Archive for February, 2014

Weekend Readings

By: ispeculatornew | Date posted: 02.28.2014 (3:00 am)

The_Americans_season_1_DVDAhh.. thrilled that my favorite tv shows are back on air. Am I the only fan of “The Americans” which restarted yesterday? With that, Suits (next week) and Game of Thrones starting in a few weeks, I’m very excited:) In the meantime, in case you’re planning on doing other things than watching tv, here are a few readings along with an interesting parody that Netflix did!:)

General Readings

The joy and freedom of working until death @ TheBigPicture
Miami is Wall St South @ BusinessInsider
What kind of investor are you? @ WaPo
The internet is fucked @ TheVerge
The Future of news business @ A16

Dividend & Passive Income Readings

JM Smucker fair @ $100 @ DividendMonk
Do not focus only on retirement income @ DividendGrowthInvestor

Tech Stock Readings

Icahn attacks eBay @ Fortune
The Netflix (NFLX) – Comcast story told right @ StreamingMedia
Samsung releasing a new phone @ TechCrunch

 

Making The Long Term Case For TripAdvisor ($TRIP)

By: ispeculatornew | Date posted: 02.27.2014 (3:00 am)

 $TRIPThe Story So far….

TripAdvisor (TRIP) was founded in 2000, purchased by IAC Interactive (IACI) and later spun out with Expedia (EXPE) a few months later. However, it wasn’t until the end of 2011 that the company was spun out and became independent. I’ve argued that TRIP was one of the top social web plays and after doing my research and looking at the latest earnings and calls transcript, I’m strongly considering a longer term speculative position. First, let’s take a look at Tripadvisor’s metrics since its debut.

*Most of the data points were provided over time by TripAdvisor in its press releases, financial statements and interviews done by the CEO

Clearly, traffic is exploding these days and I’d argue that this is actually underestimating the recent growth. Why? Because like most other web properties, an increasing portion of TRIP’s traffic is going through its mobile apps which are not included in Comscore rankings for example.

uniques

 

This is a big point of emphasis by TripAdvisor and rightfully so as it gives a very good estimate of the activity level by its members, the community and in the end it’s the #1 reason why TripAdvisor is consistently ranked #1 in terms of travel related websites.

reviews

 

Revenues are clearly climbing quickly but I’d argue that the explosion in terms of traffic and reviews that we’ve seen will also translate into exploding revenues in the coming years.

revs

 

*Financial information for 2008 and 2009 was only provided on an annual basis, I did estimates of the quarterly breakdown based off of the historical season impact on TRIP’s financials.

Lock-In Effect

One of the big reasons why I strongly believe in Apple (AAPL) and Google (GOOG) is because of their ecosystems. They have a lock-in effect that makes it very difficult for challengers to catch up. I’d argue that while TRIP is not quite there yet, it is making strong progress. If you think about it, Apple owns an ecosystem where it stands in the middle of iphone owners and content providers:

PL

TripAdvisor is in the process of creating a similar relationship between travellers all around the world and the hotels, airlines, attractions, etc. Here is what it would look like:

TRIP

Why Is The Lock-In Important?

This is a CRITICAL part of my value analysis. The difference between a useful site that fades over time as competititors with new features come and those that remain relevant is mostly all about the lock-in effect. I’ve argued that even though new, “cool” apps have been created and gained momentum, Facebook remains the “default” and will remain so for the foreseeable future. TRIP needs to accomplish that by:

-Keep innovating and improving its content and features
-Increasingly engage with the participants (travellers and those offering services)
-Increase the interactions between participants

I think TRIP is doing exceptionally in all 3 phases:

Has been improving its sites, developping mobile apps, working on features such as travel rewards, etc. In a mobile world, there are benefits to unbundling ones services. That is why both Google and Facebook are launching standalone apps that offer easier access to features that you’d see on their desktop site. TRIP is extremely well positioned here with over 19 different brands that it has acquired, developed, etc.

