Archive for February, 2011

Where do you draw the line when investing in “unethical” companies?

By: ispeculatornew | Date posted: 02.28.2011 (6:04 am)

I have written about social investing in the past and the trend is certainly becoming very popular as investors try to do their part in making the world a better place. I certainly consider it as part of my investment process and would generally prefer investing in local/green/fair companies. It is however only one thing that I look at and for the moment I can admit that I have never excluded a company entirely or at least for most I can see how I could consider them at some point if changes were made.

Comes in AshleyMadison.com

If you have never heard of this website, it might not be very long before you see some mainstream advertisements for this website. What is the company? It is a dating website for married adults seeking adventure. So yes, a company whose whole purpose is to help individuals deceive their spouses and potentially end a marriage that worked perfectly well.

Some industries such as the tobacco industry are certainly very much debated but few come close to being as controversial and morally questionable as AshleyMadison. The company is not listed on any exchanges yet and after reading a recent piece in BusinessWeek, it’s not clear when or if they will succeed in doing so.

Government

My point of view is generally that legal businesses should be able to operate and individuals and businesses should then determine if they want to do business with a company like AshleyMadison. The company was recently denied a spot in the Super Bowl ads and I’m not sure you could blame Fox for avoiding being associated with AshleyMadison, it could have turned into a disaster.

What if it turns into a great investment opportunity?

If you were offered being to buy shares of the web company at a great price, would you jump in? Personally, I did think about it and concluded that I couldn’t. For me, wedding is a critical value. Sure I understand that those using AshleyMadison might have been using other ways prior to that, that they are never forced and are making their own decisions, it is still a line I would not personally cross. Why? Because if AshleyMadison helped in any way to break the wedding of a friend, a family member or even my own, I would be ashamed of being associated and even making money off of it.

It might be a great business opportunity but it’s not one I could sleep well at night taking advantage of.

That being said, I’m the first one to admit that it’s very difficult to draw such a line and it’s not necessarily logical to stay away from AshleyMadison while being ok with an investment in a tobacco company, one that had issues with child labor or that is destroying the environment.

Financial Ramblings

By: ispeculatornew | Date posted: 02.27.2011 (1:36 pm)

Good afternoon to all of you, I hope you have been enjoying a great weekend, I had an amazing time last night with friends and getting ready for Oscars night:) Here are some of my better readings from last week

To what point are you ethical? @ TheDividendGuyBlog
Buffet’s 2010 letter to shareholders @ ZeroHedge
Passive Investing: Mixed feelings @ BalanceJunkie
How many sites do I own? I don’t even know @ TheFinancialBlogger
Why I love Yahoo @ TheStreet
Alberta Bakken, the next hot emerging oil play in North America along with potential star companies that stand to be richly rewarded in Southern Alberta and Montana @ BeatingTheIndex
Investment risk matters most as part of a portfolio than isolated @ Curious Cat
The Millionaire next door @ GetRichSlowly
9 steps to build and manage a dividend portfolio @ DividendMonk
Is the bull market almost over or just getting started? @ USA Today

To finish off, a video which I found pretty funny, do you have this Wii game at home?:)

Virtual Goods represent a viable business

By: ispeculatornew | Date posted: 02.25.2011 (6:00 am)

It’s easy to overlook just how much virtual goods are being bought and sold and the growing impact these are having on the real economy. What are virtual goods? If you are a gamer, this would be obvious but bear with me here because for a very large portion of the population, virtual goods brings up big questions marks. In the past, I’ve discussed some of the games from a company named Zynga such as Farmville. In this game, users spend time to build their virtual farms, raise animals and improve the general look & productivity of whatever happens on the farm. Spending time is always a great help but what if you could “speed up” things by buying “virtual farming equipment”, virtual land or other goods? That is exactly what has been happening in Farmville and in hundreds of other games.

Yes it is becoming mainstream

I saw an interesting chart on Twitter the other day which detailed the “top grossing” applications in the Itunes store. Take a look and you will notice that 3 of the top 4 at that time are actually free applications!! How? Because users start playing, and become so involved that they decide to make virtual good purchases to further themselves. This is very much a real business.

What is being purchased?

You  can see a very interesting breakdown from Sillicon Valley Insider here:

Investing in virtual goods?

