Tablet computing is already big but getting even bigger than you might think . . .

BI Intelligence, a service of Business Insider, recently forecasted that tablet sales, such as iPads, Kindle Fires and e-readers, will hit 481 million units by 2015, becoming a more than $100 billion market.  As they said, “That’s enormous growth” . . . Well Duh!  

Here are some factoids to wrap around that outlook . . . Tablets are the fastest adopted consumer electronics device – EVER.  1 tablet = 3.4 smartphones in terms of traffic consumed.  2011 mobile data traffic per tablet was 517MB per month.  There were 34 mm tablets connected to the internet in the US last year and video was over 50% of all mobile traffic.  According to Cisco, mobile connected tablets will generate almost as much traffic in 2016 as the entire global mobile network in 2012. 

Why is BI Intelligence so bullish on tablets? They think they’re going to replace PCs for most tasks. They go on to say that consumers love them, they are making inroads in enterprise and education, and they will “blow up” (i.e. be ubiquitously used) in emerging markets.  We agree.  Tablets are revolutionizing the way video content is consumed and the way people interact on the web.  And what about the beneficiaries?  Think of course hardware but also cloud services including data storage, “big data” processing, SaaS providers, mobile ad technology vendors, digital video software and services, etc.   Jeb Terry, Sr. February 14, 2012

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Current stock market rally is the best in years. How long and how high can it go?

January 2012 saw the S&P 500 rise 4.4%.  According to the Stock Trader’s Almanac (here), a typical move for January has been a gain of 1.3%.  It was the best performing month of January for the S&P 500 in 15 years since 1997.  January 1997 rose 6.1%.  The Q1 1997 gain for the S&P 500 was 2.2% therefore the S&P 500 actually declined from January to March 31. The full year 1997 saw the S&P 500 rise 31%.

If Q1 ended today, the S&P 500 would be up 7.34%, the best Q1 performance in 14 years since 1998.  Since 1927 there have only been 18 years with as strong or stronger a Q1 gain.  The market went on to have a full year gain in 88% of the cases.  The average full year gain was 15.8%.  In 1998 the S&P 500 gained 13.5% in Q1 and rose 26.7% for the full year.

Market lore has it that if January is positive then the full year will be positive and vice versa.  Since 1950, there have been only 7 years where this relationship has not been true implying 88.5% accuracy.  Notably, the indicator was wrong in 2009 and 2010 when the market had a loss in each January but went on to have an above average gain for the full year.

The current rally in the S&P 500 is up 22.5% since the bottom on October 3, 2011.  Birinyi Assoc. (here) calculates that the average rally since 1945 has seen a gain of 37.1% over a 327 day period.  The implication is that the current rally can last another 200 +/- days and rise another 14% to 1,543 by around August 25, 2012. Jeb Terry, Sr. February 9, 2012

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Extended bull phases in the stock market have tended to experience a prolonged period of 40+ consecutive trading days without a daily price correction of 1% or more early in the bull phase. .

The linked article and chart by Bespoke Investment Group (here) displays the frequency of periods of such consecutive day periods since 1980.  The market has currently gone 27 days without a 1% + correction.  It needs to make it to February 24 to satisfy the 40 day hurdle.  IF ( a big IF) attaining 40 days without a 1% correction is a valid indicator that the market is in fact in a new bull phase, then the market might be expected to rise for a period defined in quarters if not years.  Jeb Terry, Sr. February 9, 2012

Aberdeen Investment Management – a guide service for micro-cap technology investment

Election years tend to be positive for the stock market.

The S&P 500 has been up 12 of the last 15 Presidential election years since 1952 by an average of 8%.  In addition, the outcome of the election has been coincidental if not predicted by the performance of the stock market in January of the Presidential election year.  As the following table from Investor’s Business Daily points out, if a major market index is up by at least 5.8% in January then the incumbent loses and the challenger wins.  The supposition is that since the NASDAQ gained 8% in January that President Obama will lose in November.  Jeb Terry, Sr. February 9, 2012

Aberdeen Investment Management – a guide service for micro-cap technology investment

An extended spread in the S&P 500 earnings yield over the 10 year Treasury rate has signaled a prolonged stock market rally in the past.

