This Week’s Commentary – July 7, 2007 – Uranium, Apple, Amazon, Google and Rim

by JDH on July 7, 2007

As I state in my article The Point of This Site, this site exists for two reasons:

First, I record my decisions so I can learn from my mistakes. At least once each week I write down my thoughts in this Weekly Commentary. I can then go back later, if a trade doesn’t work out, and analyze what I was thinking at the time, hopefully to learn from both my successes and mistakes. Putting them in a blog on the internet forces me to do it; it’s forced discipline for me.

Second, I want to learn from others, which is why I started the Buy High Sell Higher Forum.  I find it fascinating to read the thoughts of others, and it’s great to go back through the archives to see who was right and who missed the boat. I don’t agree with everything that is posted in the Forum, but that’s not the point. It’s there as a learning tool, and I appreciate everyone’s input.

I am not a professional investor, in the sense that I invest full time and make my living from investing. I am not a stock broker, securities analyst, or involved in any way in the investment industry. I am not involved in any capacity in any public company. I am the co-founder of my own company. My company is successful, and enjoys an increasingly dominant position in my industry (an industry that has nothing to do with investing). We have been in business for many years, and this year may turn out to be one of our biggest growth years ever. That’s great news for me, but I don’t believe in having all of one’s eggs in one basket, so many years ago I began investing in the stock market.

I was just a kid when I bought my first stock in 1980. I was in high school, so I had to have my father sign a “permission slip” with the broker to allow me to invest. I think I invested something like $300.

Over the years, I lost lots of money “investing”. I started “investing” in options. I lost a lot of money in options. I bought stocks based on “tips”. I lost lots of money doing that.

As time went on, I developed my Investment Philosophy, which can be summarized in four words:

Buy High, Sell Higher

We all want to get bargains, but in most cases you get what you pay for.

Here, I have a piano for you, you can have it really cheap, let me throw it to you from this tenth floor window.

In stocks, as with pianos, trying to catch something at the bottom is generally not a brilliant strategy.

In most cases it is better to buy something that has proven value. Yes, you pay more for it, but you get what you pay for.

In the stock market, waiting until a stock has finished it’s consolidation and broken out to new highs is generally better than continuing to buy a stock as it falls. Everyone loved Nortel at $120, which meant it was an even greater buy when it fell to $60 (I sold around $90, as I recall, back in the good old days). Apparently it wasn’t a great value by the time it had dropped to $2. You can’t catch a falling piano.

The point, of course, is to buy what’s going up.

Last year, and in particular in the last quarter of 2006, what was going up was uranium stocks. But just because uranium stocks went up last year, does not mean they will go up this year.

For the record, I still believe in uranium stocks. For the first time since early 2003 the quoted uranium price has actually fallen (see chart at the right hand side of this page). Nothing goes up forever. Consolidations are normal. However, it appears that by 2009 there will be 28 new proposed nuclear projects on the go in the U.S., which will stimulate demand as this decade wears on. The Megatons-to-Megawatts program, where Russia converts weapons grade uranium to reactor-grade fuel and sells it to U.S. utilities, in place since 1995, is coming to an end, probably over the next five years. That accounts for about a third of U.S. reactor fuel, so combined with more demand from the new plants, the price of uranium will not be crashing any time soon. When you add in demand from the rest of the world, including China and India, it does not take a genius to see that the uranium bull market is not over.

I think there are uranium stocks that may be ending their consolidations, and may have favorable drilling results to announce over the summer (stocks like JNN.V – JNR Resources Inc. and PXP.V – Pitchstone Exploration Ltd. come to mind), but they are not yet going up, so I have not yet started to fill my boots.

Again, I like to own stocks that are going up, and right now, most uranium stocks are not going up. So what to do?

The answer is obvious: buy stocks that are going up.

Unfortunately if you read guys like Dines or Casey or the other gurus who focus on mining stocks, you won’t get any other ideas. So, I did what all of those stock market books we read in the 1950’s suggested we do: I started by looking at products I buy myself. Here’s my story:

About a month ago my wife decided that we will be going on vacation out east this year. It will be a long car drive with our two boys (ages 7 and 9). We have a DVD player in the car, but you can only watch movies for so long. Some music to listen to would be a nice diversion, either for my wife and I while the boys are watching movies, or for the entire family when the boys are tired of watching movies. Instead of bringing ten million CD’s with us, I decided I needed an MP3 player.

I have an MP3 player. It’s not much bigger than my thumb, it holds about 100 songs, and it is very difficult to use. Sitting in a car and trying to scroll through a screen the size of my thumbnail is not easy, so I never use it. Obviously, I need an iPod.

So, I went to Google, typed in iPod, clicked on a Google ad for the Apple store in Canada, selected the make and model I wanted, typed in what I wanted engraved on the back, entered my credit card number, and pushed enter. I got a tracking number from FedEx to track my package, and I set it up to send alerts to my Blackberry every time the product moved, so I was able to watch my new iPod leave Shanghai China where it was made, travel to Anchorage, Alaska, then Memphis, then Ontario, and then to my office. It took less than four days from start to finish, and I had my iPod. I downloaded iTunes, transferred my CD collection to iTunes, and then “sync’d” it to my iPod. It was easy, and now I’m ready for vacation.

