Buy Apple and Ford -- Sell Amazon and Trade Sirius

NEW YORK ( TheStreet) -- Investors have digested the news of Sirius XM's ( SIRI) Ford ( F) expansion of its used car program, and beyond the crickets in the background there is little else.

Ford finds itself in the Wall Street doghouse, trading near this year's lows. Ford has strong technical support, just under $10 a share, and strong fundamental support with a price-to-earnings ratio of 5.8.
Ford finds itself in the Wall Street doghouse, with one seller saying only the flagship F150 hard to keep in stock. Still, expectations and consumer interest in the new Ford Escape are high.

With shares trading at $10, Ford's dividend yields 2%. Even with recent price weakness, shorts have not piled on expecting the shares to fall further. Short interest is relatively modest at 3.9%. If short interest moves above 4.5% to 5%, I will have to re-evaluate why the "smart money" is expecting smaller profits.

Trucks are Ford's most profitable segment, and it's no wonder why. Ford is the No. 1 truck company. I contacted Curt Beilke, who operates Ford dealerships in northern Wisconsin. According to Beilke, Ford super-duty truck sales are not as strong as he would like to see, but the flagship F150 is hard to keep in stock; expectations and consumer interest in the new Ford Escape are high.

At $10 or less per share, I believe Ford is a value buy. I especially like shorting August $10 strike put options for 70 cents or more in the next couple of weeks. Selling put options carries less risk than buying shares outright. If Ford moves lower, resulting in shares put to me, I will start with a cost basis of $9.30 or less.

On May 18, I wrote Sirius' relatively safe buy zone is $1.80 and that anything over $1.97 is a good exit price (at Tune out Facebook: Tune in Sirius, Pandora). I believe these two price points represent the optimal trading channel at this time.

For a more aggressive approach, $1.85 as the top of the buying zone may be appropriate, albeit using smaller size. Buying at $1.85 will offer more opportunities, but the greater risk requires using a smaller size because the risk reward levels are less rewarding.

I don't expect Sirius to offer much more than a trading vehicle. Current investors who don't want to sell can still profit from the price moves.

Instead of buying shares in Sirius under $1.85 and selling above $1-or-nothing proposition. For example, an investor with 10,000 shares may elect to sell covered calls on 1000 shares and leave the rest alone.

If shares move above $2, sell covered calls with at least 30 days until expiration )for example, July $2 calls at 16 cents each). If Sirius trades back down under $1.85, cover some or all of the covered calls written. Rinse and repeat as often as the market will allow.

Apple ( AAPL)took a dip under the 90-day moving average Monday before climbing back above to close at $564.29. I consider multiple day down moves in Apple as buying opportunities. Apple is worth the risk exposure because even if Apple doesn't deliver an exceptional quarter (and yes, at some point that will happen), the risk is largely priced in.

At $550 per share, it's hard to find another company with more attractive metrics. Apple is a growth company without a growth company price tag. The current price-to-earnings ratio is 10.46, but in the past four quarters Apple missed estimates narrowly only once, beating the three other quarters by a large margin.

I believe it's reasonable to put the odds of Apple beating and guiding higher than estimates at 50% -- basically a coin toss. If Apple significantly beats the estimate, the forward price-to-earnings ratio is no longer 10.46, but maybe single digits.

What makes Apple so intriguing is the ability to buy a dividend-paying stock with a rock-solid balance sheet for such a low earnings multiple. Compare Apple's price-to-earnings multiple with ( AMZN).

Amazon investors have to pay up to gain exposure. Amazon's current price-to-earnings multiple is over 80. That's 80 years of current earnings to pay for one share, and I consider anything over 20 expensive. Some argue it's worth paying a higher multiple for a growth stock; maybe so, but doesn't Apple offer the same growth story as Amazon without the 24K gold price?

Who is the real growth company between Apple and Amazon? Both sell e-readers; only Apple makes money selling theirs. Both sell digital downloads, but again there is a crucial difference: Not all digital downloads are made the same.

Amazon is caught in a tough situation. It's only a matter of time before publishers ramp up direct digital sales to consumers and begins seriously courting other websites to sell digital products. A simple link on a publisher's website saying "Click here to resell our books" is all it will take. Considering all the narrowly focused websites available, Amazon may find itself in a race to the bottom with price.

When a price comparison is as simple as a Google ( GOOG) search, Amazon will have to stay reasonably close to the cheapest offer. The only way to win is for Amazon to keep overhead low -- not easy for such a large company in relation to the many other websites.

A consumer wanting to buy an e-book can easily perform a price search, buy from the lowest-priced seller with Paypal and begin reading on an iPad within minutes. Convenience and reputation will garner greater sales, but the investment opportunity is with Apple, not Amazon.
The author does not hold a position in any stock mentioned.