brands

 

seatguru

Has been building relationships with businesses that are actively engaged on Tripadvisor (more on that later) and also with travellers through emails. Features such as the top hotels in the world or the 10 places you need to see are not only viral but they also get users to interact more with its brand
-For years, the company has made it easier for businesses to react to reviews, giving them an easier way to communicate with the end-clients. Also, in the earnings call, the execs discussed the ongoing project of getting users to have their own “page” on the website which could become a type of blogging/photos platform which certainly has upside

*reviews
*the next step
*unbundling services

TripAdvisor (TRIP) vs Facebook (FB)

It’s certainly interesting to see how TRIP was built on top of Facebook Connect which has made it much easier to get members to sign up, connect with their friends, etc. So yes, it’s certainly dangerous for Facebook to be built on top of another ecosystem and you could certainly say that FB is in a better position. Don’t get me wrong, FB is a great investment, but I do think that TRIP is positioning itself very well to build its own strong community. I also like how TRIP has been more vocal about its plans to go beyond advertising which I’ve been hoping Facebook would do at some point.

What Kind Of Potential Is Out There?

As you’d expect, TripAdvisor started off as an advertising-based model and remains to this day mostly based off of that. It was the most logical step and was mostly done through display (CPM) and per click (CPC) ads.

While I do think those models are there to stay, there is clearly something much bigger being worked on. The existing business accounts are able to get some type of subscription based services and I’d imagine that over time, TRIP will make it easier for the companies to advertise on the network which could increase significantly the number of advertisers bidding on its ad space.

Over time, it could also help businesses take reservations, process payments, etc. This would most likely be geared towards smaller businesses but those have significant business in the travel world. Just think of what OpenTable is starting to do with restaurant reservations (going beyond reviews to reservations and even payment processing)

quote

 

source

TRIPc

Potential Earnings

I do think that over time, Trip will be able to generate significantly more per user.

In 2013, TRIP had revenues of $945M with over 2B unique visitors, coming down to an almost insulting $0.47/visitor. The company has been (rightfully so) focused on growth and expanding its reach so far but I’d expect the focus on revenues to increase significantly in the coming 3-5 years. According to TheInformation.com, revenues/user are between $5-7 for Facebook, LinkedIn and even Yahoo. I can’t think of a reason why TRIP could not match that.

When I look at comparables in terms of potential visitor profile, I’d probably use a benchmark such as LNKD. Why?

-travellers have above average income
-Linkedin is in a similar situation (does not own an ecosystem but is in the middle of its users)
-Both target individuals and businesses (which have more corporate money to throw)

That would make TRIP massively undervalued at this point. It would have been nice to get this strong feeling a year ago at a cheaper price but it’s far from too late in my opinion. I will likely take a long term speculative position in the near future… will keep you posted but I’d love to hear your thoughts,

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

Passive Income Update – February 2014

By: ispeculatornew | Date posted: 02.26.2014 (3:00 am)

Ahh February is almost over and I’m hopeful that I’ll have survived one more winter:) I think winter is always a reminder that I hope I’ll be able to enjoy my retirement, travel, get away from the cold weather, etc.

Do you have long term financial objectives? Are you tracking those on a monthly or yearly basis?

The reason I post this monthly update is both to keep myself accountable but also have a more public discussion about my plans and how I can become financially independent as quickly as possible.

With both sides of the US government acting like complete fools these days, more than ever I feel like being financially independent is critical, don’t you? So here is how I went about this whole process:

For example, if my base salary is currently 100K, my objective is to make 100K of passive income on an annual basis. This could be done through a variety of methods which I will be exploring of course. A few people tried to figure out how much capital I have by looking at the USDP size. The main issue is that the USDP is only part of my dividend income. I also get income from my ETF holdings, etc.

My primary objective remains to generate 100K in passive income on an annual basis as soon as possible, ideally from a few different sources.

February Updates

-The latest update of the USDP was published last week

How Much Do I Really Need?