I gave my 9 year old my old Mp3 player. His eyes are better than mine, so the screen works for him. He doesn’t listen to it a lot, though, because at the moment he is re-reading the entire Harry Potter series in anticipation of the final book in the series to be released on July 21.

Being the good, but lazy, parents that we are, and not looking forward to standing in line for hours at the local book store, we went to Amazon and pre-ordered the final Harry Potter book, to be delivered to our house upon it’s release.

So, what stocks do I want to buy? Well, I guess I should look at Google, Apple, Rim and Amazon.

I have been using Google forever. In my business I advertise heavily on Google, so I know it’s value from both a searcher’s and an advertiser’s point of view. Even better, I like the three year chart of Google:

Google Chart

Over the past three years we have what we technical analyst pretenders call an “uptrend”, and that’s good.

Focusing in on the last six months:

Google Six Month

It appears that a buy point was around $510 or $520. Obviously the MACD and the RSI are at high levels, but as you can see from the above two charts, they have been at high levels before, so I am not overly concerned. I like the chart, I like the company’s product, so I am going to start buying.

As for Amazon:


It’s obvious that the three year consolidation ended with the release of good results back on April 24. The stock has pulled back to good RSI and MACD levels. If everyone else is buying Harry Potter, there must be some money to be made here. My guess is that Amazon will sell Harry Potter at a loss. However, when my wife ordered the book, she also ordered three books for herself, so Harry Potter becomes a loss leader, but they make money on a bunch of other stuff. (To qualify for free shipping, or faster shipping, it helps to order more than one book).

The naysayers will point out that the PE is ridiculous, they have major shipping delays and extra expenses because of storms in Texas, they are spending mega-money to get into China, they are quickly loosing music share to Walmart and Apple, the retail sector is down the last two month and doesn’t look great for the near future, oil is $72/barrel which will put an even bigger dent in their margin as shipping cost rapidly increase with fuel surcharges, Borders and Deep Discounts are offering the same books at cheaper prices with free shipping, and a few large shareholders are holding up the stock.

All of this may be true, but since the stock is going up, I plan to acquire a small position over the next week, placing below market orders to see if they get filled.

Now, to Apple:


Obviously the buy point was around $100 per share. However, better late than never, so I started buying this week, at $126. As the green lines show, a high RSI is not always a bad thing for this stock, so again, I am not overly concerned technically.

Fundamentally, I like my iPod, and I like iTunes. Obviously the younger generation loves these devices, but I think the growth will come from “old” guys like me. What has been most interesting to me is that I bought my iPod to listen to music, but I don’t use it to listen to music. I download talk shows and listen to them. There are probably some good investing related shows I can download, but for now I have subscribed to the Jim Rome show (sports talk) and the Dennis Miller show (political comedy?). It cost about $50 per year to download each of those shows, so at the end of the day my iTunes is programmed to download the entire show (without commercials in the case of the Jim Rome show) and put it on my iPod. I can then listen whenever I want. I don’t have time to listen to each show in full, but it’s nice to be able to listen to 10 or 15 minutes of a show when I’m in the car (I bought the attachment to play the iPod through my car radio).

Apple’s recent surge has been fueled by the new iPhone, sold out in most markets, and not yet available outside the U.S. It’s an iPod and cell phone in one. It looks good, but I’m not ready to give up my Blackberry just yet.

By the way, here’s Rim’s chart:

Rim Research in Motion

Obviously the buy point was a while ago. The Blackberry will be sold in China, so there is obviously more growth ahead. The stock looks pricey to me, and unfortunately Barron’s has an article today stating that Rim’s PE is higher than all of it’s competitors, and is fairly valued at around $118. I don’t care what “fair value” is, I care only about the market, but a negative article in Barron’s generally hurts a stock on Monday, so I’m not going to be buying Rim just yet.

(As a side note, a Google search for Amazon, Rim, Google and Apple shows that Jim Cramer is bullish on these stocks. You can read more at the CNBC web site. A free subscription is required. I have watched Mr. Cramer’s Mad Money show on CNBC, and it’s a little over the top for my liking, but he has obviously had some success in the past. I have never followed his advice, so whether or not it is good advice, I have no idea. I prefer to do my own thinking, which is why I have described my reasoning above).

My plan for the week is to nibble at some of the uranium stocks that I like, increase my Apple holdings on dips, and buy some Google and Amazon.

What do you think? Am I crazy to be putting some money outside of the mining arena? Or is this appropriate diversification? Did I pick the right stocks to diversify into?

As always, please leave your thoughts by posting a comment below, or on the Buy High Sell Higher Forum.

Thanks to all for reading and contributing, and have a profitable week.

{ 1 comment… read it below or add one }

capstar410 August 14, 2007 at 12:29 pm

Great info…Uranium is definitely on my hot list as of late. I like it long term projections being a macro thinker and its low supply but high demand will shoot its prices right up in the commodities market. Just take a look at this link of a report i found on it…


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