Archive for July, 2013

Fees, Fees, Fees….

By: ispeculatornew | Date posted: 07.31.2013 (3:00 am)

feesI’m on a mission to build myself a strong and diversified passive income that will help me become financially independent as early as possible. I write updates every month and things are certainly going well so far as you probably know. There are many different ways to get there but I’ve been working on establishing different sources of income that are diversified, sustainable and can grow over time. Investing in the stock market is a huge part of that. I’ve already explained why stock picking isn’t anywhere close to being the top criteria. Rather, the single most important factor is “investing”. How much you put and how early you start are the 2 keys.

Don’t Underestimate Fees Though

Not far behind though is trying to manage all the fees that you face while investing. For real estate that means broker commissions, taxes, etc. For investing though, it becomes a lot more complex. Why? There are “explicit fees” which are fairly clear and easy to understand:

-banking fees
-commissions on trades
-account openings, etc
-taxes

In general, banks, brokers and financial institutions will try to advertise their low rates, commissions, etc. Why? Because that’s not where they make the most money:

-management fees
-currency conversions
-etc

To this day, I don’t understand why some mutual funds continue to charge over 2% to manage funds in a way that others can do for 1/10 of that. Clearly, those paying don’t know about the alternative and what they’re paying.  Both when investing and for everyday spending, currency conversions are a huge source of profit for financial institutions. I recently came back from vacations and paid close attention to the rate that was used by my credit card company. They charged me about 3% more than the rates on that. Think about it for a second… If 3% of your vacations total cost is being charged by your credit card company without “disclosing it as a fee”, there’s something wrong as well right? I also run into this problem when buying foreign stocks, etc. It’s a real issue, one that I personally pay a lot of attention to.

How?

By paying attention. I ask more questions and look at the fees involved in my investments, my bank accounts, etc. It takes a bit of time at the start but can make a world of difference over time.

image credit

The Stock That Won’t Go Down

By: ispeculatornew | Date posted: 07.30.2013 (3:00 am)

$AMZN-Trading at a P/E of 125 or so
-Stock trading at it’s all time high after a fairly big miss in its latest earnings
-Many shareholders question the company’s intentions to focus on profits
-The company lost money last year and in 2 of the past 4 quarters
-It operates on (basically) 0% margins

Is This Even Possible?

Yes, it certainly is. The worst part? I’m also tempted to buy. You might have guessed that I’m talking about Amazon (AMZN) the ecommerce giant that announced disappointing results. That being said, I continue to be a big believer in Amazon, what it’s doing and its longer term future. I’ve been saying this for some time and hoping for some kind of opportunity to buy. Like LinkedIn though, it’s just not happening. Both stocks have been rising with little to no pullbacks giving no chance to those who are interested buyers but concerned about the current valuation.

AMZN

The concern with buying Amazon at these levels is that it’s certainly possible that 1 or 2 years from now, we could look back on those that were buying at this level as fools. You know those same kind of investors that were buying the dot com stocks just before the bubble collapsed? Of course, Amazon is not that typical dot com stock. It has an incredible business model and could start making major profits at some point, It’s also difficult to blame the company for being focused on growth rather than profits in an industry that is still growing so quickly.

So I’m Scared No Matter What

Either I’m buying at insane levels… or I’m missing out on the next big thing (yes, I do believe Amazon could go much higher).

I’d love to hear from anyone who holds or is thinking of buying Amazon at these levels..which is more scary, upside or downside?

