Morningword 11/29/13: When the Cat’s Away the Mice Will Play – $AAPL, $AMZN

by Dan November 29, 2013 9:38 am • Commentary

MorningWord 11/29/13:  “When the Cats Away the Mice Will Play”…we have all heard that expression as it relates to mischievous behavior, but never is it more applicable in the markets during holiday weeks. For those in the “Biz” there are obvious reasons, fewer marker participants (and those who are around are generally annoyed to be there), which means low volume and greater likelihood of pushing stocks around for those inclined to do so.  For Thanksgiving week in particular, most of the unusually bullish behavior throughout my career has taken place in consumer-related internet and select bricks and mortar retail stocks.

Obviously the poster-child for this price action (in almost every sort of market over the last 15 years) has been AMZN, and it is no different with the stock breaking out to new all-time highs this week, and up 5% in the last week.  To put that move in some context, AMZN is expected to register $26 billion sales this Q4, with operating income that the company guided to be negative $500 million to positive $500 million, while the street expects EPS to be about $1.13 a share. Ummm, you could drive a truck through that range. Once again AMZN going for market share rather than profits, but don’t worry, they have a very long term plan.

On the flip-side, AAPL will also register a record quarter for sales in the current period, where analyst expect them to deliver two times AMZN’s sales at about $57 billion with operating income of about $17 billion on eps of $14 a share.  Not surprisingly, AAPL has also risen in the past week more than 6%, quickly approaching the highs of the year.

In 2018, Amazon is expected to earn $27 per share.  Let’s assume AMZN does eventually achieve such profits (even though its history suggests that to be unlikely).  At that point, if the stock price remained around $400, the stock would be valued at about 14x earnings.  The company would be earning almost $15 billion per year, and at a near $200 billion market cap.  Contrast that with AAPL today.  AAPL is a $500 billion company expected to earn $40 billion in profits next year.  It is valued at 14x earnings.

Would I rather own the $500 billion AAPL, or the $200 billion AMZN?  I’ll take the bird in the hand vs. 2 in the tree any day.  In the case of AAPL vs. AMZN, which would you rather, it feels more like one bird in the hand (AAPL) vs. only one bird in the tree (AMZN).  Get back at me in 3-5 years if you actually catch that one bird in the tree.