Archive for March, 2014

Weekend Readings – Next Frontier For Hedge Funds

By: ispeculatornew | Date posted: 03.14.2014 (3:00 am)

money treeCrazy stuff… so apparently it is now possible to get live satellite feeds and some hedge funds are looking at using that info to see how much traffic stores have in their parking lots, etc. How in the world can individual investors compete with that type of knowledge? Insane right…Here are a few more readings

General Readings

Why is American (and Canadian) internet so slow @ TheWeek
HFT firm made profits in 1237 out of last 1238 days @ ZeroHedge
Yale endowment letter @ Yale

Tech Stock Readings

Tencent vs Alibaba for Chinese web dominance @ Quartz
Turning cars into iphone accessories @ TechCrunch

Still Hesitating About Apple (AAPL)? Let Me Get This Straight

By: ispeculatornew | Date posted: 03.13.2014 (3:00 am)

$AAPLI’ve written a few times about Apple recently and as you probably know, hold a decent stake (from my perspective) in the company. At this point, I’m strongly considering adding to that stake. There is no such thing as “free money”, especially in the stock market. But what I always look for is the opportunity to find stocks that have a great risk vs reward ratio. In this case, I have to agree with Carl Icahn in the sense that it’s a no-brainer. I do understand that Apple is not as “cool” these days but if you look at the fundamentals, I’d have a hard time thinking someone could argue against it.

Apple’s Assets: I’ll obviously get to the actual business soon but just want to start by looking at the cash and cash equivalents. Apple owns about $147B of cash as of the end of February. That amounts to approximately $165 per share. I think we’d all agree that it is significant.

Apple’s Current Business: Apple has a tremendous customer base that has been growing for several years now. It has lost market share in the smartphone market but that is mostly due to the segregation in the smartphone market. In the high end market, Apple stands alone with Samsung and the recent launch of the Samsung Galaxy 5 was good news for AAPL shareholders as it failed to deliver innovative features. iPhone sales continue to increase.

iphone

credit: Asymco

Apple is also the dominant player in the tablet market, establishing a similar pattern to what it did with the iphone

One flaw that is often (but not often enough) pointed out when looking at Apple’s market share is its overall strategy. It only targets the high end of the market which does mean that as the market’s reach increases, Apple’s market share decreases. That is not something that Apple focuses on nor should it in my opinion. The lion share of apps spending continues to be on iOS devices confirming the higher relative value of iOS customers. To compare the value of an “average” Android customer with an “average” iOS customer is a big mistake.

I’ve also made my case for Apple’s lock-in effect being incredibly effective on SeekingAlpha which I highly encourage you to take a look at:

The Ecosystems Play Is Expanding, Which Is Bullish For Apple

Apple’s Earnings

How do those sales affect the top and bottom lines? Despite Apple’s size (the highest valued company in the world), the growth continues to be rather strong when you consider where Apple is being priced (P/E of 13):

AAPL Revenue (Quarterly) Chart

AAPL Revenue (Quarterly) data by YCharts

AAPL EPS Diluted (Quarterly) Chart

AAPL EPS Diluted (Quarterly) data by YCharts

Apple is thus trading a bit over $500 with a third of that value is held in cash while Apple continues to generate roughly 9% of that value in earnings every single quarter. This is not for a dying a stable business but one that is growing.

Upcoming Products

Do you think that’s the end of my case? Apple has teamed up with the vast majority of world car makers which will be integrating Car Play into their cars in the coming months. That will add to the sales, revenues and lock-in effect. Apple is also planning a similar move with the iWatch which

What’s Being Ignored

Many of Apple’s assets are not event being accounted for when valuing Apple because it is mostly seen as a company that makes money by selling devices:

iTunes: Apple’s digital sales are significant and growing quickly as the company continues to act as a middle agent for apps, music, movies, tv shows, etc. This segment now accounts for close to $5B/quarter. When you think about companies that have paying customers, we tend to think about Amazon but Apple also has several hundred million paying members.

iAds: Apple has one of the top mobile ad networks

Messenger: For all of the talk about Facebook’s (FB) $19B acquisition of WhatsApp and its 450 million members, it’s easy to forget that Apple has many more messenger users

Apps such as maps: When you look at Apple’s maps for example, it’s easy to overlook when comparing with competitors such as Google just how good and valuable of an asset that is. With Apple soon to be connecting millions of cars (and thus accumulating all kinds of data), those maps are sure to improve quickly.

So Is It Just Me?

How in the world can Apple be trading at a P/E of 13? It continues to look like a great trade…moderately high potential upside, very limited downside!

Disclaimer: Long Apple (AAPL)

Building My Own Little Berkshire

By: ispeculatornew | Date posted: 03.12.2014 (3:00 am)
warren_buffett.laLast weekend, I did what I always do at this time of the year. No, not starting to work on my taxes (that is something I will postpone a bit longer). I took the time to go through Warren Buffett’s annual letter. Every year, I always learn a lot going through it and while there is some self-promotion, it’s also filled with good stories about what has worked, what hasn’t, why he bought certain stocks/businesses as well as a unique perspective.

Creating Cash Flows

Berkshire is in many ways a conglomerate that owns dozens of different types of businesses but at its core, it was built around insurance businesses. Those tend to generate cash flow year after year both through annual profits but also through the float (he explains what float is very well in every letter).

Using the cash flow to build an empire.

With the money from his insurance businesses, Berkshire ended up buying great quality businesses that would be able to grow over time. One unique thing (especially in this era of investing) is how much of a long term view Buffett takes. He’ll always look at the price of an asset but the most important thing is not how cheap it is but rather how great of a business it is (and how easy it is to understand, etc)

Being Ready For Opportunities

Buffett is incredibly disciplined and has always been very good at keeping his money ready to jump on opportunities that would present themselves. Yes, that means holding cash which puts a drag on performances but it has paid off time after time after time. Remember how he “saved” Goldman Sachs during the crisis? That came with a very nice profit. He makes sure to always be in a position to jump on undervalued assets.

Idol?

It’s hard not to be impressed with what Buffet has built over the years. He did come short in terms of performance last year but it’s important to note that with a fund the size of Berkshire, it’s much more difficult to find opportunities that will have any kind of impact on the overall performance.

How I Can Build My Own Berkshire

I’d love to be able to look back and say that I also was able to build my own little empire. It will be much smaller in size but over time could still become significant. How will I do it?
No, I don’t plan on buying an insurance company obviously:)
Creating Cash Flows: So far, I’ve been able to build flows from my job, my online company and my stock & ETF’s. I’m also looking at buying some real estate to help increase that monthly cash flow. I do publish a monthly report about my process here.
-Using The Cash To Build An Empire: I’m fortunate enough for now to not need any of the income that’s being generated so I’m reinvesting all of it (and more) and buying more assets
Being Ready For Opportunities: I generally try to avoid timing the market but I do always keep some money ready for any opportunities. I’m certainly thinking about buying Russia right now for example. It’s never about timing the bottom but rather about buying undervalued but quality assets.

My Objective? It’s mostly to build an empire that will outlive me and that will generate enough cash flow for me to never need to sell off shares

New Trade: Long Microsoft ($MSFT) & Short AOL ($AOL)

By: ispeculatornew | Date posted: 03.10.2014 (3:00 am)

Time for a new trade and I had a rather difficult time this weekend settling on the trade to open but in the end, one of the companies that I’d like to buy right now is Microsoft and the more obvious short was going to be a low growth company so I think I found one:) Things continue to go well with my picks and as you might have seen, I did end up closing one such pick on Thursday!

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 GrowthSales 5Y Avg GrowthEPS 5Y Avg Growth
MSFTMicrosoft Corp37.913.4213.062.745.63.5810.250.99.38.19138.1913
AOLAOL Inc44.0424.5816.82-4.445.853.928.620.5829.9N/AN/AN/AN/A

Interesting chart that I always bring up, quarterly revenues growth which always tells an interesting story. In this case, the story actually looks much better for AOL. The immediate question is how sustainable that growth is.