I am aiming for an income of 100K or so, before taxes as a first goal. To be clear, I feel like I need significantly less than that. Why? I’ve described how I am living off of significantly less right now (I’m paying taxes, paying my house, saving, etc). I also have the option, as discussed of retiring in a foreign location. I discussed the idea of needing 100K in yearly income here.

Overall, I feel like aiming for the same level of income as I am currently making is very very reasonable and I could easily live with less but why aim lower if I’m confident I can reach that 100K?:)

Why Am I Doing This?

I’m a strong believer in working with clear objectives but also holding myself accountable so writing about these objectives will without any doubt help me reach financial independence more quickly.

Current Passive Income Flows:

7.67% – Dividend/Investing Portfolio: Things continue to go well with my my portfolio and despite a rocky market, I actually did very well and while the yield is still fairly similar at 3.25%, the value of my investment did increase.

8.08% – Private Investment In My Online Company: Not a big change but I did slightly increase what I’m withdrawing from the company on a monthly basis so this jumped a bit.

Total: 15.75%

It’s not spectacular by any means yet. That being said, I am 32 years old and do have a decent base (I could live with less easily).. I will continue to work on getting that total as close as I can do 100%:)

Passive Income Ideas

0% – Real Estate: I have started writing about adding real estate to my income flows. One aspect that I love about Real Estate Investing is how much of an inflation hedge it will represent for my portfolio. So I started looking into some aspects such as investing into residential or commercial real estate as well as the question of becoming (or not) a landlord. I’ve also looked into the possibility of renting property that I’d own though AirBnB (and an updated post here) and a few other questions I had been wondering about.

0% – P2P Lending – I started exploring the idea and wrote my first post about it here🙂

0% – Annuity – No intention of buying an annuity for the time being

0% – Farming – I know it sounds crazy but I’ve started looking into it as you can see from my post a couple of weeks ago

0% – Other ideas – I could end up starting other businesses or projects will I’ll certainly keep you posted about.

What I Am Not/Will Not Include

Pensions: I do know that the government will be paying me a sum of money once I retire. However, given how poor government finances look like these days, I personally think it’s crazy to count on the government actually fulfilling its promises. It won’t happen. Yes, there will be money, but not anywhere what is currently being promised. Whatever I do end up getting will be a nice surprise.

I feel like I am being extremely conservative here. By not including my government pension and also not including the fact that lower revenues will mean less taxes to be paid, I’m overestimating the amount of passive income that is truly needed. That is more than fine by me. I’d also like to think that my house will be paid by then making my level of spending lower all things being equal.

My Long Term Passive Income Objectives

January 2014: $12,000/year
January 2018: $25,000/year
January 2023: $50,000/year
January 2030: $100,000/year

It’s easy to look at a chart like this and think that I’m still so far away from my goal but I’m getting there, step by step.

Do you have any questions or comments? I’d love to hear any ideas or how you’ve been managing on your end as well!

 

New Trade: Long Priceline ($PCLN) & Short Blue Nile ($NILE)

By: ispeculatornew | Date posted: 02.24.2014 (5:10 am)

Things continue to go well so far for these long & short stock picks as the average trade has returned nearly 10% so far this year. Hopefully this keeps up!

As will be the case all year, my long & short stock picks will be available to see in my live spreadsheet:

http://www.intelligentspeculator.net/livetrades

You can see the numbers for both companies involved in today’s trade here:

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
PCLNpriceline.com Inc1315.6535.9520.8113.1829.134.68133.021.24133.430.757
NILEBlue Nile Inc34.941.0627.03-25.8912.493.733.171.0735.8911.5513.14

A few years ago, shorting Blue Nile was a no-brainer but it’s not as clear now. Why? It’s a combination of poor stock performance and slightly higher growth from the company. Still, NILE is far behind PCLN in terms of growth.

