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Wednesday, April 23, 2014

Amazon

I don't normally write about trading stocks, even though I spend far more time on that than I do writing this blog. But, for some reason I'm in the mood to do so today.

I've been doing a fair amount of after-hours trading recently. Companies report their quarterly earnings when the stock markets are closed, but you can make a quick judgment as to whether a stock has overreacted or underreacted to a report in the after market, and trade accordingly.

One nice thing about after-hours trading is that the algorithm-driven buy or sell programs aren't in operation then, so you don't get as many wild moves that don't make sense.

Today, after the official 4PM market close, both Apple and Facebook reported. Facebook had a good report, easily beating expectations, and the stock traded up two to three points.

Apple, chastened after their previous lackluster earnings report, did everything they could to make their investors happy. Besides easily beating earnings expectations, they increased their stock buyback program, increased their dividend, and announced an upcoming 7-for-1 stock split. Sure enough, Apple stock rocketed up from 524 to 566 in the aftermarket.

Apple moved too fast for me, but I was able to flip some Facebook -- which I thought had initially underreacted -- for a small profit, buying at 4:10PM and selling shortly after 5PM.

In any case, both reports bode well for tomorrow's market. Both stocks are bellwethers, and if both trade up strongly, it's hard not to see the entire market rallying in sympathy.

Amazon reports after tomorrow's close. Amazon has always traded at an astronomical price-earnings ratio, simply because its earnings are so low. (Focusing on profitability and increasing their margins might result in loss of future market share.) For that reason, I've always stayed away from it, since I'm suspicious of stocks whose valuations follow no traditional metric.

Amazon, too, got rocked after their last quarterly report, and one would have to think they are somewhat chastened as well. Amazon, given its vast revenues, would seem to have more wiggle room than most to massage their earnings. (It's a lot easier to fudge your bottom line than your top line.) And after that 50 point dive three months ago, they certainly have motivation to do so.

Many of the high flyers got hit pretty hard in the five or six weeks leading up to last week, with some of them taking 25% haircuts. But in the past ten days some of them have recovered nicely. Amazon has not, and judging by its distance from its yearly high, has some room to move.

So, rather than chasing Apple, after today's close I bought some AMZN at 328 instead. I'll know shortly after tomorrow's close whether that was a good bet.

4 comments:

Anonymous said...

528?

John Craig said...

Anon --
Good catch. I meant 328. I sold them at an average of around 343 after the close today, after they announced. I was thinking it would go higher, but at least it was a profit.

I'll correct that error, thanks.

John sMITH said...

Good thing you didn't hold out for more!

John Craig said...

John -
Yes, I got lucky on that one. But full disclosure: I scaled some shares in this morning, average cost 321; not looking so good at the moment (it's at 307 as i write this).

I'm not quite sure what possessed me to write about this in the blog.