Archive for February, 2013

Can’t Wait For Twitter And Others To Go Public

By: ispeculatornew | Date posted: 02.28.2013 (3:00 am)

dropboxLast year had me very excited about the promised Facebook (FB) IPO and it did prove to be as good as I had hoped. An extremely interesting IPO (with Nasdaq proving unable to handle trading), a major drop that gave me the opportunity to get in on the action in a trade that will hopefully pay off big time. Also, even though I have not done it yet, I will certainly be trading Facebook as part of my long & short tech stock strategy.

There Is No Other Facebook But…

There is no stock that will start trading soon that has anywhere near the hype we saw for Facebook. That being said, there are several interesting ones that I’d be interested investing in or trading on.. here are a few:

Dropbox: rumored IPO perhaps as early as this year – it’s a service I use, a growing company

Evernote: It’s a product that users love and that I do use to some extent but I’m not sure how big its business could get

Foursquare: One of the primary players in the exploding “local” market

Pinterest: One of the bigger social networks around, my wife is a big fan but I don’t know that much about it. As it gets closer to an IPO, I’ll certainly read more

Quora: I absolutely love this service, it’s the best Q&A site on the web, was started by a former Facebook early employee and while the growth has been slower than hoped for, I’d love to get a chance to see more info and perhaps invest.

Spotify: I’ve written about my doubts in any company making money with online music, mostly when discussing Pandora. But having Spotify turn public would provide some interesting trading opportunities.

twitterIn The End, It’s All About Twitter Though

There is not a single name that comes close to Twitter. I used to be very skeptical about Twitter being able to generate much in terms of revenues but they do seem to have turned things around quite a bit. I’m not as excited about the company as I am about Facebook because there are not as many directions that the company could venture into. That being said, Twitter has an incredibly strong brand, a unique product that has been able to become mainstream. That has value. In terms of how much Twitter is worth.. it is currently trading at a $9B valuation on secondary markets. This week we had very interesting takes on that valuation by:

Wall Street Journal (bargain at $10B)
TheNextWeb (the WSJ analysis is bogus)

I certainly think it’s worth looking into both in order to start getting an opinion. Of course, that will be a challenge until we get some more official numbers. I would probably not buy Twitter at current valuations but I’d love to see the company become public soon so that I can start trading it..

What are your thoughts? Do any of these names interest you?

Buying Apple (AAPL) As A Dividend Play Before The Upcoming Dividend Increase?

By: ispeculatornew | Date posted: 02.27.2013 (3:00 am)

Apple (AAPL) has been one of my favorite stocks for a long time and while yesterday it turned out to be a great pick, the company is struggling a bit more this year. Why? There are so many different reasons. But I’m starting to think that Apple could soon be added to the Ultimate Sustainable Dividend Portfolio.

Apple Does Not Fit The “Typical” USDP Candidate

No doubt, in many ways, Apple would not fit in. Why?

-Dividend growth under 2.50%
-Basically no dividend history

I would argue that those should not be considered as much for Apple. Why? One important point is that Apple has just initiated its dividend and is likely to increase it significantly in the near future. Why?

Cash Flow: Apple is generating billions of dollars every quarter and the dividend payments are a tiny part of those leaving a lot of room for increases

Pressure: Apple is under a ton of pressure to better use its use cash reserves ($117B!) and the best way to get that done is to increase that quarterly dividend. Even if it increased by 20% or so, the yield would move past 3%

Just look at these numbers? I’d say that Apple could easily double its dividend and while I don’t expect that to happen, I do think the dividend will increase over time. Analysts currently expect Apple to increase its quarterly dividend to $3, an increase of 13%. Think the company can’t afford it? Actually, the last time Apple is not make over twice that amount in earnings per share was in 2010 (before the ipad).

AAPL EPS Diluted TTM Chart

AAPL EPS Diluted TTM data by YCharts

AAPL Dividend Chart

AAPL Dividend data by YCharts

You can also see some numbers for Apple:

[table “496” not found /]

Will Apple come up with other hits to keep it relevant? There are certainly rumors such as the iTV or the iWatch. I’d argue that even with its current line-up, paying and increasing its dividend in the long term should not be a problem. Yes, a bet on Apple is more risky than the typical dividend play but I would argue that it also adds a lot more upside.

What are your thoughts? Would you consider adding Apple to your dividend portfolio?

Disclaimer:  Long Apple (AAPL)

Please Tell Me You’re Not Counting On Your Pension

By: ispeculatornew | Date posted: 02.26.2013 (3:00 am)

blog-PensionFundEvery month when I calculate my passive income progress, I also discuss my objectives, my progress and a few other aspects. One thing that I was told was not “realistic” was not calculating any income from my government pension. Then, a few weeks ago I met a financial planner who also included a lot of money from the government. Many others that I know are spending a lot of time trying to figure out how much their company pension will end up paying out once they retire. Who could blame them right? Every 2 weeks, they see money come out of their paycheck towards the pension with their employer also setting aside money.

Depending on your employer or government, pensions are generally divided into 2 main categories:

Defined contribution pension: In this type of plan, the sponsor (government or employer) promises to set aside a given amount of money over time, invest it to the best of its ability and pay out the proceeds once the employee or pension recipient becomes eligible.

Defined benefit pension: In this type of pension which is much more common, the sponsor promises to pay out given benefits (based on a formula that includes years of experience, age, salary, etc) and is responsible for saving, investing and paying out those amounts when the pension owner becomes eligible.

This second part is the one that most people depend on and I’d argue that it’s a big mistake to do so. Why?

State Of Things

Any entity that has a pension plan calculates on an annual basis (or more frequently) if the plan is fully funded. What does it mean? If you have one fund that has $50,000 and you expect that account to be worth $100,000 10 years from now when your only employee will retire which is exactly what you estimate will be required to pay that employees pension until his death, you would be fully funded. If however you don’t have enough, the plan would be under-funded. That would mean you’ll need to contribute more than what you have been doing in order to not fall short.

These days, the large majority of funds are severely underfunded. Many cities, states and governments are in deep trouble as they have no way to pay out what they’ll owe 10 years from now in the current state of things…

Wait.. It Gets (Much) Worse

Any calculation of a pension plan’s status requires assumptions which make a huge difference. A big one is the fact that most plans assume a 8-9% annual return in the markets. It’s not impossible but it’s safe to say that at this point, it’s looking very unlikely that returns will average 8-9% in the next few decades. We are unfortunately stuck in a very slow growing economy. In a world where governments are going bankrupt and where they keep kicking the can down the road, it’s very worrying that anyone would count on these returns. As bad is the fact that they assume that pension plan receivers will live to 75-80 years old when in fact we are living longer than ever before.

If Only…

I would feel much better if governments would sit down, admit that the current plans are impossible to maintain and propose something more realistic. A few governments have tried this without success. In the end, the only ones taking action (Greece, Spain, etc) are the ones that no longer have another option. Once that happens, it’s too late for citizens to adjust. That is why I refuse to count on such money. Sure, I will be getting some of what the government is promising me. But will it be 75%? 50%? 25% I want to avoid at all cost being stressed out about my retirement because I mistakenly decided to rely on a government pension.

What about you? Do you count on the government’s pensions? Or perhaps your employers

New Trade: Long Google ($GOOG) & Short Valueclick ($VCLK)

By: ispeculatornew | Date posted: 02.25.2013 (3:00 am)

It was a fairly volatile week for my trading and for the overall market! I did keep my average trade “profitable” but it’s not the easiest environment to trade in. As always, you can see my live tech long & short trades and performance here:

2013 Long & Short Tech Stock Picks

Today’s trade involves two companies that I’ve traded against each other both in 2011 and 2012, one being profitable and the other being a losing trade. Overall, Valueclick has performed much better than I expected but I still think its underlying business growth is fairly limited. You can see the numbers here:

[table “495” not found /]

Yes, Valueclick did have a rebound in general growth but apart from one quarter, Google remains the much faster growing company and the fact that they’re trading at virtually the same forward P/E does not seem reasonable to me.

GOOG Revenue Quarterly YoY Growth Chart

GOOG Revenue Quarterly YoY Growth data by YCharts

Long Google (GOOG)

I’ve been animate about the fact that Google is a tremendous long term play. To say that a great long term play will be as good in the short term is a bit more difficult because Google is clearly much more worried about building great products than shorter term profits. That being said, I do think the company will continue to do well.

Next earnings release: April 12 2013

GOOG

Short ValueClick (VCLK)

Valueclick has done well in recent months but its underlying business continues to increase at about half of the pace of Google. The company is a solid player in the web advertising market but it’ll continue to remain a much smaller player than players such as Google and Yahoo.

Next earnings release: May 2 2013

VCLK

If ever any of you are interested in my technology stock thoughts and picks, I invite you to my tech stocks newsletter, it’s free and you’ll get an email bi-weekly with additional thoughts on many of these names:

Disclaimer: I will enter into the trade this morning but have no positions as of this time…

Weekend Readings

By: ispeculatornew | Date posted: 02.22.2013 (3:00 am)

40Are any of you Netflix members? have you watched House of Cards if so? I’ve been trying to find the time to get to it but no success… hopefully this weekend:) I guess I got distracted by some of these fine readings, you might want to take a look:) Have great weekends everyone!

General Readings

Chinese unit identified as tied to US hacking @ NYT
Government spending on the poor exploding @ TheAtlantic
Chinese hacker’s identity identified @ BusinesssWeek
The safe withdrawl rate, can you trust it? @ InvestorJunkie
How much of your income should you save? @ CuriousCat

Dividend Readings

IGM Financial dividend analysis @ TheDividendGuyBlog
Dividend champions index – 5 year performance @ DividendGrowthInvestor
Emerson Electric (EMR) dividend analysis @ DividendMonk

Tech Stock Readings

Demand Media exploring split into 2 units @ AllThingsD
Amazon’s Bezos wants the world @ TechCrunch
New Apple (AAPL) ad @ AllThingsD

One Big Reason To Believe in Google’s ($GOOG) Stock

By: ispeculatornew | Date posted: 02.21.2013 (3:00 am)

As many of you know, I’m a long term believer in a few companies such as Facebook and Amazon. One other company that I’ve often praised is Google (GOOG). I just think the long term opportunities are incredibly vast. I always tend to look at valuations based off of factors such as the P/E ratio, growth in sales and profits. For a company like Google, that only gives me part of the story though. That is especially true since Larry Page got back in charge of the internet giant. Why? Because the company is back to being nimble, trying different things that may or may not pan out, etc.

It’s All About Big Data

In this era, it’s all about owning data and being able to connect different data points together. Google has mastered this for over a decade now and I can’t think of anyone who could possibly catch up. As I’ve argued before, the only company to possibly compete with Google in that regard is Facebook; hence the incredible rivalry between the two. I would argue that while some think Facebook could eventually lose its “mojo” and become the next MySpace, Google’s data advantage is much more “sustainable”. How so? Just think of Maps.

If mobile is the new environment, then having advanced maps is critical. Google is so ahead of everyone else in that regards. It was able to leverage that when Apple tried (and failed) to go on its own. Already, one of the major weaknesses of the new Blackberry (BBRY) lineup is the absence of Google maps (or a solid alternative).

When I hear critics say that Google is not making money out of Android, I think they’re missing the point. It’s not about making money upfront. It’s about gathering data and offering services to those users. Another example would be how quickly speech recognition on Android has improved.

GOOG

Why Is “Mapping Data” So Critical?

It’s easy to overlook how important it is.

-It helps Google better understand where things are when users are searching for local businesses online

-It helps provide the best GPS serve through Google maps

Sergey_Brin_Project_Glass_NYC-580-75That Leverage Is Only Going To Grow Bigger

Currently, Google continues to work on self-driving cars which have been logging thousands and thousands of miles and will certainly be part of our future. Can you imagine anyone else trying to work on this opportunity? Certainly not car companies…!

Then a few months ago, Page was spotted on the New York subway wearing Google Glasses… what are those? It’s hard to say what they are and even more of a challenge to guess what they will become. If you could have glasses that gave you information about where you’re going, about your heart beat, that was connected to your phone, that could access any data on it (email, GPS, internet, etc)…  You can see some of what Google glasses does here. I’m not saying it’s a billion dollar business, but it might be. Apple’s secret “iWatch” project has recently been discovered by the New York Times and Wall Street Journal and it will certainly serve a growing market (currently occupied by smaller players such as Fitbit and Jawbone) but I do believe Google has the upper hand here.

How much are all of these “possible” opportunities worth? Difficult to say. Especially if you’re investing with a short or medium term horizon. I would argue though that investors with a 10 or 20 year horizon should consider such “ex” factors when trying to determine Google’s value. I personally think the upside is significant but very uncertain given the fact that these (and others such as Google Fiber, Google docs, etc) have high potential but are very difficult to predict.

When I look at companies such as Apple and Microsoft with a 10 year horizon, I don’t see such exciting possibilities. What are your thoughts? Would you hold Google with a 20 year horizon? Or maybe Amazon (AMZN)? Or Facebook (FB)?

Disclaimer: No position on Google (GOOG)

Should Dividend Investors Buy Berkshire Hathaway (BRK/B)?

By: ispeculatornew | Date posted: 02.20.2013 (3:00 am)
Warren BuffettI’ve discussed this in the past but we got yet another example last week when Buffett’s Berkshire announced it was acquiring HJ Heinz Co (HNZ). In a way, Buffett might be one of the top dividend investors in the world. He owns several businesses that pay back cash flows to Berkshire every month. Companies in sectors such as insurance, utilities, energy, railroads, tv etc. He also holds big stakes in oil companies (Conoco Phillips-COP), food companies (Kraft Foods-KFT, Coca-Cola KO), credit card companies (American Express-AXP), financial services (Wells Fargo-WFC), etc.
I don’t know about you but when I look at those investments, I do see a profile very similar to what successful dividend investors attempt to build. In a way, is Berkshire the ultimate sustainable dividend portfolio?  These are all companies that have:
-consistent cash flows
-have paid out consistent dividends for many years/decades
-have strong brands
-operate in stable industries (known competition, stable market share, etc)
-tend to do well independently of the overall economy

Dividend Investors.. Why Not Buy Berkshire Then?

Instead of trying to build a solid, diversified dividend portfolio, why not at least consider buying Berkshire? The fees involved are minimal and you have a team (led by Buffet) committed to reinvesting that money in the most efficient manner…

Yes But…

There is “other stuff” in Berkshire. Yes I know, we’ve heard about things like Buffet’s long term puts on indexes, derivatives sold to major banks (kind of ironic considering how outspoken Buffet has been against such products). That being said, they have minimal weight within Berkshire.

Berkshire DOES NOT EVEN PAY DIVIDENDS

That is certainly what would stop most dividend investors. It is without a doubt a bit of a contradiction. I would argue though that having the money stay within Berkshire can help me delay any taxes paid for years and perhaps decades (until I end up selling some of my position). Yes, at that point I would need to start selling some of my shares every year but you would think that such a strategy could still make a lot of sense.
It’s absolutely true that Berkshire has not been doing as well in recent years, which can be expected as the size of the company continues to increase. Finding opportunities is a lot easier when you have a few millions of dollars to invest than when it’s billions…That being said, even in the past 10 years, Berkshire has outperformed the S&P500, with a focus on steady, stable and growing income from all of its different divisions.

Seems to me like a winning formula right? Do you agree?

sg2013021959639

Passive Income Project: Am I Actually Willing To Become A Landlord?

By: ispeculatornew | Date posted: 02.19.2013 (3:00 am)

reAs you probably saw in my most recent passive income update, I’m making solid progress in reaching my passive income objectives and am certainly very optimistic. That being said, I continue to depend on only 2 sources of income; my online company and my dividend income flows. That is not nearly enough and I’ve been looking into other ways to generate consistent income every month. On of those ways is gaining exposure to the real estate market of course (apart from my house which is great but it’s fair to say that it’s not generating any income!). I’ve already had a few posts about it:

Adding real estate to my passive income flows
Real estate – diversification and hedge against inflation?
Adding real estate: commercial or residential?