One thing that is not entirely clear yet is how to profit as most of the companies involved remain private. Zynga is scheduled to become public later this year and will become a great play although it will be interesting to see how expensive the company will be trading. One interesting play would be Ebay (EBAY) as its Paypal payments units has been putting a lot of energy and resources on micropayments for virtual goods among other things. The big danger for Paypal is that both Apple and Facebook are putting a lot of energy on making their applications go through their own payment systems instead of alternatives like Paypal to collect a share on the payments. The one place where Paypal remains well positioned is on Google’s Android.

New stock pick: Long Apple (AAPL) & Short Blue Nile (NILE)

By: ispeculatornew | Date posted: 02.23.2011 (4:32 am)


We had intended on making a new pick on yesterday (since US markets were closed on Monday) but it has been a crazy past few days so here we go today. 3 out of the current 4 live trades are basically flat with the only exception being CTrip (CTRP) and Valueclick (VCLK) which is currently down 10%.  Valueclick recently reported earnings and I have lacked the time to go through the earnings and analyst call but I will do so shortly, and answer the pending question about it. I’ve said it many times in the past and will say it once more. The only objective here is to make money, I’m not trying to make original picks every time. So I will be opening up a new trade that is identical to one that was done last month, and closed successfully 10 days ago.

Before going further, here are the main numbers that we looked at:

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Trend Analysis

The trend analysis score favors Apple (AAPL) in a big way which has been the case for years it seems as NILE continues to be unable to gain much momentum.

Long Apple (AAPL)

It’s fairly easy for me to tell you why I want to be long of Apple but the basic conclusion is that despite its size, it continues to deliver strong earnings growth quarter after quarter and with a new Ipad & Iphone launch scheduled later this year, I don’t see that stopping anytime soon. Also, in light of yesterday’s precisions by Steve Jobs regarding the application of the new subscription plans, I think that it is a good idea and will help improve Apple’s margins over the medium run as the Apple world expands. I think the biggest downside risk of being long Apple right now remains the shaky health of Steve Jobs. The entire world he gets better soon and can return as the active day-to-day CEO, especially Apple shareholders. Apple without Steve Jobs is maybe not doomed, but things are different.

Short Blue Nile (NILE)

It seems like I could not be more negative on Blue Nile right? I have been going short on the stock time and time again but can you blame me for doing it? It did not work as well in 2009 but in 2010 it turned out great and so far in 2011, the initial short turned out good. To be fair, Blue Nile did improve its latest numbers but the stock continues to react as if NILE could somehow post growth numbers like Apple or Amazon. It’s not the case, hasn’t been and will not be anytime soon.

Just take a look at the charts for both companies:

Disclosure: I do not hold positions on either stocks

Photo credit

Why a country’s economy can grow “too fast”

By: ispeculatornew | Date posted: 02.22.2011 (5:00 am)

The other day I had a discussion with a friend of mine who said he had heard about China‘s economy overheating and the fact that the government was trying to slow things down by doing a few things mostly geared towards the exploding real estate market. My friend said that the argument did not make any sense and that the Chinese should be thrilled that their economy was growing so fast when everywhere else around the world things were going so badly. I could see his point in a way but did explain my point of view on the situation.

Yes, an economy can grow too fast

First off, let’s clear something off. Many bad things can happen to an economy and we won’t try to name all of them but I think it’s fair to say that inflation is probably the most dangerous in most countries. Why? Because it creates a bunch of issues that have very bad effects on the economy. A few examples? International investment is rarely done in countries with high inflation rates. Why? Because those countries currencies usually lose value quickly which destroys any return that was made through the actual investment. As well, high inflation usually must be resolved through high interest rates which can cause a recession. I could go on and on but the basics are that inflation (and deflation) is a major threat. That is why central banks in industrial countries have their goals measured in terms of the inflation rate rather than economic growth. Most countries aim for 2% or so of annual inflation.

Now back to our main issue

The fact is that each country has a theoretical economic growth target. How is it determined? Economic growth would originate from:

Economic Growth = Working Population growth + Productivity growth

Each country is different and the more a country is advanced, the more difficult it becomes to post huge productivity growth every year. For example, the Chinese have a lot to learn and to do in terms of increasing their productivity either through more advanced technologies, equipment, etc. For most of these things, they can simply buy equipment abroad or learn techniques developed in foreign countries. The US however is much closer to the cutting edge which makes it much more difficult to improve as fast.

When an economy starts growing faster than what is theoretical growth is, it usually means that resources such as workforce and capital are missing which causes companies to start paying more and can bring inflation to spiral out of control. Let’s not forget that most economies would much prefer grow at a steady rate (as much as possible) for 20 years and than having 5 years of intense growth followed by a 2 year recession, in each 7 year cycle.

