train is over for active money managers. There have been some clear beneficiaries of the move out of AAPL in the last couple months (FB, GOOG & EBAY ) but none more controversial in my mind than AMZN.
AMZN closed yesterday at new all time highs, up nearly 700% from the 2008 low. There was only one other large cap tech stock to show that sort of performance off the financial crisis lows, AAPL, which at its highs this past September was up nearly 800% from its 2008 low, but has since given back about 36%, and is now only up 480%.
The 5 yr chart below shows how these 2 stocks had essentially traded in lock step over this period. It is interesting to note that AMZN, back in late 2011, suffered a 30% peak to trough sell off only to regain all off that ground in 2012, and it continues to push higher.[caption id="attachment_21946" align="aligncenter" width="490"] 5 yr AAPL vs AMZN from Bloomberg[/caption]
Wednesday night on Fast Money (below), investor Jeff Gundlach, CEO of DoubleLine Capital ran through his short thesis on AAPL, citing little more than the sort of mania mentality that was evident by investors, Wall Street analysts and anyone on this planet who has a stock trading account. I found his short call last year, and his continued bearishness to be fascinating because Jeff is a famed bond trader/investor, not known for his equity calls, but a bubble is a bubble and I guess the best investors don’t care which asset class they manifest themselves.
To sum up here without debating the fundamentals of AMZN, the stock performance, the margin it makes on selling its products and the unusually positive sentiment suggest to me suggest that its “day of reckoning” will come at some point in 2013. AMZN CEO Jeff Bezos has been labeled as the best CEO the world over besides, of course, the late Steve Jobs and much like Jobs is known for taking the “long view.” But at what point does the long view (meaning measly profits for investors now) interfere with the sober reality that stocks should and ultimately do reflect the prospect of the underlying company’s earnings growth and what multiple investors are willing to pay for that growth. As our friend at HedgeEye, Keith McCullough likes to say, “valuation is not a catalyst”, but for deep pocketed investors like Gundlach, mania’s or bubbles certainly can be.
If I could tell you the when and how I wouldn’t be writing on this website right now, but I fairly certain this bubble will burst too. I am not telling you AMZN is a bad company, in fact i am one of their biggest customers, and a very happy one at that. The stock hasn’t and does not make any sense to me, I will continue to play with defined risk (12/21/12 -New Trade $AMZN – The Best Not-For-Profit Company in the World), not exactly trying to pick a top, but more trying to get in front of what could be a broad shift of investor attitude towards stocks like this.