MorningWord 3/22/13: Some of you are probably reading this post on your trusty old RIMM phone with a QWERTY keyboard as you are waiting in line outside a VZ or an AT&T store for today’s launch of BBRY’s new Z10 phone. Ok, you probably are not doing that, but BBRY’s new management has bet the company’s future that their new touchscreen Z10 phone (decently reviewed) will help stem defections to iPhone and Android, but it is very unlikely to cause current iPhone or Android users to switch back to BBRY. Wired mag’s review titled, “A New Hope” which might have been better of with the title “Help Me Z10 You Are My Only Hope”, suggests:
“It won’t dethrone Android or put a major dent in Apple’s iPhone dominance. But it will make current BlackBerry users happy enough to lay down some cash……….For the beleaguered Canadian company that’s catching up to the rest of the smartphone market, that’s the good news. But even with a whole new operating system running on some great hardware, the Z10 will not inspire a grand exodus from the two leading mobile ecosystems”
Six months from now when investors and analysts look back and sift through the Z10 ashes, my assumption will be that one of the main reasons for the phone’s mediocre CONSUMER response will be the timing of the launch within weeks of Samsung’s Galaxy S4 launch and at the exact mid point of the 1 year cycle of the next iPhone release. The problem BBRY has on the consumer front is the ecosystem (or the lack there of), limited Apps and media support. On the Enterprise side, they better be cutting deals left and right to keep large businesses from getting rid of hardware support all together. More and more of my friends who work some of BBRY’s largest corporate customers, like banks, law firms etc, are being given the option to drop GOOD Technology’s Secure Email Suite on their own device, usually an iPhone. For both the employer and the employee, this solves multiple problems, none of which are positive for BBRY.
SO WHAT NEXT? If the company exceeds internal goals for U.S. sales then possibly we see a press release Monday morning. My sense is that we don’t. The company is slated to release their Q4 results Thursday March 28th after the close, and I would assume that if they have any good news on the recent sales front they should bundle it with what is likely to be less-than-stellar trailing results.
The options market is implying about a 12% move (the March 28th weekly straddle vs a 16.16 close last night is offered at about 2.05, if you were to buy that you would need a ~12% (~$2 up or down) move by Thursday’s close to make money). The move seems high, but when you consider the stock’s range YTD, $12 to $18 and then back again, and the historical 4 qtr avg of ~13.5%, there is a strong likelihood of movement post-results.
I stick by my view that the easy money has been made in BBRY off of the 2012 bottom and the stock remains a traders dream due to the volatility, but potentially an investor’s nightmare. The 33% short interest makes it very difficult to short in the low teens, but the sum of the parts makes it a difficult long in the high teens. Despite a few recent upgrades (MS to Buy and $22 target on Wednesday) the street remains overwhelmingly negative, there are only 8 Buy ratings, 16 Holds, 21 Sells with an avg price target of $12.21!!! So You get my point this will be a very fluid situation,and likley to remain volatile. If the stock were to head back to $12 or below on disappointing results, guidance, cash burn etc, I think there is a reasonable chance that some hard core activist investors get involved as the company is very cheap, and un-levered!
We will do a deeper dive in the earnings next week.
MorningWord 3/21/13: Years ago I worked for a guy who had a little saying about stocks or indices that were near some sort of numerical or technical milestone. It went something like this, “it didn’t come all the way to the prom to not kiss the prom queen”. Oddly the guy was far more right then wrong on that note, which is even more impressive as I assumed he had little experience with proms or their queens. I think of this phrase often as it relates to the market. As market participants we spend a lot of time trying to get some sort of qualitative or quantitative edge, but sometimes it’s easier than that – it just comes down to simple high-school logic.