MSFT Revenue (Quarterly YoY Growth) Chart

MSFT Revenue (Quarterly YoY Growth) data by YCharts

$msftLong Microsoft Corp (MSFT)

Microsoft is certainly trying things and trying to become a different type of company. Not that it really had a choice. It’ll be a challenging road ahead to thrive in a new mobile world with competition from the likes of Google and Apple but I do think that they have many pieces in place (xBox, clearer Nokia strategy) and the early sign in regards to newly appointed CEO Satya Nadella are certainly positive. I’m not sure we can expect the Nadella impact to be as big as the Marissa Mayer impact but it should certainly be seen as a very positive sign that Microsoft will have clear goals to work towards.

MSFT

Next earnings release: April 24th 2014

$AOLShort AOL Inc (AOL)

AOL has certainly been a very different company under Tim Armstrong and some moves have certainly proved brilliant (Huffington Post comes to mind) while others (Patch) have been failures. AOL has certainly been fighting its way back to internet relevance with so many others including Yahoo but it does seem have a very long way ahead. Producing mass content through sites such as HuffPo, AOL and TechCrunch is a fairly low margin business that is incredibly competitive.  I don’t think AOL is a poorly run company but I do think the growth will be very minimal for many more years which makes it a good short in this trade.

AOL

Next earnings release: May 8th 2014

Disclaimer: No positions on Microsoft (MSFT) or AOL (AOL) but I will initiate the trade on the open today

Weekend Readings – Love Japan

By: ispeculatornew | Date posted: 03.07.2014 (3:00 am)
There are so many different things that I find fascinating about Japan and random stories like this are part of the reason..! I can’t wait to go back:) A photographer leaving $7000 worth of equipment on a train only to get back every piece of it?

General Readings

The Cost of bitcoin @ stratechery
The Face behind Bitcoin @ Newsweek

Technology Stock Readings

A believer in Netflix, it’s not too late @ SeekingAlpha
Why TripAdvisor (TRIP) should consider acquiring OpenTable (OPEN) @ SeekingAlpha
WhatsAp is Different @ OM
Facebook getting into drone business? @ TechCrunch
Understand Google’s business model @ Bmimatters

Carl Icahn Will Fail… But He’s Not Totally Wrong ($EBAY)

By: ispeculatornew | Date posted: 03.06.2014 (3:00 am)

$ebayAfter failing (for now) to convince Apple to return its massive cash reserves to shareholders, Carl Icahn has turned his activist mind to eBay (EBAY) launching a full blown offense on its executives and board. If you have not yet heard about it, I highly recommend that you take a look at some of these posts:

Icahn says eBay corporate governance is worst ever
eBay is worst company I have ever seen

It’s been entertaining to see and I do understand that he’s trying to get some changes made. It looks like he thinks the only way to get these things done is to go ahead with a massive public attack. If I understand well, the main points he’s arguing are:

-The board and CEO is doing a terrible job
-Paypal should be spun off
-The board is corrupt

I basically agree 200% with one of these statements and only mildly with the 2 others.

Clearly, the company has been executing poorly. Is it “the worst managed company in the world”? Of course not… but it’s well below average. Not only has its main marketplace suffered but it’s also clear that while Paypal, its most valuable asset, has increased revenues and income, its actual product is not as good as competitors. It has kept its market share mostly because it’s the default payment method and that is a powerful thing. However, that won’t last forever and the fall could come much sooner if Paypal does not get its act together. Nimble startups such as Stripe are moving quickly and could eventually gain enough traction to fraction the payment space. Paypal remains a clunky product that has poor customer service and is a poor experience for a large portion of users. I do still think that eBay is remains a buy at these levels because it will take much longer than expected to take out Paypal but the company does seem like it’s doing a poor job of working the company’s transition to the 21st century.