Long Apple ($AAPL) & Short Travelzoo ($TZOO)

By: ispeculatornew | Date posted: 07.29.2013 (3:00 am)

Before getting into my new long & short pick, I will be closing out 2 of the existing ones this morning. They both had fairly “extreme” returns last week when earnings came out for Facebook (good) and Expedia (bad). As of this morning, returns for the 2 trades are:

Long Facebook (FB) & Short Blue Nile (NILE) +53,83%
Long Expedia (EXPE) & Short Orbitz (OWW) -32,27%

Overall it was a decent week but obviously following the strong Facebook earnings, I was hoping for better. Oh well! Just to clarify, I will remain long Facebook. My bigger position is the long term speculative pick I made. The long & short picks that I do are shorter term in nature so I’ll take the gain on this one and perhaps buy it again soon. I thought about doing it again today but there’s a decent chance the stock will give back a bit after such strong gains.

Today, I am opening a new trade between two very unrelated stocks. I usually don’t go for such pairs but as you know, I’ve been very bullish about Apple and with the last earnings now behind us and many product launches in the next few months, I think the upside vs downside is very much in Apple’s favor. I looked for stocks to short against it and ended up going for Travelzoo. Let’s start off by looking at the numbers:

[table “528” not found /]

And the quarterly Y/y revenues growth:

AAPL Revenue Quarterly YoY Growth Chart

AAPL Revenue Quarterly YoY Growth data by YCharts

$AAPLLong Apple (AAPL)

After discussing how much value there was in holding Apple for months while seeing the stock crumble.. I finally ended up taking a position in April while the stock was trading under $400. It has rebounded quite a bit since then but through some bumpy ups and downs. The big worry in holding a stock like Apple is on earnings releases, especially when no new products have been launched (and customers all around the world hold on to their money until the new products come out). That time is now over with Apple having announced better results than expected and with several new products being launched in the upcoming weeks. It certainly seems like a good time to buy Apple and here I go:)

AAPL

Next earnings release: October 24 2013

$TZOOShort Travelzoo (TZOO)

I did not see an obvious stock to short against Apple and ended up going for Travelzoo. Why? I don’t see anything that justifies its current valuation. Sales are growing very slowly and that whole business (deals, etc) does not seem to be doing as well in recent months. I see little risk of being short Travelzoo right now, especially with no earnings for the next 3 months.

TZOO

Next earnings release: October 25th 2013

Disclaimer: Long Apple (AAPL)

Weekend Readings – Is Elon Musk Ahead Of His Time?

By: ispeculatornew | Date posted: 07.26.2013 (3:00 am)

muskI wrote a bit about Elon Musk and how brilliant the guy.. he will take risks which could backfire but it could certainly pay off well too. Tesla has been a good investment lately hasn’t it? His latest idea? A super tube that would make it possible to get from New York City to Los Angeles in 45 minutes… take a look! Here are some

General Readings

Inflation is coming @ MoneyBeat

Dividend & Passive Income Readings

Time to say goodbye to Canadian banks and add US ones? @ TheDividendGuyBlog
Frequently asked questions about dividend investing @ DividendGrowthInvestor

Tech Stock Readings

Netflix ($NFLX) slides after earnings @ ZeroHedge
Daniel Loeb getting out of $YHOO, should you? @ WSJ

Social Stocks Are Just Getting Started ($FB, $LNKD, $TRIP)

By: ispeculatornew | Date posted: 07.25.2013 (3:00 am)

FBLogoThis is not the first or the last time that I comment on social stocks but to give some context to newer readers, I’ve been a big believer in these stocks because of their ability to be “sticky” and provide unique content that is very difficult to compete with. Facebook (FB) and LinkedIn (LNKD) are the two clear social plays. One of main arguments all along has been while the market has looked at these stocks as advertising plays only, they have the ability to become much more.

LinkedIn was very early to start working on such solutions which might be easier to see given its niche. It offers premium products to both individual and corporate users. I personally think there are many other possibilities (consulting, data, etc) that are within LinkedIn’s possibilities. Facebook has not been as quick and I complained about it recently. Just today, I tweeted (@intelligentspec) an interesting article about Facebook’s failure to become a platform. Of course, that is one perspective and it’s very easy to call the shots. One such example of course is TripAdvisor (TRIP) which reported very solid numbers today. Another would be Zynga (ZNGA). It has been able to successfully build on top of Facebook in a way that benefits both parties. Tripadvisor faces very little competition in it is increasingly expanding its revenues away from “display ads”.

ycharts_chart

Why? Because in all of these companies, users are finding value that is not available elsewhere and it keeps getting better as users interact with each and the rest of the content. Companies such as Monster Worldwide (MWW), Priceline (PCLN) and Yahoo (YHOO) don’t compete well in that regard.