Hopefully this clears things up a bit?

Exciting times for Tech Investors and bloggers such as myself

By: ispeculatornew | Date posted: 02.18.2011 (6:00 am)

As any regular visitor on this website would know, two things get me very excited to write about; passive income (mostly through dividend investing) and technology stocks, through opinions, stock picks, etc. All technology stock picks that I do are done among the stocks that I follow and while I never lack in terms of possibilities, adding new stocks to choose from should make things even more interesting and hopefully create even more trading possibilities. The next 12-15 months are likely to see as more dot com IPO’s than in any other period, perhaps even more than in the dot com boom. I do write often about some of these names but for others I do not get enough time. That being said, I’m getting informed and will certainly be writing about them in the near future. Here are some of the names that are making the next few months look so thrilling for technology investors:

Facebook: No doubt, this might be the most exciting IPO to come along since Google (GOOG) a long time ago and I have been very bullish regarding Facebook for some time but as valuations continue to rise, it’s difficult to see if it will remain a great buy when the company does turn public. One of the big questions of course is how CEO Mark Zuckerberg will handle things.

Twitter: Together with Facebook, Twitter defines what social media, the biggest trend since search, truly means. The company currently looks like it could be valued at $10 billion which is a shame for some companies (Google) which really should consider buying the social company.

Zynga: Just today, reports surfaced that Zynga has just raised $500 million at a $10 billion valuation, bigger than other huge gaming companies.

LinkedIn: Another social network but this one might be the most promising in terms of investment as LinkedIn is redefining the interaction between workers and their career. As down as I have been on Monster Worldwide (MWW), I am truly excited about seeing LinkedIn turn public.

Demand Media (DMD): The recently turned public company is now on my screen but I have not written about it. I will probably be very negative on this company and do not be too surprised to see me short DMD in the near future. To give you an idea, I’m almost as negative on DMD as I am on Yahoo (YHOO)

Pandora: Can music be given away? Absolutely. But can it become a great business model? That remains to be seen. Pandora is set to turn public in the very near future.

Groupon: The company has been discussed over and over here and for some time I was very excited about the prospects but I’m not as much these days, time will tell.

There are others of course but I think you can see why things will get very interesting on IntelligentSpeculator in the next few months. Are any of these of particular interest to you?

Is Apple (AAPL) stretching things too far?

By: ispeculatornew | Date posted: 02.17.2011 (5:50 am)

If you have been an Apple investor in the past few years, you have been among the lucky ones as you’ve enjoyed incredible returns backed by sales growth of the best technology products (with the Iphone being introduced on Verizon), which one after the other have turned out to be market leaders and have redefined new products. Tablet computers used to be unknown and little more than a year after the launch of the Ipad, new competitors continue to enter the market as they continue to battle with each other for the crumbles that Steve Jobs left for them. Sure, Jobs’ recent sick leave and a few isolated events have created small setbacks but overall the ride has been very steady.

The proposed change

Apple has decided to put into more forceful application one of its rules; that all applications charging for Ipad outside of the content also offer the users the option of paying through Itunes. The big reason why content providers had not been offering the option is because they need to give Apple a 30% cut on those charges. The charge must be of equal or lesser price. This is just a new extension of the Apple world in which we live.

What it means?: Content providers must now offer the option for users to subscribe through Itunes and forfeit 30% of their revenues.

Huge Risk

As you can imagine, content providers are VERY worried about this and no matter who you are, you have to admit it’s a risky idea. It was obviously not one of the things I said I would have done as Apple CEO. Here is a breakdown:

For users: Overall this should be positibe as users will be able to get everything from Itunes without filling their billing informtation and will be able to deal with Apple for any issues with these apps. The downside is the risk that certain apps take themselves out of Itunes because the 30% cut makes it unprofitable.

For content providers
: the only positive is the simplified billing part. However, giving such a huge cut and so much power to Apple will create major issues for many. It could very much turn into how music studios generally view Apple.

For Apple: There is no doubt that the only company who has a shot of pulling this off right now is Apple. It dominates the app market and even with a 30% cut, it remains heads and shoulders above any other app marketplace. I can see why Apple did this because an increasing number of companies were finding ways to charge outside of Iturnes in order to avoid the fees. That being said, as it continues to battle Android, a few big dropouts could potentially turn the wave around. I for one would be very unhappy if Amazon decided to exit the store and even if it seems unlikely, it remains a possibility.