I do understand that spinning out Paypal could lock out some value for EBAY shareholders and there’s also an outside chance that it would help the company innovate more, etc. But to me, spinning out would make the most sense if there was little integration between Paypal and the rest of eBay which is not the case. Should the company be renamed Paypal to give it the focus it deserves? Perhaps.. but who really cares?

Saying that the board has members that conflicts of interest might be true to some extent but in this world where companies like eBay, Apple, Facebook and Google are doing so many different activities it makes little sense to expect to have board members that have no conflicts at all. Marc Andreessen is a venture capitalist that I do follow and while I understand that he also sits on boards of potential eBay competitors, I would still give him the benefit of the doubt but I also think he’s the type of guy that brings a critical perspective to eBay. One big issue with the company is that they have not evolved very much and while it’s a challenge to know who should be blamed, I’d argue that he would be one of those to know what the company should evolve into. One counter-argument I’d bring is that it is true that Daniel Loeb shaking up things at Yahoo does seem to have worked incredibly well so giving it a shot might not be the worst idea in the world.

Disclosure: Long eBay (EBAY) but closing the position this morning

Closing 1 Trade ($EBAY, $YHOO)

By: ispeculatornew | Date posted: 03.06.2014 (2:55 am)

This morning, I’ll be closing the trade from January 13th where I went long eBay (EBAY) and short Yahoo (YHOO). The trade is a winner, currently standing at +25%  but as you will see in the post I’ll publish in a few minutes, I’m a bit less comfortable having a position on EBAY given everything going on with Carl Icahn so I’ll just take my winnings on this one:

EBAY

YHOO

Top 100 Dividend Stocks – March 2014 Edition

By: ispeculatornew | Date posted: 03.04.2014 (3:00 am)

four-seasons-boraboraDividend investing is a huge part of my investment strategy. As I’ve mentioned in my now monthly passive income updates, receiving dividend income from my both my Ultimate Sustainable Dividend portfolio and my ETF portfolio is a primary driver of how my retirement will be like a few decades from now:) Today, I went back to find the top dividend plays in the S&P500! The top of the top is similar to what I saw last month but as you know, there’s a lot more than yield that counts:)

Find Out More

Today, I have a question for you… what is the top ranked stock in terms of yield in this list that has increased dividends, earnings per share and revenues over the past 5 years??? Have any guesses? Answer is a bit lower:)

I’ll perform a lot more analysis on these names in the coming days. If ever you’d like to get free analysis, please subscribe to our newsletter here:

In the meantime, here is the list!

