Archive for May, 2010

New stock pick: Long Google (GOOG) & Short AOL (AOL)

By: IS | Date posted: 05.31.2010 (4:03 am)

Google has been front and center on this blog in recent weeks. And this week is no exception with a new stock pick and a couple of upcoming posts about the search giant.

Is it because I have fallen in love with Google?

Maybe. But I am also trying to understand Google’s dramatic decline so far in 2010. Sure, Google lost a major battle in China and is almost out of the market. But it’s not like this market had made a major contribution to the company’s revenues and profits.  And Google does have a lot of support among the US government, so even that story could end up turning around. But even if it doesn’t, Google remains a company that has so much more potential than AOL in my opinion. It is behind what could arguably be the best operating system for mobile phones (and some say the fastest growing), has just started a global alliance with Sony to launch Google TV, is the king of online video thanks to Youtube. There is one missing piece right now, and that is social web of course. But a company with the financial resources of Google has many ways of solving the problem. Right now, the solution seems to be pushing hard on Buzz. But it could at any point try to get a deal done with Twitter (Facebook does not look for sale right now).

No… I’m not a fan of AOL…

AOL on the other hand is an internet company that I have been bashing on for a while. I did have some more positive words for Yahoo in this week’s edition of IntelligentSpeculator Premium (although I remain short) but AOL continues to look doomed in my opinion. I would compare AOL to those old airlines like United Airlines & Northwest in the airline industry. They can always try to reinvent themselves but if the overall structure of the company is old and non-competitive, they will never catch up to newer and better competitors.

Could anyone argue me about the fact that Google is a much more dynamic company than AOL? Seriously? Even numbers don’t lie. Revenues for Google are up 8.51% over the last year. Not anywhere near what is needed. But compare that to a 21.81% decline for AOL. One of the main criticisms made towards Google is how dependent it is on Online Advertising. That is true but it is even more so for AOL which is So how can the P/E ratio be as follows:?

Price/Earnings Ratios

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales Growth
AOLAOL Inc21.162.35N/A12.27(9.11)(21.81)
GOOGGoogle Inc490.4620.6222.3115.21(20.89)8.51

That is such a small difference for two companies that are a few worlds away from each other. Google has a lot not going well but many different things could turn around. As for AOL, the main thing that could take off is the Local Patch network. But that is not a revolutionary idea and it will face stiff competition from Google, Yahoo and others in the local web.

Financial Ramblings

By: IS | Date posted: 05.29.2010 (3:35 am)

Spain became the latest European country to have its credit rating downgraded yesterday, and by far the most important.I highly recommend reading the first link, from ZeroHedge. Let’s just say it makes it very difficult to be a big believer in the old continent’s economic system.

Here is that link with others I liked this week:

-Europe: A continent of lies and broken promises @ ZeroHedge
-CBOE launches options on VXX & VXZ @ Vix and more
-May 27 Stock Market Recap @ TraderMike
-Too pig to fail @ Ritholtz
-What’s the difference between an investor and a trader? @ OnlineInvestingAi
-Five dividend stocks to buy on a drop @ DividendsValue
-Are you financial sexy? @ MillionDollarJourney
-Running a company: Making a plan @ TheFinancialBlogger
-How much time do you take to manage your personal finances? @ GreenPanda

More on this topic (What's this?) Read more on European Union at Wikinvest

Quick news – May 28 2010

By: IS | Date posted: 05.29.2010 (3:19 am)


Rumors are that Verizon (VZ) will carry the Apple Iphone (AAPL) for the holiday season
Long lines around the world as Apple’s (AAPL) Ipad was released in 9 countries
Facebook made the top of the list of Google’s most visited websites
Valueclick (VCLK) rated “Average” by Caris & Company

Google trying to get US government support?

By: IS | Date posted: 05.28.2010 (3:21 am)

As Google has grown more important in the digital economy, it is poised to encounter an increasing amount of interactions with the world governments. Already, Google has had confrontations with the Vietnamese and Chinese governments this year and is now at odds with the European governments over privacy issues. Google is also battling on many fronts including operating systems for pc’s, phones, selling digital books, computer digital drives, etc. What does all of this mean? It means that increasingly, Google has to discuss and negotiate with the US government. Having Washington by its side on domestic but also international matters is maybe not priceless but it’s not that far. Imagine if Hillary Clinton and the US government had not demonstrated support for Google in its battle with China? I’m not saying there would have been a war but things certainly could have turned a lot more nasty.

How Google is trying to get Washington and States on its side

Lobbying: As much as Google would like to find an original “Non-Evil” way to get support at the government, the best way to get it, as it has been for a very long time, is to spend money lobbeying. Google has certainly been very active. Compared to last year, Google increased its lobbying spending 57% to $1.3 million.

How is it spending it? According to this interesting article from the Washington Post, not so conventionally. I’m not certain why Google chooses to take this approach about privacy and it certainly has not helped gather support of the government. Google has always been about finding a smarter way. When it did its Ipo, Google was not conventional and the way it is dealing with bureaucracy has also been quite innovative.

Public Relations (PR):

This week, Google published a comprehensive report about its role in the US economy, broken down state by state. It gives itself credit for $54 billion of economic activity and even breaks down the calculations by state in the report is published. That is quite impressive, very interesting and very useful…for Google. With this report, Google can go to any business or individual and prove why it should be “helped”, “protected”… Who knows how exactly it will be used but I would say that it is probably a good PR move. I would imagine that most companies would like to publish a report but deem it too much of an effort. Of course, Google being the king of information that it is, the effort required is much smaller.