PCLN Revenue (Quarterly YoY Growth) Chart

PCLN Revenue (Quarterly YoY Growth) data by YCharts

pclnLong Priceline (PCLN)

It’s my second trade on Priceline this year and it’s been a great company to own for several years now. You’d think that as PCLN grows, keeping up the growth would be an incredible challenge but the reality is that PCLN has incredibly solid brands in its portfolio and has been able to justify its valuation for almost a decade now. The fact that is trading at a comparable forward P/E ratio to Blue Nile which doesn’t have to justify it makes this train a no-brainer. I did go through the latest earnings release and the earnings call transcript and generally liked what I saw.

PCLN

Next earnings release: May 9th 2014

003_blue_nileShort Blue Nile (NILE

Blue Nile used to trade at insane valuations but it’s now basically where it was 5 years ago which has translated into very poor returns for shareholders. The company’s fundamentals do look now so it’s no longer the obvious short. That being said, trading at a 27 P/E doesn’t make sense to me. NILE is a leader in its category but still faces decent competition even online making it difficult to grow as quickly as they’d need.

NILE

Next earnings release: May 2 2014

Disclaimer: No positions on Priceline (PCLN) or Blue Nile (NILE) but I will initiate the trade on the open today

Weekend Readings – Facebook Makes A Bold Move

By: ispeculatornew | Date posted: 02.21.2014 (3:00 am)

FBAs most of you now, I hold a decent portion of my savings in Facebook (FB) so seeing Zuckerberg pull off an incredibly bold move, paying $19B for WhatsApp is incredibly impressive, I’m still wrapping my head around it although I generally think it’s a very good move. More on that soon I’m sure:)

The other stock that I have a big stake on is Apple (AAPL) of course. I finally did take the time to explain in detail why I believe its ecosystem alone makes it a no-brainer:

http://seekingalpha.com/article/2026901-the-ecosystems-play-is-expanding-which-is-bullish-for-apple

General Readings

HFT’s turn to lasers to gain an edge? @ WSJ
the new class system for young Wall St. bankers @ NYPost
I crashed a Wall St secret society @ NYMag
Investing successfully is really hard @ AboveTheMarket

Dividend & Passive Income Readings

The best source to get dividend stock picks @ TheDividendGuyBlog

Tech Stock Readings

The Social Conglomerate @ Stratchery
Why Facebook (FB) needed WhatsApp @ TheVerge
Apple (AAPL) passing Microsoft (MSFT) @ Ben-Evans

Lessons From A Hedge Fund Manager

By: ispeculatornew | Date posted: 02.20.2014 (3:00 am)


During my last vacations, I ended up reading the book “Money Mavericks: Confessions of a Hedge Fund Manager” by Lars Kroijer which I found to be very interesting. The world of hedge funds is something that I’ve written about in the past and that’s always interested me.

This particular book was very interesting to me for 2 main reasons:

the author is very good at explaining how things evolved in his fund and why he took specific decisions about trades, strategies, leverage, etc. He is very honest about mistakes that were made or about what he and his team had in terms of strengths, etc.

The fact that he has a somewhat similar strategy to my long & short tech stocks. In his case, he was mostly doing “arbitrage” that could be called capital structure long & short arb.

His fund had a very tough start in terms of raising assets which is not surprising given how young he was but ended up managing over $100M.

It’s interesting how managers often talk about strategies only working for a given size but then when more investors show up, it becomes very difficult to refuse them which ends up becoming a problem. Luckily (or not), I’m not likely to face that anytime soon.

Another issue though is that long & short funds typically use leverage to some extent. That means a bad pick can end up having a significant impact on the fund. I have not increased the amount of leverage that I use but it’s always a tempting way to increase returns. That can be an issue when overall returns are negative but even more so when one pick goes bad.

It’s happened to me a few times over the years and while those hurt, they never killed me. And yes, somewtimes they go the other way. I was short RAX which got killed last week:

RAX

But then imagine being short a stock like Green Mountain when Coca-Cola (KO) announces it’s buying a 10% stake. A fund that is highly leveraged could end up suffering a significant loss on one event which then starts the whole redemption/getting out of trades at bad prices/worse returns/more redemptions, etc

The way this guy put it, his clients were asking for more leverage which makes a lot of sense. But then he probably knew that a blow (in his case, it was very bad earnings from one holding) could/would eventually happen resulting in a big loss. So should he have resisted? Perhaps.

