I was chastised via e-mail following last week's column that flowed on the looming water crisis and how investors can position themselves rather than touching on the launch of Apple's iPad and how an investor might play that.
No doubt Apple continues to innovate and change not only the where and the how about the way we consume content but also the way in which we purchase it. To be fair, the iPad is the latest in a new category of light computing devices, which includes other tablet computers and netbooks.
What is different with the iPad is how a person uses it, but is it that big of a breakthrough following the success of the iPhone and the iTouch? Probably not as big, but still meaningful enough for competitors like Google, Hewlett-Packard, Dell and others to launch similar products.
Sounds to me like a replay of what has occurred in the Smartphone in the past few years and but another way to play the bullets over the guns. For those new to that idea, it means to favor key suppliers that stand to benefit from not one particular product but rather the rising competitive tide in a product category. Semiconductors, memory and battery technologies are options when examining the light computing market, but to me what is truly different about the iPad and the response will be the touch capabilities. We have seen this before following the iPhone and are likely to see it again post iPad.
With that in mind, one of the companies that I have been examining is Synaptics Inc., which primarily serves the computing and mobile device market. With a strong position in touch pads found on most notebook computers and a growing one in the mobile phone space as more manufacturers offer touch screens on their devices, touch-enabled tablet computers are but another engine for Synaptics. Commentary out of Intel suggest the corporate PC cycle is poised for an upgrade and Synaptics is well positioned given its customer base, which includes Dell, Samsung, Acer and others as well as Google. That relationship with Google may position Synaptics favorably for Google's response to the iPad.
With $4 per share in net cash compared to its current share price of $28.45 and its shares trading at 13.2 times calendar 2010 consensus earnings of $2.15 per share, Synaptics shares are worth pondering when considering investing in the growing touch-enabled market. A risk I'd watch for is industry-pricing trends for its products. Historically, a new and growing market invites new players, which may price aggressively to win either new business or to secure large contracts. Again, something a potential investor should keep an eye on.
But that was last week, and there has been a tremendous amount of activity this week in the form of earnings reports from Alcoa Inc., Intel Corp., CSX Corp., United Parcel, J.B. Hunt and others as well as a large upward move in the stock market. That upward move reflects the strengthening sentiment that the economic recovery is under way. As one would expect, such a strong upward move in the market reignites fears of a pullback and brings up the question of whether the market is overdone here.
My view is the following - a rising tide (the industrial economy) lifts a number of boats but greedy pigs get slaughtered. Don't be ashamed of taking profits, but don't cry if you turn out to leave some money on the table.
We are not out of the woods yet, Toto. Despite the aforementioned fresh data, this week Federal Reserve Chairman Ben S. Bernanke shared that concerns remain. Mr. Bernanke testified this week that the private sector can lead a modest economic recovery but pressures associated with construction activity and the real estate markets, state and local government budgets and the federal deficit remain.
While I agree with Mr. Bernanke and I too am concerned about the impact of those pressures, the overriding concern to me remains jobs. This is particularly so as job creation or the lack thereof was a renewed topic this past week when weekly jobless claims came in higher than expected for the second week in a row.
More troubling is data that shows more than 6.5 million people have been unemployed for more than six months. Granted we are hearing chatter from some companies, like Intel, that are looking to hire in 2010 but I have to wonder how Intel hiring 1,000 to 2,000 employees in 2010 can put a dent in fresh initial jobless claims of 484,000 this week or 4.6 million continuing claims?
Sounds to me like further support for a jobless recovery at least near term and let's remember that was more or less the way the past two economic recoveries began.
With only a handful of days into March quarter earnings, the prudent thing to do is to keep our eyes and ears open as we digest company reports and outlooks issued in the next few weeks to reassess the trajectory of the recovery as well as the employment picture. A rebounding economy will eventually lead to job growth, but in the mean time how do we deal with lingering costs and missed revenues of high unemployment?
At some point, federal, state and local budget gap needs to be closed which means either more cuts or more likely in my opinion tax increases - direct or indirect - will be back on the table. Stay tuned.
• Chris Versace is director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston, Va. He can be reached at firstname.lastname@example.org. At the time of publication, Mr. Versace had no positions in companies mentioned. However, positions can change.