The latest efforts by Google to do well (and gain public appreciation) is in the environment field. Sure, building wind facilities could be cost efficient but there is certainly more to that story. Do you think that its recent announcement to be a carbon neutral company is only about “Doing no evil”? Today, Google joined environmental groups asking for laws to be passed regulating carbon emission. I do like Google, I really do. But I don’t think these are mainly about being a “good company”. There is nothing wrong with that of course, far from it, but I think it’s important to note how much importance Google is currently giving to the Government and Public support.

Why do it? (reverse negative feelings? political power?, customer loyalty?)

So you get the point, Google is doing its best to be in the best possible light for both the general public and the government, here are the reasons I see behind it:

-General Branding: Let’s face it, Google is a brand loved around the world and it certainly has its benefits
-Avoid government interventions; Microsoft and now Apple have faced issues regarding possible abuse of power, Google is doing its best to avoid being the next target
-Public battles: Google has taken sides in a few battles including for example net neutrality. The better the perception of the company, the more chances its voice will be heard loud
-International support: As Google continues to struggle with quite a few foreign governments, support from the US government is very valuable
-Acquisition power: Google is very powerful and when it makes acquisitions, the chance that they end up being blocked is smaller if it does not seem “evil”
-Others: let’s face it, the guys running Google are very smart and they probably have quite a few ideas in mind when they do such PR campaigns

Quick news – May 27 2010

By: IS | Date posted: 05.27.2010 (3:45 pm)


Research in Motion (RIMM) will be launching a $150 million venture fund in China
Amazon (AMZN) will start selling Kindle’s in Target stores
Goldman Sachs (GS) issued a recommendation to buy Microsoft (MSFT)
AOL (AOL) is planning to spend $50 million on its Patch websites network
Microsoft (MSFT) raised to Outperform at FBR Capital Markets

Apple (AAPL) leaps past Microsoft (MSFT) as the top tech company

By: IS | Date posted: 05.27.2010 (4:01 am)

It would have been deemed impossible a decade ago. The tiny computer company behind Apple computers competing with the King of PC’s, the company behind cash cows such as Microsoft Office and Microsoft Windows. Microsoft seemed like a train that no one could stop and it was so bad that Microsoft had all kinds of issues with antitrust regulations. As you can imagine, those do not come up when things are not going well and they were going very well for Microsoft. The company had superior products and was using them to gain the edge everywhere else. Remember how Internet Explorer used to be the only internet browser worth mentioning. How things have changed…

Apple becomes a multiple trick company

Back in those days, Apple was about one thing…Mac computers. Since then, Apple has added a very very powerful set of devices including the Ipod, Iphone and Ipod. They have all been major hits and have taken Apple beyond what anyone could have even hoped for. Apple is now the top tech company in the world in terms of market cap and the third biggest company out there behind two oil giants.

Here are the top companies in the US in terms of market cap:

TickerNameMarket CapPriceReturn YTD1Y ReturnDividend Yield
XOMExxon Mobil Corp $278,642,000,000.00 59.31-11.86-12.872.87
PTRPetroChina Co Ltd $278,198,000,000.00 103.78-11.16-1.773.59
AAPLApple Inc $222,124,000,000.00 244.10916.3786.660
MSFTMicrosoft Corp $219,184,000,000.00 25.01-13.6925.312.08
WMTWal-Mart Stores Inc $188,026,000,000.00 50.02-5.352.242.3
CHLChina Mobile Ltd $185,654,000,000.00 46.271.632.333.91
CICHYChina Construction Bank Corp $174,359,000,000.00 38.8-9.0526.471.58
PGProcter & Gamble Co/The $174,061,000,000.00 60.441.1815.862.98
BRK/BBerkshire Hathaway Inc $173,335,000,000.00 70.32717.630
GEGeneral Electric Co $170,931,000,000.00 16.016.0822.842.5
JNJJohnson & Johnson $164,546,000,000.00 59.66-6.6610.532.46
BHPBHP Billiton Ltd $163,342,000,000.00 62.17-17.9216.242.67
NSRGYNestle SA $160,381,000,000.00 43.94-6.5421.973.14
IBMInternational Business Machines Corp $158,024,000,000.00 123.23-4.9419.571.87
BACBank of America Corp $155,210,000,000.00 15.472.9241.280.26
HBCHSBC Holdings PLC $154,650,000,000.00 44.37-20.875.933.83
JPMJPMorgan Chase & Co $154,294,000,000.00 38.78-6.726.660.52
GOOGGoogle Inc $151,431,000,000.00 475.47-23.0517.590
RDS/BRoyal Dutch Shell PLC $152,074,000,000.00 48.73-13.52-3.346.89
WFCWells Fargo & Co $146,093,000,000.00 28.044.2310.080.71
CVXChevron Corp $143,726,000,000.00 71.55-5.3113.143.86

Who is next?

Is it by chance that the same day where Apple reached this incredible feat, we found out that the US government was looking into the way (abuse of a monopoly) Apple was operating its Itunes store? Probably not. There seems to be something that says that the biggest tech company has to be abusing of its position. It’s always easier to attach the king of the hill and Apple certainly looks like a great target. Competitors have been putting a lot of money and effort into competing with Apple but with no success yet. However, I would not dismiss the competition as we easily could have done the same with Microsoft. It did seem unbeatable not too long ago.

So among those that can challenge as the top tech company, only one comes to mind right now; Google. It is ranked #18 in the world and #3 in tech companies and is probably the odds on favorite to take over as the top tech company… Of course, I did admit having fallen for Google so maybe I’m not seeing clearly here… Thoughts?