I’ll try to always remember these lessons and give myself more margin for error… but who knows how that will work out

In any case, I highly recommend you reading it

Ultimate Sustainable Dividend Portfolio – February 2014 Update – Tough Month

By: ispeculatornew | Date posted: 02.19.2014 (3:00 am)

passiveincomeIn 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.

Things continue to go very well for the USDP which I’m thrilled to see. The past few weeks were not the most successful but overall the performance remains very solid. I will be publishing more analysis of the stocks from the portfolio in the free newsletter. 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:

TickerNameSharesFeb 18 2014 PriceFeb 18 2014 Values
OMCOmnicom Group Inc30$76.16$2,284.80
MSFTMicrosoft Corp73$37.42$2,731.66
JCIJohnson Controls Inc40$49.27$1,970.80
PEPPepsiCo Inc/NC28$78.18$2,189.04
ETNEaton Corp31$72.47$2,246.57
DOVDover Corp24$87.10$2,090.40
ITWIllinois Tool Works Inc28$79.92$2,237.76
XLNXXilinx Inc38$50.32$1,911.97
SJMJM Smucker Co/The20$95.31$1,906.20
BLKBlackRock Inc11$305.96$3,365.56
TROWT Rowe Price Group Inc29$80.66$2,339.14
OXYOccidental Petroleum Corp22$96.28$2,118.16
COPConocoPhillips26$65.37$1,699.62
XOMExxon Mobil Corp20$94.07$1,881.40
ADIAnalog Devices Inc44$51.23$2,254.12
HASHasbro Inc31$52.96$1,641.76
MATMattel Inc44$35.47$1,560.68
INTCIntel Corp54$24.76$1,337.04
AFLAflac30$63.03$1,890.90
BAXBaxter International24$69.29$1,662.96
IVZInvesco Ltd68$34.14$2,321.52
VWOVanguard FTSE Emerging Markets43$38.77$1,667.11
BNDVanguard Total Bond Market24$81.17$1,948.08
Cash$801.41
USDP$48,058.66
SPX14.72205005$3,310.89$48,743.06

Dividends Received

This month, the USDP will end up generating $112.53 which is  about 2.50% more than last year. It’s small progress but every month that provides more income than the previous year is good news.  Take a look at the progress:

income

Ultimate Sustainable Dividend Portfolio News

Xilinx (XLNX) Inc Dividend increase from $0.25 to $0.29, a 16% increase
BlackRock Inc (BLK) Dividend increase from $1.68 to $1.93, a 14.9% increase
Occidental Petroleum Corp (OXY) Dividend increase from $0.64 to $0.72, a 12.5% increase
Hasbro Inc (HAS) Dividend increase from $0.40 to $0.43, a 7.5% increase
Mattel Inc (MAT) Dividend increase from $0.36 to $0.38, a 5.6% increase

Returns

Wow, it was not a good month… that much seems obvious. There were a few bad performances but by far the biggest miss was Mattel (MAT). Who knew Barbie dolls were going out of style?:( Joking aside, the company reported some disappointing numbers….I’ll be looking into if I can remain invested in this stock in the next few days and might be trading out of it next month.

MAT

 

This is very disappointing because even though I pay a lot of attention to the income, generating a solid total return is as critical so I will need to review what happened. Bad months will happen and that’s fine but I do still need to review the performance and adjust if required.

usdp1

Trades

This time around, I am not entering any new trades apart from re-investing the dividends that were received. I do expect to trade some next month as I will review the entire USDP portfolio and I’m getting a feeling that there will be at least 1 or 2 changes.

New Trade: Long TripAdvisor ($TRIP) & Short Adobe Systems ($ADBE)

By: ispeculatornew | Date posted: 02.17.2014 (3:00 am)

I’m still far from my 7 live positions and while I continue to work on this, I ended up closing 2 trades on Friday morning so I guess I’ll have to wait a bit longer. I can’t complain though as returns have been very solid so far and while the year is still (very) young, I will appreciate it while it lasts.