It’s Never Been About The Users

I’ve complained over and over that looking at Facebook’s potential growth in terms of users is flawed. Yes, it’s important to have user growth (both in terms of new users and existing ones connecting and spending more time) but that is not where the revenues/profits will come from. It is only a measure of health to ensure that the company won’t turn into the next MySpace. Given its size, Facebook’s growth remains very strong at 1.15B monthly active users (21% increase).

dailyusers

It’s About The Future Projects

LinkedIn has already been fairly clear in where it’s headed (premium offerings, etc) while TripAdvisor is already building strong relationships with booking agents such as Expedia (EXPE) and could eventually start booking on its own. Facebook is a lot less clear because it is the “default” social standard. Yes, it faces competition from Google but it remains the dominant player and could end up getting more involved in payments, ecommerce, build alliances with the next TripAdvisor, etc. That all remains to be seen. Deeper integration (an excellent example of this here) will be key in adding value to users and advertisers.

So yes, I will continue to hold on to Facebook and a few other social stocks…what are your thoughts?

Disclosure: Long Facebook (FB), TripAdvisor (TRIP)

Classic Dividend Matchup: Coca-Cola ($KO) vs. Pepsi Co. ($PEP)

By: ispeculatornew | Date posted: 07.24.2013 (3:00 am)

ko_pepIf you have an investment portfolio, it’s very likely that you hold one or both of these names. Not only are they two of the most powerful brands in the world but they’ve also proved to be terrific investments over the years. I did this exercise a few years ago and ended up going for Pepsi while others (including Warren Buffett’s Berkshire) have preferred to own Coca-Cola. I do currently own some PEP stock in the Ultimate Sustainable Dividend Portfolio and it has done well over the years. Just to compare, here are the charts in the past 2-3 years.:

KO Chart

KO data by YCharts

KO has clearly been the best name to hold in the past few years. Time for a change? Let’s take a look using the top 20 things I look at when judging dividend stocks:

Dividend Metrics

ko_pep1

KO Dividend Chart

KO Dividend data by YCharts

While you could certainly argue that they are almost identical, the truth is that Coca-Cola has been more consistent in growing its dividend making it the logical choice.

Company Metrics

ko_pep2

Again, it’s very close between the 2. Pepsi has slightly better sales growth over 5 years, and return on equity. I’d still give the hand to Coca-Cola though as the sales growth is more steady, it’s trading at a slightly better P/E ratio, etc. The bigger point though is that growth just seems more steady which is something I’m a fan of.

Stock Metrics

KO

PEP

Industry Metrics

Both Pepsi and Coca-Cola have very similar offerings and products of course, they have steady market share and while they always face local competition in different segments, there is very little threat to their overall businesses. One challenge is the strong trend towards a more healthy lifestyle. While they do offer more “healthy products” than they did a few decades ago, those face tougher competition & smaller margins.

In terms of opportunities, it’s clear that the focus for both remains on emerging markets where there is still much more growth potential. They each have their strengths and weaknesses in that regard but I don’t think one is significantly better positioned than the other.

Fit Within Portfolio

Clearly, it makes sense to own at least 1 of these names as they are strong, extremely diversified products that do well no matter how the economy performs. I’d have to say that KO has not only performed better but also looks like a stronger pick at these levels. I’m not 100% sure yet but it’s very possible that I will end up either adding KO to the USDP or switching it instead of PEP… I’ll hopefully decide very soon and will keep you posted of course.

