Apple’s Gold iPhone – Part 2
Tesla Motors (TSLA)
Best Revolutionary Stocks
In last week’s column, I asked your opinion on John Kenneth’s Galbraith’s 1958 theory that free markets oversupply luxuries because commercial advertising stimulates demand for unnecessary goods and services—in the process diverting money from public goods. Case in point was the gold iPhone that Apple had just introduced.
Your responses:
“Dear Timothy...... I think that Galbraith’s basic premise is wrong; he seemed to think that advertising drives demand. I think that is just wrong. Companies like PepsiCo, RCA and Apple have spent a lot of time and money figuring out what people want and then offering it to them. Period. There is also no guarantee that Apple would have been correct in its judgment—this time, it looks as if the company was right.
“I also think that you’re dead wrong in your criticism of the gold iPhone. If someone wants to spend extra for such a status symbol, let ‘em. I’d rather spend the difference in buying Apple’s shares if they’re that good a marketer.
Yours truly,
F.K. Consulting Reservoir Engineer Oklahoma City, Oklahoma”
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“I do not see any harm in such advertising. We believe in free speech and free markets. Anyone may and can advertise legal products and services. They will stop advertising, manufacturing and selling if there is not enough demand for it. Simple as that.
“There are also exceptions that we should not advertise products and services to children if it is legal but harmful to them since they are not old enough to know and to make the right decision for themselves (i.e., cigarettes and/or alcohol).
J.H. Piedmont, California”
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“I vote for it being bad.
This type of advertising feeds into the need to be better than the Joneses. God does not want us to be better than our neighbors in this way. He only wants us to love one another more. Gold iPhones are only love of a false god. The extra money could be better spent helping others.
“As for advertising: 1. The first thing I do to a new magazine is to tear out the cardboard inserts so that they do not force me to their page 2. We record nearly all of the TV we watch so that we can fast-forward through the commercials (it saves 15 minutes out of a one-hour program!) 3. I listen to radio stations that minimize advertising and will switch channels immediately if they start to advertise foreign cars (pet peeve of mine!) or they yell the same thing in commercial after commercial 4. I despise that outdoor advertising lights the night sky and obliterates the beautiful stars of an otherwise gorgeous night 5. I do not read the “advertisement” sections of the Cabot e-mails I get!
“We do not have any type of paid TV or radio plans … only what comes free over the air. Our net worth is healthy and our home and autos are owned 100% by us (of course, we do not really own the 69 acres upon which we live … the government does … if you do not believe me, I will stop paying the exorbitant taxes and we will see how quickly the government will come in to take over their property! This view of home ownership really grinds me at times.)
“And that is how it is here in Eagle, Michigan.
D.S.”
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(please leave this one all caps. My “advisory board” recommends it.)
“BEING OLD AS DIRT, I HAVE HAD THE (MIS)OPPORTUNITY TO SEE ADVERTISING CREEP INTO OUR LIVES. PILLS FOR EVERYTHING THE HUMAN BODY DOES OR WANTS TO DO.
FUNNY THERE IS NO PILL FOR ‘THINK’, BUT THEN THAT’S ANOTHER RANT! BACK IN THE 1940’S, DENIM JEANS STARTED PUTTING THEIR CO. NAME ON THE BACK SIDE. I PROCLAIMED “ONLY MY NAME GOES ON MY BUTT!” SINCE THEN I HAVE HAD NO INTEREST IN THE ‘GARBAGE’ THAT HAS BEEN FORCED UPON ME. BESIDES THE DESIGN ASPECT IS DISGUSTING ... CLOTHES, CARS. FURNITURE EVEN HOUSES ARE WITHOUT ANY SENSE OF GOOD DESIGN. THERE ARE THOSE THAT TRY TO COPY YESTERDAY’S GOOD DESIGN AND THEN BASTARDIZE IT. THE SHEEPLE WITH RINGS IN THEIR NOSES ARE LED HAPPILY INTO DEBT. I AM A HYPOCRITE, I BUY ADVERTISING STOCK AND MAKE A PROFIT!
Elissa J.”
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“Your columns are riveting. I do enjoy them even when I don’t act.
“re: Golden Apple. ‘Commercial advertising’ does ensnare a lot of us—while good for the overall economy, it is probably not the best individually—we spend what we don’t have just ‘to keep up with the Joneses’. As the Gold Apple is not a techie thing; but rather a ‘Joneses’ item, it reflects poorly on AAPL. As a small shareholder, I hope for the day of a ‘techie’ breakthrough.
“Now to TSLA: While I haven’t driven one I did see it in their “showroom” at the Short Hills Mall (NJ). It is a beauty in styling. Unfortunately I saw it after I took my 2014 [Mercedes] E home!