As will be the case all year, my long & short stock picks will be available to see in my live spreadsheet:

http://www.intelligentspeculator.net/livetrades

You can see the numbers for both companies involved in today’s trade here:

TickerNamePricePE RatioPE Next YearSales GrowthAnalyst ratingBook ValueRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg GrowthSales 5Y Avg GrowthEPS 5Y Avg Growth
ADBEAdobe Systems Inc68.34115.1632.83-7.913.9613.558.094.11N/A4.11N/A
TRIPTripAdvisor Inc91.2565.4634.0123.813.546.086.61N/AN/AN/AN/A

It could seem pointless to look at 5 year numbers when one of the stocks turned public just last year but I think it’s important to see how poorly Adobe is fairing in this new era of software so having these 2 companies trading at nearly the same forward P/E seems like a no-brainer for me, don’t you think?

TRIP Revenue (Quarterly YoY Growth) Chart

TRIP Revenue (Quarterly YoY Growth) data by YCharts

$TRIPLong TripAdvisor (TRIP)

Last week, I got a very good question about one of my recent trades. Specially, why I had picked Priceline (PCLN) instead of TRIP even though TRIP is clearly a superior stock in my 2014 Power Rankings? I explained why but as TRIP announced its results, I can’t help but feel like I missed on an opportunity. Why buy a stock now that I could have gotten 10% cheaper just a few days ago? I guess there are 2 main reasons. First is that this one fits very well in a trade vs ADBE as they have very close P/E’s. The second is that TRIP impressed me not only because of their numbers but also the earnings call. I continue to be a strong believer in what they’re doing, their very long term vision and I guess you could argue that TRIP is building its own ecosystem which is very impressive. Its target audience is a few billion travelers and a few million travel-related businesses (hotels, resorts, etc), not bad right? I will be without a doubt be writing more about TRIP but for now I’ll simply say that it is a buy at these levels.

TRIP

Next earnings release: May 2nd 2014

$ADBEShort Adobe (ADBE)

Adobe’s stock has done very well in the past year. That is despite declining revenues and profits but also product screw ups (security issues), a lacking strategy and many different questions regarding its futures. It does still have amazing products but those are facing stiff competition and I don’t see what could possibly justify its current valuation. To give you an idea, in its last 4 quarters, ADBE’s top diluted earnings per share were $0.16. In the previous 6 quarters, the worst performance was $0.37…!

ADBE

Next earnings release: March 18 2014

Disclaimer: No positions on TripAdvisor (TRIP) or Adobe (ADBE) but I will initiate the trade on the open today

Weekend Readings – Sochi Olympics

By: ispeculatornew | Date posted: 02.14.2014 (3:00 am)

Sochi-2014-Company-OlympicsAhhh, I feel like these games are passing by so quickly and I’m hoping to get some time to watch the games this weekend:) Here are some interesting weekends if you end up having some time to read!

General Readings

Shaun White, Olympic moments, and mettle without a color @ WaPo
5 smart things Under Armor did to fight Nike & Adidas @ WaPo
Will Real-Time Commentary on CNBC Be Outdone by StockTwits? @ BreakingCall

Dividend & Passive Income Readings

This is the last time you struggle selling your stocks @ TheDividendGuyBlog

Tech Stock Readings

Android’s Open system has limits @ WSJ
Amazon is good for customers. But is it good for books? @ NewYorker

Closing 2 Trades

By: ispeculatornew | Date posted: 02.14.2014 (2:00 am)

A quick little post for now.. I’ll be closing 2 trades on today’s opening, one winner and one loser. So far, things have gone extremely well with the average trade returning 11%! Anyway, today I’m closing these 2:

Long Priceline (PCLN) & Short AOL (AOL) +30,44%

PCLN

 

AOL

Long LinkedIn (LNKD) & Short Pandora (P) -21,78%

LNKD

P