This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Amidst Uncertainty, Buy Apple and Amazon

NEW YORK (TheStreet) -- First, I would be doing a disservice if I didn't direct you to two of the best articles TheStreet's Jim Cramer has ever written. Both attempt (and succeed) to make sense of the shell shocking experienced by tech stocks and associated high flyers.

These are the types of articles you read now, learn from, save and look back on months and years from now as needed ...

Jim Cramer: Looks Like 2000 Is In Play (April 4, 2014)
Jim Cramer: This Extraordinarily Ferocious Selling (April 7, 2014)

Tell me I'm brown nosing the boss. I don't care. He's not my "boss." He's the founder of TheStreet (TST). And he freaking nailed it with the type of accessible, yet "inside baseball" knowledge you're not going find from anybody or anywhere else.

I defer to Cramer on the issue of why the carnage is taking place and what to do as a result. However, I offer my own humble take as to how you might consider proceeding through what is, without doubt, a scary period. No matter how many times you have seen it happen, you always wonder if it'll be different this time. Meaning what if there's no recovery. Or what if the days of lofty valuations go away forever.

Must Read: Verizon Is Overdue for a Rally

Assess Long-Term Opportunity

Consider these four stocks: Amazon.com (AMZN - Get Report), Netflix (NFLX), Pandora (P) and Yahoo! (YHOO).

Courtesy of Yahoo! Finance, that's the one-month chart, as of Monday's close, on those four names.

Pandora, of course, has been hit hardest. While outgoing CTO Tom Conrad and other filthy rich Pandora executives bailed when the bailing was good, that might not be the case for retail investors.

As Wall Street finally grasped the Pandora story, analysts pumped it in the $30s. What horrible timing to buy a stock set to not only dump with the basket of stocks it trades with, but under the weight of its own ineptitude. So now you need to reassess the situation. What do you do with this damn thing?

You could sell it -- take profits if you got in low or absorb a loss if you were duped -- and flock to the most precarious safety net in the history of the stock market. Names such as Microsoft (MSFT), Cisco Systems (CSCO) and Hewlett-Packard (HPQ). They're up roughly 5%, 5% and 8% respectively over the last month.

Or you could strap on a pair (and I don't mean that pejoratively because it takes some nerve) and seize opportunity in the scraps. This flight to safety in MSFT, CSCO, HPQ happens not because anybody has any real faith in these companies' futures, but because it's nice to ride out storms with less volatile, dividend-paying stocks. If that's your game, that's cool. But then I have to ask -- why aren't you buying Apple (AAPL - Get Report)?

If there was ever a flight to safety tech stock, it is (or least ought to be) AAPL.

Here's my rationale -- which you can use as a framework. Specifics -- as in which stocks you believe in (or not) is, as always, up to you. Because what I'm doing is judging where a company will be 2, 3, 5, 10 years from now. And if there was ever a subjective game, this is it.

Do you believe Pandora leads Internet radio, commands let's say a quarter of the $14 billion radio advertising market and has a robust data business to complement its ad revenue (sort of like Amazon has with Amazon Web Services) 5 years from now? If you do, pray it doesn't go up on Tuesday, but, even if it does, buy the snot out of it until the 'P' key falls off of your keyboard.

The way things look now I can't be that confident about Pandora's long-term prospects. Therefore, if I could own individual stocks, I wouldn't buy it at $27, because I think it sees $22. If the present narrative doesn't change, I wouldn't even buy it at $22. There's a reason why Pandora has underperformed the Nasdaq Q's (Powershares QQQ (QQQ)). It's because there's trouble at Pandora that runs deeper than a market correction. (And, yes, I know P trades on the NYSE, but the Qs are still a good benchmark).

Though I'm not quite as bearish, I couldn't touch NFLX or YHOO here either. There's simply too much uncertainty over where these companies will be in 2, 3, 5, 10 years. Even in an up market, there's a cloud over P, NFLX and, to a slightly lesser extent, YHOO.

But if you ask me about Amazon, I'm all over it at $318. And if it breaches $300 like many AMZN bears think it will, I would double down. And don't talk to me in a month or two or even a year about the decision. The decision to take a chance on AMZN revolves around the very well educated guess that the company -- ten years burning down the road -- not only still dominates e-commerce but has built out its ecosystem to something that resembles completion. And, even if it hasn't, I would be every bit as confident in Amazon then as I am today if it continues to spend to seize long-term opportunity it created for itself and, by default of lame competition, owns and controls.

That's why I'm puzzled to see investors -- presumably big ones -- jump into MSFT, CSCO and HPQ. Companies with massive long-term question marks. You would think the times we're living through would reignite the love affair with Apple, not what amounts to -- at least in MSFT and HPQ's cases -- the PC.

Here's Apple selling more and more higher-priced Macs in a rapidly declining PC market. We get disappointed when Apple sells something like 50 million iPhones in a quarter. We chide it for losing tablet market share, but only because every other mindless, copycat tech company introduced their own iPad knockoff and diluted the market. And we're just dying to know what it's going to do next. 

Make no mistake -- Apple will own hearts and minds and be every bit as ubiquitous as Amazon 2, 3, 5, 10 years from now. To think otherwise suggests you've been taken over by the paranoia a major market correction often induces. 

Seek out companies with good problems to have. And buy them when everybody else is freaking out. That's not an easy task -- both finding the companies and have the guts to buy them. No matter how hard the market runs, for long-term investors, it's always a stock picker's game. Now more than ever.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a full-time columnist for TheStreet. He lives in Santa Monica. Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $110.55 -2.00%
AMZN $512.89 0.00%
FB $87.18 -2.50%
GOOG $603.07 -2.50%
TSLA $249.06 0.00%

Markets

Chart of I:DJI
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASDAQ 4,776.5080 -51.8170 -1.07%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs