About Those Tax Havens

avatar By: IS
Date posted: 05.21.2013 (3:00 am) | Write a Comment

tim-cook-blog1With Apple CEO Tim Cook set to testify this week regarding tax havens and how Apple and many other companies in the US pay (a lot) less taxes than we’d expect them to pay, it will be very interesting to see what message comes out from the media. I fear it will be that Apple is evil or that we should just fix the tax loopholes. It’s not that simple. Like so many other problems, this is an incredibly tough problem to address. There are thousands of ways to avoid or diminish tax bills and global companies are finding new innovative ways every year. These methods are generally legal and do not necessarily rely on tax loopholes so solving them is not easy.

I’ve seen many smart people such as Jeffrey Sachs write about this but I still do not see many ways to do it being discussed. It’s much easier said than done.

Oh and let’s all blame Apple please.. it’s far from alone, here are others escaping the 35% corporate tax rate:

Effective tax rate

Apple = 9.8%
Google = 11.9%
Yahoo = 11.6%
Amazon = 3.5%

One article that seems to explain some of the challenges of what governments are trying to do was written on Baekdal. If you’re interested in the subject, I recommend it! It’s an incredibly complex issue and there has to be a global solution (which seems like a daunting task) if Apple and others wants to make sure it does not lose its “tax advantage” while competitors continue to get it…

Should be a very interesting debate!

more:

-Seven tax avoidance techniques used by Apple
-Apple’s web of tax shelters saves it billions
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Time To Start Investing On Margin?

avatar By: IS
Date posted: 05.21.2013 (3:00 am) | Write a Comment

In my quest to become financially independent, I’ve been looking at many different ways to increase my net assets. One method that is often used is leverage. In some cases such as students, it’s unfortunate and is actually a worrying trend, just look at this chart from the Wall Street Journal:

debt

 

What I’m considering though is something I’d personally consider less risky. I’m thinking about borrowing some money in order to invest it in the markets, what many would call investing on margin. It seems like many others are doing it these days:

leverage

 

Why Would I Do This?

It’s fairly simple in fact. If I’m able to pay 3% or so on my mortgage for example and expect to make more than that in the markets, it would make sense to increase my assets by borrowing more. Over a few months or even 2-3 years, the stock market returns might not outperform whatever debt I’d pay. But as I increase the amount of time that I do this, it becomes more and more likely that I will be making money out of this strategy.

When I met financial advisers a few months ago, this was one of their primary recommendations. Why? Because they said I had the right profile. Look at the result of investing $100,000, paying 3% and making 4.5% over 25 years:

margin

 

$91,000 is significant. The results would certainly be different (could be better or worse), but I don’t think it’s unreasonable to expect to make 1,5% more on the investments than what is paid on the margin over 25 years, right?

Is This For Everyone?

I’m sure that any of you could answer this question. No, of course not. There is obviously risk involved in such a strategy so this would be a good strategy for investors that:

-Can and are willing to support above-average risk (being young, having decent revenues and assets are some of the factors)
-Understand the strategy (I understand that my investments could decline over 1, 2, 5 years and maybe even longer)

The benefits are significant though as I would be using other’s people money (OPM) to increase my own assets.

How Would I Do This?

I will likely start doing this later this year. At first, I will probably take some money I had expected to pay back my mortgage with and reinvest it. My business partner told me this was not really leverage and I guess technically he is right. But if I had planned to pay back $20,000 of my mortgage later this year and reinvest it instead, I will be more “leveraged” than I had anticipated.

Over time, I might start investing on margin. For example, my investing accounts are margin accounts, so I could technically invest more than what I have in the account. I’ll have to get a better idea of the interest rates involved.

What Kind Of Investments?

It’s unlikely that I’ll be making riskier investments with this strategy for now. I’m much more likely to buy dividend stocks or ETF’s than doing picks such as my long term speculative stock picks. I certainly could but for now I’m trying to give myself the best odds of coming out ahead using this strategy.

Do any of you invest on margin? If so, how long have you been doing it and what types of investments do you do?

New Trade: Long Priceline (PCLN) & Short AOL Inc. (AOL)

avatar By: IS
Date posted: 05.20.2013 (3:00 am) | Write a Comment

It’s been a little while and I’ve certainly missed it. Today, I’m starting off by closing 2 trades done earlier in the year. First off,

Long Google (GOOG) & Short Valueclick (VCLK): +24,79%

GOOG

 

VCLK

 

Long AOL (AOL) & Short Demand Media (DMD) -26,66%

AOL

DMD

Today, I am opening a new trade that involves 2 stocks trading at comparable forward P/E ratios. Yes, AOL has been a difficult name for me to trade and it has done incredibly well in the past 18 months or so. But if you look at fundamentals, I don’t think you could possibly compare these 2 stocks. Just take a look at their recent growth profiles:

AOL Revenue Quarterly YoY Growth Chart

AOL Revenue Quarterly YoY Growth data by YCharts

You can also take a look at the numbers for both stocks:

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/Share
AOLAOL Inc37.1611.517.8516.8526.14-0.47428.17124.06
PCLNpriceline.com Inc813.6628.4827.1817.1328.9620.794.5780.691.13105.56

Long Priceline (PCLN)

Priceline has been one of my favorite stocks for years. It seems to always be underestimated. Why? Perhaps because it’s a fairly big name but makes little noise. It’s also evolving in a fairly competitive industry. It has remained a solid player though and I do think the recent acquisition of Kayak will turn out to be key for Priceline’s long term future. If growth keeps up as most analysts expect, I don’t think its current price is exaggerated.

PCLN

Short AOL (AOL)

AOL was a star last year and continues to do fairly well in 2013. Part of it is due to solid execution by the Tim Armstrong team but it’s also due to some one time moves such as the patents sale. In the end, it’s difficult for earnings to increase quickly when sales are no, especially in the ultra competitive content business where AOL competes with the likes of Demand Media (DMD), Yahoo (YHOO), IAC Interactive (IACI), etc

AOL

Weekend Readings – Obama In Trouble?

avatar By: IS
Date posted: 05.17.2013 (3:00 am) | Write a Comment

Barack-Obama-EU-January-2012Wow, the Republicans had been on the offensive for a while, and with this whole IRS scandal coming out, I can’t imagine President Obama is sleeping too well. It does look incredibly bad…!!

General Readings

-What does Japan mean for the rest of the world? @ Tim Duy’s Fed watch
-Meet Dylan the day trader @ WashingtonPost
-Advice for Dylan the daytrader @ ReformedBroker
-Are hedge funds bullet proof? @ NYT

Dividend/Passive Income Readings

-Let’s play with Mattel @ TheDividendGuyBlog
-Reality income (O) REIT analysis @ DividendMonk

Tech Stock Readings

-Facebook flop @ Stratchery
-Apple, Google, Facebook and Amazon are all trying to become the same company @ QZ
-Google’s multi-front war @ Digitopoly

Rackspace (RAX)… Buy, Sell or Hold?

avatar By: IS
Date posted: 05.16.2013 (3:00 am) | Write a Comment

Rackspace is one of those stocks that I’ve had on my radar for a long time but have struggled to get a solid opinion on. I have made comments during my Tech Stock Power Rankings (2012 and 2013) but have not been able to get enough of a sense to trade it. There are many things to like and dislike about the company:

Pros:

-Operates in the high growth cloud computing business
-Revenues and earnings per share have climbed steadily for years

Cons:

-Competes with the likes of Amazon (AMZN) and Google (GOOG)
-Being unable to compete on prices, it’s stuck trying to find other ways to generate value
-Trades at a high P/E

In the end, it does seem overvalued. Yes, I understand that companies such as Amazon trade at even higher P/E’s but there is the hope that they will be able to raise prices on some of its segments and become highly profitable. I don’t see how that could happen with RackSpace. It is already priced higher than most of its competitors and I simply don’t see where that growth would come from.

RAX Revenue Quarterly YoY Growth Chart

RAX Revenue Quarterly YoY Growth data by YCharts

Is It Too Late Though?

The biggest problem of course is that it seems late to short RackSpace, just look at how poorly the stock has done in the few months:

RAX

So would it be too late sell/short RAX? Here are the current numbers:

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/Share
RAXRackspace Hosting Inc40.320.7855.5849.77-42.3727.723.396.371.249.68

I personally continue to think the upside is limited but I would struggle to take a decisive view so would likely “hold” for now. Do any of you hold a position on RAX?

Ultimate Sustainable Dividend Portfolio – May 2013 Update – Crushing the S&P500

avatar By: IS
Date posted: 05.15.2013 (3:00 am) | Write a Comment

retirementIn September 2011, I did some in-depth research to find long term sustainable dividend stocks and have been doing updates on this Ultimate Sustainable dividend portfolio since then in the attempt to show how well such a portfolio can perform over the long term. I would personally say that things have been going very well and will certainly continue to evolve. I do have a few more things planned which I will discuss in the near future.

The USDP is obviously a critical part of my now very public quest to replace my job income with passive income. you can see my most recent update here.

The USDP continues to do very well!! Very exciting stuff and I’m thrilled with how things have gone so far. I have done a couple of trades and continue to work on optimizing it, if ever you would like to receive those types of updates, please join, it’s free:

Keep in mind that this portfolio was built by selecting 20 stocks out of thousands. The goal is not to pick the best dividend stocks but rather to pick a diversified, high quality portfolio that will keep dividends increasing over time.

Here are the holdings as of last night to start off:

TickerNameSharesMay 14 2013 PriceMay 14 2013 Values
OMCOmnicom Group Inc27$63.36$1,710.72
MSFTMicrosoft Corp70$33.53$2,347.10
JCIJohnson Controls Inc37$37.22$1,377.14
PEPPepsiCo Inc/NC25$83.50$2,087.50
ETNEaton Corp29$65.09$1,887.61
DOVDover Corp21$75.43$1,584.03
ITWIllinois Tool Works Inc25$69.38$1,734.50
XLNXXilinx Inc35$38.35$1,342.25
SJMJM Smucker Co/The16$104.53$1,672.48
BLKBlackRock Inc8$284.45$2,275.60
TROWT Rowe Price Group Inc26$76.65$1,992.90
OXYOccidental Petroleum Corp19$91.03$1,729.57
COPConocoPhillips22$63.06$1,387.32
XOMExxon Mobil Corp17$91.11$1,548.87
ADIAnalog Devices Inc41$46.34$1,899.94
HASHasbro Inc30$47.51$1,425.30
MATMattel Inc40$46.58$1,863.20
INTCIntel Corp51$23.84$1,215.84
AFLAflac26$54.56$1,418.56
BAXBaxter International21$70.49$1,480.29
IVZInvesco Ltd34$34.48$1,172.32
Cash$75.80
USDP$35,228.84
SPX11.828279932920.370817$34,542.96

Dividends Received

May 2013 is the best month to this day for the USDP in terms of income with nearly $125 of dividends. It’s not enough to live off just yet but it’s a start right?:)  Take a look at the progress:

usdp2

Ultimate Sustainable Dividend Portfolio News

Very nice to see 3 of my 20 existing holdings increase their dividend payouts! See the details over here:

TickerNameNews
PEPPepsiCo Inc/NCDividend increase from $0.5675 to $0.5375, a 5.6% increase
XOMExxon Mobil CorpDividend increase from $0.57 to $0.63, a 10.5% increase
BAXBaxter InternationalDividend increase from $0.45 to $0.49, a 8.9% increase

Returns

It’s far if you tell me that I’m not exactly “crushing” the S&P500. But I did outperform decently and it’s better to celebrate when that does happen as the next month could be very different:)

usdp3

Trades

Yesterday, I reinvested nearly all of the money reinvesting the dividends but also adding a 21st stock to the mix, as I had hinted last week, I went with Invesco (IVZ) which is a nice addition to my current portfolio. I have said I preferred staying away from banks but a company such as Invesco is quite different. It manages money and earns a cut..it’s a fairly stable business.


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