“Having sold TSLA at an aborted profit, I am investigating YELP.
“Keep up the interest-provoking columns.
Paul M.
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I used Yelp in Seattle in July, was impressed with the service, and when you discussed it at the August seminar (awesome) I bought in and am now averaging up. Thanks so much for what you do, it is a valuable part of what I do these days!
G.C. San Antonio, Texas
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Many companies have surveys available on the receipt following my purchase. I have been told that some stores actually hold the store manager accountable for these (scores not high enough, not enough surveys submitted, etc). I don’t “do” them, even though I am asked to by just about every retail clerk that I encounter. I see them as a complete bother, and my guess is, so do most people, unless they want to complain. Why has this come into vogue, and who exactly can I complain to about this annoyance factor which seems to have permeated the selling of everything ... well, not the corner lemonade stand (yet!).
R.W. Sheboygan, Wisconsin
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Thanks for your comments!
I score the responses roughly balanced, with a healthy number of you remembering that investing opportunities are our common interest.
Good or bad, there’s little doubt that commercial advertising is here to stay, and little doubt that it will keep evolving. Yet it’s interesting to see that occasionally, Ralph Waldo Emerson’s observation, “Build a better mousetrap and the world will beat a path to your door” still applies.
In this case, I’m thinking of Tesla Motors (TSLA), which has blossomed as both a business and a stock this year, without doing any advertising! I’m not going to write much on Tesla here; I covered it pretty thoroughly two weeks ago, and you can read that column here.
But I do want to show you what the fruits of getting on board this stock early brought for me—a red Tesla Model S. It was delivered just nine days ago and it’s wonderful!
I also want to share with you the photo sent in by one of our long-term subscribers, B.F. Anderson of Baton Rouge, Louisiana. B.F. is a private portfolio manager, and his Tesla was delivered just a few days after mine!
The name is Photoshopped.
Also, B.F. didn’t send that picture to me; he sent it to Mike Cintolo, with the following note.
“Dear Mike, The composite gain for BF Anderson portfolios is currently 55%—thanks to your help we are having a great year.”
Which means it’s time to talk a little about Mike.
Mike Cintolo has two passions in life (aside from his growing family, of course), football and investing.
The football passion means that he’s a big Patriots fan, always up to date on the latest news and rumors about the team. (I fear he might name his next kid Belichick!)
And the investing passion means that when he’s not thinking about football, he’s probably thinking about investing! Which helps explain how he came to work at Cabot.
It was back in 1999, when the great bull market of the 1980s and 1990s was nearing its end, that Mike first contacted my father and me. He said he’d be graduating from college soon with a degree in finance and he wanted a job.
We said we weren’t hiring.
But he persisted. He explained that he’d been reading his father’s copies of Cabot Market Letter for years, and had recently begun writing his own advisory letter, which he emailed to family and friends. I read it, and was flattered at how closely it paralleled the style and philosophy of Cabot Market Letter.
Still, we explained that we weren’t hiring.
But he wouldn’t give up. He came to visit. He told us he’d rather work in our small company where he could make a difference than be a cog in a big machine. And the more he talked, the more we realized that he really did have something to contribute.
So we hired him right out of school, and he’s been an increasingly important part of the Cabot team since, especially since my father retired in 2004.
Here’s what Mike brings to the table.
1. Passion. Mike loves investing, plain and simple. It’s at the center of his worldview, seriously.
2. Discipline. Passion without discipline can be fatal, and Mike is an extremely disciplined investor, always following the rules, and always rigorously analyzing the latest quarter’s actions to see what he could have done better.
3. A willingness to learn from the best. Mike learned the Cabot growth methodology young and his college education didn’t knock it out of him. Since he’s been at Cabot, he’s not only read all the best of the hundreds of investing books my father amassed, he’s added scores to the mix, knowing that there’s always something new to learn.
4. Lastly, Mike is dedicated to growth investing—which has been at the core of the Cabot business since 1970—as opposed to value investing. As a result, he’s now our Chief Analyst, and editor of both Cabot Market Letter and Cabot Top Ten Trader.
Cabot Market Letter is our original advisory, and still the one I recommend to people looking to get started on growth investing. It combines stock recommendations (the fun part) with education, market timing and portfolio management advice and is thus “the complete investment advisory.”
But some people want more.
So many years ago, we created Cabot Top Ten Trader, which recommends 10 specific stocks every Monday, on the basis of technical and fundamental factors. Some of these recommendations are shorter-term opportunities (thus the word Trader in the title). But some become longer-term winners (like BE Aerospace, Michael Kors and Tesla Motors). And some get added to the portfolio of Cabot Market Letter later on (like Celgene, Facebook and LinkedIn.)