The current earnings yield for the S&P 500 is 368% greater than the 10 year Treasury rate.  With the exception of a brief period last fall when there was a panic to own Treasuries, this degree of disparity between the earnings yield and the risk free interest rate on Treasuries was not only unprecedented but unthinkable. 

There have only been 14 quarters since 1970 when the earnings yield has exceeded the 10 year Treasury rate by more than 150%.  In 11 of those instances (78.6% of the time) the S&P 500 went on to gain an average of 20.2% in the ensuing 12 months.  The average next 12 month gain for all instances was 13% – better than the average annual gain in the market.  (I discussed this topic in a prior post here).  Jeb Terry, Sr. February 9, 2012

 Aberdeen Investment Management – a guide service for micro-cap technology investment

Earnings have outpaced stock prices. Something has to give.

Since the market low in 2009, S&P 500 earnings are up 148%.  The S&P 500 price is up only 69%.  This is unnatural.  Either earnings must contract or stock prices must rise. Earnings growth might be slowing but they are unlikely to contract.  Accordingly, stock prices have plenty of upside to get back on track with earnings growth. Jeb Terry, Sr. February 9, 2012

Aberdeen Investment Management – a guide service for micro-cap technology investment

Consumer confidence is returning. Rising confidence goes with rising P/E ratios and therefore, rising stock prices

I have commented in the past (here) about the correlation of consumer confidence and the S&P 500 P/E ratio.  Recent work by GaveKal Capital  has also shown there is an 81% correlation between consumer confidence and the P/E ratio.  The following chart from Rasmussen Reports reveal there has been ~33% improvement in consumer confidence since Sept/Oct of last year.  While the P/E ratio has increased also, it is nowhere near the 17.3X level that was measured back in Jan. 2008 when Rasmussen reported that confidence was near the current level or the 15X at Dec. 2010.  Confidence, while improving, is still sharply lower than four years ago.  This confidence measure was as high as 93.1 this month.  It was consistently above 120 from 2002 until 2008.  Jeb Terry, Sr. February 9, 2012

Aberdeen Investment Management – a guide service for micro-cap technology investment

The amount of cash on the sidelines remains at near panic levels

Money of zero maturity (T-Bills, cash in banks etc.) is equal to approximately 94% of the market value of the S&P 500.  The median percentage going back to 1990 has been 68%.  The elevated level of cash remains consistent with a market low – not a top and not a middle.  A movement of $100 billion out of MZM and into the market could translate into $1 trillion in increased stock market value.  It is entirely possible to see more than $100 billion flow back into equity mutual funds.  There was $134 billion withdrawn from equity mutual funds in 2011.  There has been approximately $8 billion withdrawn year to date (as of Feb.1, 2012). Jeb Terry, Sr. February 9, 2012

Aberdeen Investment Management – a guide service for micro-cap technology investment

“Bass akwards” . . . Too much money in cash, too little in stocks

Despite all the fear and angst about Europe, the U.S. fiscal crisis and political uncertainties there is too much money in cash and too little money in stocks.  It is perverse that investors have poured capital into the least productive sector of the economy . . . the government run public sector . . . and fled from the most productive sector of the economy . . . the private sector.  While the stock market has had a nice recovery since its low in 2008, it is only starting its recovery in its long term return. Jeb Terry, Sr. February 9, 2012

Aberdeen Investment Management – a guide service for micro-cap technology investment

Mobile healthcare applications will be huge –the health information audience on mobile devices surged 125% last year. . .

Recent data from comScore noted that the audience of mobile users turning to their smartphones for health information surged 125% in 2011.  16.9 million mobile users in the U.S. accessed health information on their device during the three-month average period ending November 2011.  This audience is mostly young and tech savvy.  They are the leading edge of a coming wave of “mHealth” applications.  There will be multiple new players emerging from a slew of VC backed start ups and micro-cap tech companies that will be potential members of our portfolio.  We are currently exposed to the trend in both public and private portfolio companies.  The following chart from comScore is unambiguous.  Jeb Terry, Sr. February 8, 2012

Aberdeen Investment Management – a guide service for micro-cap technology investment