Don’t Cross Off Hedge Funds Right Away

By: ispeculatornew | Date posted: 07.23.2013 (3:00 am)

feesHedge funds.. they are at the center of a lot of what happens in the markets these days and I certainly found the latest research about their performance very interesting. I don’t think anyone would argue that things are going well for hedge funds. There has been research about performance, headlines about insider trading, etc

Don’t Cross Off Hedge Funds Right Away

For every bad example of hedge funds, there are good examples. Yesterday, Daniel Loeb announced he was selling off most of his Yahoo stock and getting off the board. He made a killing by seeing an opportunity of a mispriced asset, getting the company to get rid of a poor CEO and replace him with Marissa Mayer which has certainly turned out to be a brilliant bet.

He made a killing and certainly deserves every penny of it. He might make other mistakes but I’d argue that hedge funds will continue to do well because they’re able to make big bets, have the most brilliant investors (because that is where they’re best compensated for their performance). If anything, with banks slowly getting out of prop trading, I’d bet that hedge funds will continue to become much bigger.

There Are Concerns

Of course, having big hedge funds certainly adds some concerns. There are the “too big to fail” funds which could have a big impact on distressed markets as happened a few decades ago.


Then there is also the culture of excess. I just came back from vacations where I read “Buy Side”, a fascinating book written by a former hedge fund trader who gives a good idea of how relationships between the buy and sell side create a very odd world. It becomes clear that while getting good returns for investors is important, more than anything it’s about every trader, sales guy and others looking out for themselves. I highly recommend the reading if you’re looking for some entertaining holiday readings.

Would I Ever Invest In Hedge Funds?

It’s certainly possible that I will one day invest in a hedge fund but I wouldn’t say it’s probable. I certainly plan on having enough to be an accredited investor ($1 million in liquid assets or earning over 200K for 2 straight years) but if there’s one thing I’d more likely do, it would be investing in start-ups that have yet to become public. It’s just a lot more interesting to me and I’d feel like I had more control over it. Yes, hedge funds could be interested but I always feel like there’s a lot of risk involved (and fees) which more than offset the potential gains. I might change my mind over time but right now I don’t see that happening.

Long Expedia ($EXPE) & Short Orbitz ($OWW)

By: ispeculatornew | Date posted: 07.22.2013 (3:00 am)

Well after a few better picks, my 2013 long & short picks are looking better. There is one very poor result that I am unfortunately closing out this morning as I’ll be closing out my Long LinkedIn ($LNKD) and Short Zillow ($Z), my worst long & short pick of the year, currently down 38%, ouch! You can always take a look at my results here:

My 2013 Tech Stock Long & Short Trades

This morning, I am opening a new trade on 2 of the major travel web companies out there. They have been battling for years now and while Orbitz has made a turnaround, I fully expect Expedia to end up the winner. Before going further here are the numbers on these two companies:

[table “525” not found /]

And the quarterly Y/y revenues growth:

EXPE Revenue Quarterly YoY Growth Chart

EXPE Revenue Quarterly YoY Growth data by YCharts

expeLong Expedia (EXPE)

I’ve had a tougher time getting a clear view of Expedia since the TripAdvisor spinoff but I do think it’s fair to say that Expedia has been looking like one winning players in the online travel industry and I do think it’s a solid bet for years to come, especially when compared to competitors such as Orbitz. I’m not sure it’s a buy outright but when comparing with OWW, it sure looks very cheap in terms of P/E ratio.

EXPE

Next earnings release: July 25

owwShort Orbitz (OWW)

Orbitz has had a difficult time for a few years but things are certainly looking up this year as you can see in the stock chart. That being said, things are not exactly great just yet.  Just look at the quarterly revenues from Orbitz…

OWW Revenue Quarterly Chart

OWW Revenue Quarterly data by YCharts

Next earnings release: August 8th

OWW

Disclaimer: No positions

Weekend Readings

By: ispeculatornew | Date posted: 07.19.2013 (3:00 am)

lake.sailingWow, misses by Google (GOOG) and Microsoft (MSFT) in last night’s earnings will continue to put pressure on Apple which is reporting earnings next week. It’ll be very interesting. I wouldn’t want to be asked for a prediction here, anyone have thoughts?