Thus Cabot Top Ten Trader is the ideal companion to Cabot Market Letter, because
1. It gives you more stock ideas where you can use the lessons learned from Cabot Market Letter.
2. It provides early notice of many of the stocks that get added to Cabot Market Letter’s portfolio.
Many of our readers already subscribe to both of Mike’s advisories; the synergies are compelling. And today, to make it easy for new readers to benefit from both advisories, I’m proud to announce, for the first time ever, a package deal.
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And now it’s time for the FINAL feature of my Best Revolutionary Stocks. If you’re new to the series, I highly recommend reading the background info here.
The final candidate is YY Inc., whose symbol, appropriately enough, is YY.
Here’s what I wrote about YY when I recommended it as Cabot Stock of the Month in late July.
“When I was a kid, five decades ago, the image I had of China was of an army of drab green Mao jackets, marching in unison, while children went hungry. Today, judging by the content of YY, China is an army of teenagers, sitting alone in their bedrooms and singing or talking into their computers, while stuffed animals look on in the background.
“Neither image, of course, is right; China has always been a diverse country. But its transformation in recent decades from communism to a new breed of capitalism has been stunning, and I’m confident there’s much more progress ahead. And this is what makes YY interesting; until now, it’s been possible to describe Chinese companies by naming the American equivalent: Baidu is the Google of China; Ctrip is the Expedia of China, etc. But with YY, there is no equivalent. There’s nothing quite like it in the U.S.!
“The company describes its offering as ”a revolutionary rich communication social platform that engages users in real-time online group activities through voice, text and video. YY Client, the company’s core product, empowers users to create and organize groups of varying sizes to discover and participate in a wide range of online activities, including online games, karaoke, music concerts, education, live shows and conference calls.”
“The experience starts at www.yy.com, which offers links to numerous portals. YY’s Duowan.com is a game media website that supplies access to interactive gaming content. Its WeiChang is a mobile app that lets users sing karaoke (including real-time lyrics and musical accompaniment) then evaluate and rank the performance of others. Web-based YY is an extension of YY Client that allows users to access most of the company’s services using just a Web browser. And Mobile YY extends the website’s services to mobile devices.
“It’s all well presented, and it’s evolving fast, with the company’s managers continually striving to meet the demands of their audience while creating ways to grow revenues. In practice, this might mean figuring out how to present, support and improve karaoke videos, adding new games, creating new music channels and more.
“The company is young, just five years old, and business is booming. Revenues in 2011 were $50 million. In 2012, they were $130 million. This year, more than $200 million seems certain. Online games have been the leading source of revenues so far, but advertising is catching up as the audience grows, while music sales are third.
“Turning to the stock, it’s young; YY just came public in November! But it’s already gained a lot of fans for a Chinese stock, including Citigroup, which projected annual growth of 91% for revenues and 117% for net income from 2011 through 2014, and Deutsche Bank, which upgraded the issue to buy in early May, noting that “YY has managed to gradually improve overall monetization while management proves strong execution skills.”
“In sum, YY has a great, mass-market growth story, with vast upside potential. Of course, it has risk, too. The risk is not particularly business risk; YY was fully vetted by the Nasdaq Exchange during its IPO process. The risk comes from both the earnings report, which is expected Thursday (August 2) after the market close, and the stock’s altitude, which you can judge by looking at the chart.
“YY is up 186%, year-to-date, and now sits roughly 27% above its 50-day moving average, and that’s potentially risky. One strategy with a stock like this is to buy a smaller than usual amount now, with the aim of adding to your position if the stock advances. Another is to wait until after earnings are reported and the 50-day moving average is closer—either the stock drops or the moving average catches up.
“In Cabot Stock of the Month, I like to keep it simple. I recommend buying now.”
At the time, the stock was trading at 40, and that’s worked out pretty well, as the stock is now hanging around 50. But a group of investors who did even better are those who subscribed to Cabot Top Ten Trader, which had recommend the stock on July 15 at 34. They’re already looking at profits of nearly 50%! As I said above, Cabot Top Ten Trader is your best source for early notice of hot young stocks.
If that sounds good to you, here’s another link to that great package deal.
Yours in pursuit of wisdom and wealth,
Timothy Lutts
Analyst, Cabot Stock of the Month
Here’s the List of all 10 Revolutionary Stocks
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Best Revolutionary Stocks – 2013:
The previous stock in our revolutionary stock series is the Internet version of the Yellow Pages; their growth is predictable—and that growth is not slow...