Looking at the SPX for instance and its nearly 16.5% rally from the mid November lows, it now sits less than 1% from its all time closing high in 2007 and the less than 2% from the all time intra-day high of ~1575. With just 6 trading days to quarter end, if we were to close here, up 9.3%, it would mark the 10th best Q1 performance since 1950 and the second best since 1998 (last Q1 2012 the SPX was up ~12%).[caption id="attachment_23916" align="aligncenter" width="429"] Courtesy of the Stock Traders Almanac[/caption]
SO I GUESS YOU GET MY POINT, we have come this far, I think is safe to assume, without going too far our on a limb that we get a new closing high btwn now and quarter end, but your guess is as good as mine to what happens from there (but I think you have a good sense for which way I am leaning). Mutual Funds will do their best to mark their books into quarter end and it appears that money-flows out of Europe are coming here, which could continue with the beginning of the month and the quarter.
Very quickly though, U.S. corporate earnings will become the big focus, and if this week’s commentary from FDX, CAT and ORCL are any indication, we could be entering a period of greater single stock volatility. So for now, we have gotten this far and I would assume that most market participants, no matter what side of the fence, bull or bear would prefer to see milestones achieved, and maybe just maybe a few trader dudes out there finally get to lay one on that illusive prom queen.
MorningWord 3/20/13: On the heels of LULU’s earnings warning Monday evening and subsequent stock decline yesterday, we had a quick little discussion on the Fast Money desk last eve about some prior market leaders losing a bit of their mojo of late. LULU had been showing relative under-performance for weeks (down about 12% on the year as of Monday’s close), in a very similar pattern to WFM, since its own earnings disappointment in February. What I find most interesting about the price action in these 2 stocks is that both receive nearly the entirety of their revenues from North America, the one place on the planet where there appears to be some optimism about the consumer.
For good measure, let’s throw in the performance of UA, also a former high growth, high valuation performance leader that has been unable to get anything going since making new all time highs in Q4 2012. Much like WFM and LULU, UA also gets most of their sales from NA. The 2 year chart of all three shows the tremendous run up, almost in lock step with one another, and how they all peaked at some point in the second half of 2012. What the chart doesn’t show is the bifurcation with the broad market or consumer discretionary sector (specifically the XLY) which are within a couple % of all time highs.[caption id="attachment_23878" align="aligncenter" width="589"] 2 yr chart of LULU vs WFM vs UA from Bloomberg[/caption]
SO WHAT’S IT ALL MEAN?
I am not exactly sure what you do with this, but I do think it is important to note that at what could be the late stage of the recent leg of the bull run, investors are becoming a bit more discerning about the horses they want to ride from here on out.
The other group of stocks that seem vulnerable to me going forward are high valuation tech names, that have shown great relative performance throughout the fits and starts of the last 2 years, but are not keeping pace with the rally this year. The performance, or lack thereof, by the likes of AMZN, CRM and EBAY is a bit curious to me, particularly since recent market milestones of the Dow’s all time highs and the SPX coming withing 3 points of its all time closing high. The 5 month chart of the SPX (highlighting the Nov Lows) vs the previously mentioned tech names shows the recent break after a period of high correlation.[caption id="attachment_23879" align="aligncenter" width="589"] SPX vs CRM, AMZN, EBAY from Bloomberg[/caption]
Again, Bulls could argue that there is a healthy rotation out of some prior leaders that may already be discounting a fair bit of good news, for every LULU they will show you a GPS, for every AMZN they will show you a GOOG. I get all that, and I am not for a minute saying this is the “Tell”, but I sure want to keep a close eye on these relationships. This could very well be a distribution phase as the market rally attempts to broaden out, but I will tell you that charts like CRM make me a tad nervous for high valuation, high growth stocks. Since reporting better than expected results in Feb and the stock making new all time highs, the stock had a failed breakout and has since retraced almost the entire earnings infused move. This is not the sort of action I would expect to see from a Tech leader as the Nasdaq flirts with 6 year highs. This thing could have $160 written all over it in a 5% broad market decline.[caption id="attachment_23880" align="aligncenter" width="589"] CRM 1 yr chart from Bloomberg[/caption]
So you get my point. Not sounding alarm bells just yet, but domestically focused high end consumer taking it on the chin, and recent under-performance from some high growth tech leaders could signal some buyers exhaustion rather than basing for new highs.