That being said, there are rumors that some apps such as Netflix might be able to keep things as they are. That will no doubt create controversy and will make the choice even clearer between a closed Apple system or an open Android one. It’s not clear which one users will choose but I think that it does bring more volatility to Apple’s stock. As long as it doesn’t back fire this could be huge for Apple.

The future for Apple?

I think this could mean big things for Apple. If it is able to generate about 30% of all the content viewed on Apple devices (we discussed the new content distribution systems), it might mean that Apple makes more from these cuts than the actual cost of the phone which would make it much easier for Apple to take down the cost of devices such as the Ipad & Iphone.

Disclosure: No current positions on Apple

When is the right time to short the US government?

By: ispeculatornew | Date posted: 02.16.2011 (5:00 am)

The US economy remains by far the top economy in the world and while others are catching up, they are still decades away in GDP terms and probably even further in terms of education, research, innovation, military, cultural and other ways of comparison. The US remains the place to be for most of the premiere events around the world no matter what the field and the top companies in the world are usually headquartered in the US.

All of that being said, there is one very worrying trend from an investment perspective, the growing debt of the various government levels. Just to be clear, this post is mainly geared towards the Federal Government and its ability to repay its debt. We could easily (and might in the future) discuss the problems of various states and municipal governments but since those are much more difficult to trade, I will leave them alone for now. The one thing to know is that these two levels of government are as much if not more in trouble and the federal government will not be able to count on any assistance from the states or municipalities.

A problem that is growing very fast

A few days after seeing Barack Obama present his budget, we are forced to face the fact that deficits will be here for a long time as candidates from both parties cannot agree on what to cut. I don’t think anyone in their right mind thinks that the US federal government can sustain its current level of spending but if no party wants to take political risks in cutting specific portions, we will keep delaying the problem until its too late.

The man who won the White House thanks to his speech of “Yes we can” is not getting it done in terms of getting the budget back in order and there’s nothing to make us believe that deficits will be reigned in anytime soon. I am truly worried about how this will end. Why? Because there is huge pressure on politicians to avoid discussing specific cuts, and that will become even more intense as we approach the 2012 elections.

The US is not the worst (total debt this time, not only public debt)

As you can see in the chart on the left, the US is not in the worst situation. A lot has already been said about the great problems of the United Kingdom and some have even discussed a still unlikely possibility of a UK bankruptcy. Japan is also in a very serious position although it is helped greatly by the very high savings rate of its citizens but even more so by the fact that these savings are sent towards government bonds which has helped keep the situation under control.

But do you remember all of those talks about Spain’s big problems and how it could be the next European country to be in major trouble and require assistance from the German-French alliance? Well, Spain is not that different from the US. Sure, there are differences, especially in the health of the banking sector but I think it’s easy to find excuses for the US government and much more difficult to turn the situation around.

How to profit from Uncle Sam’s problems?

Like many of the recent bubbles, it’s not very easy to invest in order to profit from a possible decline in the US Federal government. Here are a few ideas:

Long Gold (GLD): No doubt, a slow and steady decline of the US would likely be very bullish for gold both as a reserve currency and as a sure investment when the US dollar would suffer

Long Inflation (TIP): Many ETF’s, including TIP are focused on profiting from a situation where inflation would pick up. One way governments usually get out of sticky situations is by printing money and that would lead to inflation

Long interest rate rise (SHV): There are many different ways to play this but as investors become less interested in holding US government bonds, it would likely raise funding costs for the government and then for everything else in the US. One interesting play is SHV, which is short US governemnt bonds.

Short real estate (REK): A decent rise in interest rates would have a dramatic effect on an already fragile real estate market.

When to actually go short?

This is the big problem of course. Like  “trading any other bubble“, irrational things can go on for much longer than we can usually expect and going short on the US government could be a very costly trades over the next decade or two. I would be careful and simply be vigilant about a moment when things could start to turn sour for Uncle Sam.

What are your thoughts?

I’m not trying to be dramatic and sound too negative but I think it’s more than time for the leadership in Washington to start acting on this problem and the most recent budget was nothing close to a good first step. Am I alone being worried here?

Disclaimer: No positions on any of these ETF’s.

