Tuesday, October 25, 2011

An Apple Trade in Review

Three months back, I was ruminating about my increasing interest in Apple and wondering whether it was a good idea to own Apple as well as companies that compete with the tech giant.
Ultimately, I decided to put my money on Apple (AAPL) outperforming those companies. I sold off two-thirds of my Adobe (ADBE) shares. I liquidated my position in touchscreen maker Synaptics (SYNA.)
I felt pretty good about it then.
So, how did that play turn out a quarter later?
It was looking pretty smart until last week.
As part of the trade, I had sold my Adobe shares around $25, a hair above my average buy price.
It's since inched up to $28.20. That's about a 13% gain.
Not too shabby.
Synaptics is a much more interesting story.
 I sold off Synaptics at $26, and the stock subsequently lagged for two months. It reached a low of $22, and it looked like investors were about to leave the company for dead.
Then, something turned.
First, the company's new CEO started talking about new growth opportunities.
The stock started to tick higher, up past my sell price.
Then, it reported earnings last week. And it blew up.
The stock is up some 25%.

Tale of the tape
Those are some nice gains, indeed. But, how did Apple do over that time? 
Not bad. But not as well.
I picked up my Apple shares around $370. It closed Monday at $406. That's a hair under a 10% gain.
If I'd made the switches all on that same day, I'd have been up a bit on Apple over Adobe, but still trailing mightily on Synaptics.

The second guess
So, would I have been better off leaving my money where it was? Should I have hedged my tech bets instead of putting all those eggs in one basket with Apple?
I'm not quite ready to pass judgement on that yet.
Apple still looks underpriced to me, with fantastic growth and a price-to-earnings ratio under 15.
But it's an absolute behemoth, and moving that price won't happen as easy as it will for smaller firms like Adobe and Synaptics.
And this comparison has to take into account the first Apple quarter that failed to meet expectations in a long time. I think that will be an anomaly.

The hidden gem
Perhaps my biggest regret in selling off a company like Synaptics to later see a nice run up is that it's a small company I found through my own stock screens and research. It's hard to let those companies go in favor of a "safer bet" like Apple.
I'm going to check back on this trade in three months to see where things stand. But for now, it looks as though the three companies can exist in the same portfolio just fine.

I have not updated my portfolio in a while, but here's a look at my holdings as of September.

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