One of the conclusions so far is that I’m probably going to start off by doing residential thus becoming a landlord. I’ve been a renter a few times some years ago and have certainly seen some of the challenges involved but last week I did some reading to get a better idea of what’s involved. Here are a few of my thoughts so far:

cheap-houses-saleReal estate is not as passive as we could imagine:  Sure, I could hire someone to do repairs, collect money, discuss and find new tenants, do renovations, etc. But it’s likely that I’ll have at least some of those responsibilities which will take some time.

Finding The Right Tenants Is A Major Challenge: When I think back, I was the ideal tenant..or close to it.. not very demanding, always paid on time, stayed for a few years and gave decent notice before leaving. Unfortunately, finding those is a major challenge. Also, knowing what pricing to charge can have a major impact on how much (or how little) choice you end up having in selecting tenants.

Taxes Can Be Saved: There are many different ways to structure such investments but in all of those, tax savings can be significant making the benefits of the diversification even greater.

Having A Plan Is Critical: Seems obvious now but I think I would have underestimated this impact. Knowing what type of property, of tenants, for how long, how many to buy, when to do it, how to determine my pricing, etc. All of those aspects are critical! One thing in particular that seems obvious but is important to keep in mind. I’ll only consider properties that are cash flow positive from day one. Otherwise, it kind of misses the whole objective right?

Am I Missing Anything Important? I know that some of you own buildings and would love to hear any other important aspects to consider.

 

New Trade: Long eBay ($EBAY) & Short XOXO Group ($XOXO)

By: ispeculatornew | Date posted: 02.18.2013 (3:00 am)

Well, I did end up closing a few trades last week and unfortunately did not do so well on the other ones…so I’m much closer to flat performance now! As always, you can see my live tech long & short trades and performance here:

2013 Long & Short Tech Stock Picks

Today’s trade involves two companies that are basically trading at identical forward P/E… one of them is very easy to explain but the other one does seem overvalued. Let’s start off by looking at the numbers for both stocks:

[table “494” not found /]

You’ll notice that eBay is basically trading at 6 times XOXO’s price and has 6 times the earnings per share. The major difference is that while eBay is growing at 20% or so per year..XOXO lags with revenues increasing in the single digits.

EBAY Revenue Quarterly YoY Growth Chart

EBAY Revenue Quarterly YoY Growth data by YCharts

Long eBay (EBAY)

If you track what’s happening on the scene of internet payments, you’ll notice two major tendencies:

-tons of competitors such as Facebook, Amazon, Visa and others are all making a major push to offer competitive products
-because of the “social” effect, eBay’s Paypal remains as dominant as it’s ever been..fact is that it’s the default method of payment so getting consumers and companies to switch is a challenge

Other than that, eBay is in many regards the 2nd ecommerce store on the web behind Amazon making it very possible for high growth to remain there for the next few years…

EBAY

xoxoShort XOXO Group (XOXO)

Things have improved a bit for XOXO since changing its name and ticker from The Knot (KNOT) but I remain very skeptical of how much growth they will be able to bring, especially when I compare it with eBay. Yes, margins do seem like they are improving but that is not a long term solution…

xoxo

Disclaimer: I will enter into this trade on Tuesday morning but have no positions as of this time…

 

Weekend Readings

By: ispeculatornew | Date posted: 02.15.2013 (3:00 am)

37Have a great weekend everyone:)

General Readings

Root causes of currency wars @ VoxEU
Raising the minimum wage? terrible idea @ DarwinsMoney
ThePirateBay documentary @ TechCrunch
So 37% of CFA candidates passed level 1 @ SmartFinancialAnalyst

Dividend Readings

Invest your money in 2013 and make money @ TheDividendGuyBlog
Warren Buffett’s dividend strategy @ DividendGrowthInvestor
-The world’s best dividend portfolio @

Tech Stock Readings

The Apple iWatch, myth or reality? Does it matter? @ TheAtlantic
The Google guys grow up but not apart @ Fortune