Not in love with Groupon, no I would not pay $5-10 billion to buy it

By: ispeculatornew | Date posted: 02.15.2011 (5:00 am)

I have no doubt that Groupon is a great business but a few weeks ago, I had mentioned that if I were in charge of Google, I would be happy that the offer to buy Groupon had been rejected. That could have been a good decision but do not believe that Google should go after it this way, here are my reasons why:

Too expensive: Buying a company that is increasing its value by double digits every few months certainly sounds like a recipe for disaster. The one counter example would be Facebook but other than that, many of the recent tech companies have seen their values explode initially and settle back down.

Users are not engaged: I really enjoyed watching this TechCrunch interview with Venture Capitalist Fred Wilson where he described what he was looking for in companies these days and as he explains, Groupon does not have users that are engaged as some other networks.

Users not as loyal as you would think: Groupon was clearly the top coupon website without much competition until a recent Amazon promotion by LivingSocial (which is part owned by Amazon). Since that day, LivingSocial is actually growing at the same pace as Groupon. Yes, it happened

Questionable decisions: The idea to run a controversial ad at the Super Bowl this year was risky and I just don’t see the risk/reward here. Having ads that stir things up that discuss sex is one thing and is not as risky as some could think but to discuss political matters was certainly a bad PR move and a crazy waste of money. The Groupon CEO eventually decided to pull down the ad while the LivingSocial ad below remains one of the most seen ones:

Building a competitor: I think Amazon has proved that building a competitor to Groupon was not as hard as it looks. You need a solid website infrastructure, a great sales team and then a few incredible viral deals to pull it off. The total cost is likely to be much smaller than Groupon’s current valuation.

Market leader? Yes! Dominant Player? No: I’ve seen some comparisons of how Groupon might become the next Facebook of ecommerce and that might be true. But I think it’s impossible for now to determine if Groupon could also become the MySpace of social, which used to be the dominant player and is now not much more than an after thought.

Would you invest in Groupon?

I personally think that Amazon made the right decision to build a smaller competitor and build it up instead of paying a huge premium for a company that is making mistakes these days. What are your thoughts?

Disclosure: Long Amazon & Long Google

Molson Coors Brewing Co (TAP) Dividend stock analysis

By: ispeculatornew | Date posted: 02.15.2011 (5:00 am)

Earlier this month, we posted the top 100 dividend stocks and since then we have looked a bit deeper into some of the stocks that looked the most promising. We did some parts in our free mailing list (sign up now if you have not already) as some of them are truly great potential additions to a  passive income portfolio, at least on the surface.

So just how does Molson Coors Brewing Co (TAP) rank as a dividend stock?

Of course, we will be ranking Molson Coors Breing Co (TAP) based off of the top 20 things that we consider when evaluating dividend stocks.

Dividend Metrics

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Molson Coors has a dividend yield smaller than many others that we’ve looked at in the past at barely over 2% but its growth in recent years has been spectacular to say the least and if it can keep things up, the dividend yield will increase quickly as well. The million dollar question of course remains if the company can keep up such high growth.

Company Metrics

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Most of the numbers cited here are very impressive and would give TAP a great grade but in this specific case, I’m very happy to have added a new criteria, the 5 year sales growth and seeing that sales have diminished over the past 5 years is worrying no doubt. Sure, the company has gone through a merger, difficult economic circumstances and other challenging moments but that number still sticks out and is not enough for me despite the impressive earnings growth, the very interesting payout ratio and very reasonable P/E ratio. I do think the company has solid metrics but that 5 year sales number is worrying.

Stock Metrics

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In technical terms, there is no doubt that the stock does not look very attractive and it’s trend analysis score is as bad as it gets; -100.

Industry Metrics & Fit within your portfolio

Molson Coors Brewing Co is part of a very competitive industry and I do not really see a day where TAP will be able to improve its margins that much. It is the result of a huge merger and that could pay off to some extent but prices remain very inelastic for TAP and I do not see things getting much easier. That being said, sales and profits should be recession proof and remain steady no matter how the economy goes (more or less) and so it is a good fit to most dividend portfolios.

Overall Analysis

If I compare Molson Coors Brewing Co to other dividend stocks such as Verizon (VZ), Coca-Cola (KO) & Pepsi (PEP), McDonald’s (MCD) or others, I would consider the stock to be one around the average. It does have high potential but its current dividend yield is not as high as some of these other ones and I remain nervous about their long term sales.

Do you agree?

Disclosure: No positions on Molson Coors Brewing Co. (TAP)