Market Fever

Call me naive, but it is difficult to comprehend how the market reacts to earnings. Take for instance this stock in my portfolio, NutriSystems Inc (NTRI). A provider of nutritional portion controlled meal program, it reported a 69% increase in second quarter profits. Yea!! 69%. Many may argue that for a small company with a market cap of around 2 billion, 69% is good but not particularly impressive. But for one, it easily beat the analyst estimates. Let me put some figures in place to corroborate the immature market sentiment. S&P 500 posted average profit gains of about 4% in the first quarter this year. Russell 2000, a small cap index, shows an EPS growth of 15.21 over 5 years. NTRI has a EPS growth rate of 81% over a year. It's target price by most analysts is around 80. With all this said, during market hours the stock fell 6%. But disaster struck when the earnings were announced, and the stocks fell 15% in after-hours trading.

Another instance. Merill Lynch (MER). It delivered another strong quarter amidst sub-prime concerns and what not. It's still falling and guess what. It's P/E is significantly smaller than its EPS. I have seen P/E's of financial companies average at 10 or some, but none are lower than it's EPS.

Let us see what Apple earnings has in store tomorrow!!!!

The Apple Cult

Ever wondered what made iPod really successful? Despite the sucky iTunes, the cumbersome procedure of downloading songs from the PC to an iPod, the Herculean task of organizing your music by artist, genre and what not!! What makes it so different from gadgets like Zen, Zune and millions of other MP3 players? Why don't their products need marketing? I attribute all the answers to THE APPLE CULT. Yes!! Worse than a fraternity but better than a KKK.

So who makes it to this cult? The die-hard blindfolded followers of Apple right from Mac to iPod to iPhone. These people stand in line since 1 in the morning to get their products on the first day. These are the guys who create or fall for the hype Then there are what I call the corporate paparazzi who write about these products, some of whom are techie reviewers, and some, analysts with vested interests. The techie reviewers are genuine but an integral part of creating the hype. On the other hand, analysts are bogus, astute and discerning individuals who tend to boost the stock performance. It all sounds good but this kinda paparazzi follows every product. Don't they? Well yes, but in case of Apple, it is the number of these kinda people that join the party. This number is huge because of our very own "Steve Jobs". Read here to get a better idea of how this frenzy is created. In a nutshell it illustrates how Mr Jobs manipulates the media to make them believe that the device is a breathtaking, next generation, full feature gadget meant to be the best in that segment.

Finally comes another genre of people who just ride the flow. These are wannabes seeking some kinda status symbol. They fall in the bottom of the hierarchy with respect to originality. Even though the cult does not constitute a very large percentage, they make noise. I have friends who love Apple because they love the product. Not because of the hoopla. These kind are a significant number. But the noise by cult is much more overwhelming.

Well it is after realizing the exuberance of this cult that I re-bought, yea re-bought AAPL stocks. I have tremendous faith in these guys and I desperately hope it pays off.