General Readings

Investing mistakes made by beginners @ InvestorJunkie
CFA more relevant than ever @ SmartFinancialAnalyst
Don’t invest in hedge funds @ TheAtlantic

Dividend/Passive Income Readings

Change your investor perception @ TheDividendGuyBlog
-Wells Fargo (WFC) dividend analysis @ DividendMonk

Tech Stock Readings

Big Microsoft Reorg @ TechCrunch

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Time To Short Yahoo ($YHOO)?

By: ispeculatornew | Date posted: 07.18.2013 (3:00 am)

yhoo1I’ve written a decent amount about Yahoo in the past few years and even more frequently in the past year. It’s not a coincidence that it started when Marissa Mayer accepted to become the latest Yahoo CEO. It was a very welcome event after an incredibly frustrating sequence of events for the purple company. There’s no doubt about it, I’ve loved the energy and passion that she brought to Yahoo and from nearly every perspective, it’s looking like a home run. I mean, just take a look at Yahoo’s stock in the past 12 months or so… this includes yesterday’s 10% gain following the latest earnings release:

YHOO

 

We’re not talking about some kind of high growth startup here. This is a company that was well on its way to becoming irrelevant.  Here is a 10 year chart:

YHOO2

 

mayerSo Marissa Mayer Saved The Company?

Looking at these charts you would probably agree that the turnaround has been “successful”.  In many ways, it has. The employee morale is much better, which has made it possible for the company to retain & recruit key people. It has also helped Yahoo become more nimble and aggressive. Yes, Yahoo has a lot of money to spend but with past CEO’s, they did not have the board and shareholder’s confidence to go out and make big bold moves. Recent acquisitions, even though they have been mostly smaller ones have indicated a turning point. Acquiring Tumblr was a great example of that and while it’s a risky move, I and many others think it was a great one that could pay off (in a similar way to Facebook’s Instagram or Google’s Youtube). It’s far from done but things have clearly changed.

Yahoo also seems to be (finally) working on improving some of its key products such as Flickr, Yahoo mail, its mobile products and has reinforced its relationship with partners and users.

There’s Just One Thing….

So Yahoo shareholders LOVE Marissa Mayer and everything that she’s been doing. Yesterday, Yahoo’s stock shot up 10% following the earnings release. Was it partially because seeing her present in a Yahoo first live video earnings call convinced everyone that things are headed in the right direction? The one big “but” here is that the numbers don’t quite support this turnaround. Let’s take a look at a few:

Revenues are fairly flat and actually slightly down compared to Q2 last year:

revs

 

Expenses are slightly up:

exp

 

So of course, profits are slightly down:

ebitda

 

So yes, things are getting better but numbers are certainly not reflecting that …Yet. Of course, no one in their right minds would have expected a quick turnaround. The downward momentum was simply too strong. That being said, it’s hard to justify buying a stock that has increased over 100% without any actual change in revenues or earnings trends. Some other numbers are more positive but overall, the picture is fairly “flat”.  I do believe in Mayer but that argument only goes so far doesn’t it?

Let’s look at the numbers:

[table “527” not found /]

No Longer A Buyer…

The P/E ratio is not outrageous but it does seem too high for a company that is lacking growth.  So I personally would not currently buy Yahoo. That being said, I can’t imagine myself shorting this company, this CEO and this momentum. I’ve learned (the hard way) that shorting stocks like this is just too risky compared with the potential reward.  So for now, I’ll be staying on the sidelines.

Do you have a position on Yahoo? What are your thoughts on the stock?