TickerNamePriceDividend YieldPayout RatioEx-Dvd Date
WINWindstream Holdings Inc7.9512.59250.773/27/2014
FTRFrontier Communications Corp4.98.16362.423/5/2014
DODiamond Offshore Drilling Inc46.927.4688.694/30/2014
CTLCenturyLink Inc31.116.94231.483/6/2014
TAT&T Inc31.865.7753.134/8/2014
ESVEnsco PLC52.165.7536.93/6/2014
HCPHCP Inc38.695.63106.925/8/2014
HCNHealth Care REIT Inc58.865.43110.775/8/2014
RIGTransocean Ltd41.675.3863.795/28/2014
POMPepco Holdings Inc20.25.3587.023/6/2014
TETECO Energy Inc16.65.395.655/12/2014
MOAltria Group Inc36.455.2781.433/12/2014
ETREntergy Corp63.285.2583.115/12/2014
KMIKinder Morgan Inc/DE31.645.18138.484/25/2014
RAIReynolds American Inc53.295.0378.663/6/2014
SOSouthern Co/The42.054.83106.715/1/2014
NENoble Corp plc31.044.8324.315/1/2014
TEGIntegrys Energy Group Inc56.494.8261.885/28/2014
FEFirstEnergy Corp30.524.72119.435/5/2014
PMPhilip Morris International Inc80.454.6767.713/25/2014
PPLPPL Corp32.014.6579.363/6/2014
VTRVentas Inc62.794.62164.063/5/2014
PBCTPeople's United Financial Inc14.124.686.944/29/2014
LOLorillard Inc53.614.5969.925/28/2014
DRIDarden Restaurants Inc48.334.5564.094/8/2014
EDConsolidated Edison Inc55.464.5467.895/12/2014
VZVerizon Communications Inc47.314.4851.734/8/2014
DUKDuke Energy Corp70.054.4582.385/15/2014
EQREquity Residential58.524.44#VALUE!3/20/2014
SCGSCANA Corp49.214.2760.33/6/2014
GASAGL Resources Inc46.894.1870.935/14/2014
PCGPG&E Corp43.634.17100.613/27/2014
COPConocoPhillips66.314.1641.665/15/2014
EXCExelon Corp30.034.1373.555/13/2014
MACMacerich Co/The60.124.13253.125/9/2014
PNWPinnacle West Capital Corp55.074.1275.484/29/2014
MATMattel Inc36.94.1254.715/19/2014
PEGPublic Service Enterprise Group Inc36.144.158.613/5/2014
PCLPlum Creek Timber Co Inc43.014.09135.515/14/2014
CNPCenterPoint Energy Inc23.484.05114.155/14/2014
KIMKimco Realty Corp22.254.0445.924/1/2014
AEPAmerican Electric Power Co Inc49.724.0264.465/9/2014
XELXcel Energy Inc30.01458.433/18/2014
AEEAmeren Corp40.363.9675.813/10/2014
IRMIron Mountain Inc27.453.93213.913/19/2014
WMBWilliams Cos Inc/The41.643.872243/12/2014
CMSCMS Energy Corp28.263.8259.695/7/2014
KRFTKraft Foods Group Inc55.13.8145.053/27/2014
FCXFreeport-McMoRan Copper & Gold Inc32.833.8184.824/11/2014
CINFCincinnati Financial Corp46.463.7952.953/17/2014
LEGLeggett & Platt Inc31.713.7889.993/12/2014
DTEDTE Energy Co70.93.768.533/13/2014
INTCIntel Corp24.53.6746.565/7/2014
WMWaste Management Inc41.283.63696.943/6/2014
SESpectra Energy Corp373.62795/7/2014
AVBAvalonBay Communities Inc129.013.6932.943/27/2014
WECWisconsin Energy Corp43.463.5956.965/14/2014
GRMNGarmin Ltd53.63.5860.313/13/2014
SPLSStaples Inc13.463.57#VALUE!3/26/2014
NUNortheast Utilities43.953.5758.975/30/2014
CAGConAgra Foods Inc28.383.5252.554/30/2014
CSCOCisco Systems Inc21.573.5233.164/1/2014
GEGeneral Electric Co25.123.553.116/26/2014
DDominion Resources Inc/VA68.593.572.885/28/2014
CVXChevron Corp114.843.4834.895/14/2014
MCDMcDonald's Corp94.323.4355.55/30/2014
AIVApartment Investment & Management Co30.43.4231414.275/14/2014
PAYXPaychex Inc41.183.483.785/8/2014
CVCCablevision Systems Corp17.643.4483.893/12/2014
ABBVAbbVie Inc50.093.3576.994/11/2014
LLYEli Lilly & Co59.033.3244.895/13/2014
PSAPublic Storage168.693.32104.673/12/2014
GMGeneral Motors Co36.213.3103/14/2014
FFord Motor Co15.23.29224/28/2014
STXSeagate Technology PLC52.293.2928.185/12/2014
CLXClorox Co/The86.663.2860.064/21/2014
PFEPfizer Inc31.983.2557.685/7/2014
LMTLockheed Martin Corp163.553.25525/29/2014
PLDPrologis Inc40.933.23288.823/10/2014
SYYSysco Corp363.2265.994/2/2014
NEENextEra Energy Inc90.283.2165.546/4/2014
KOCoca-Cola Co/The38.123.257.853/12/2014
DPSDr Pepper Snapple Group Inc51.683.1749.423/13/2014
MCHPMicrochip Technology Inc44.953.16214.955/20/2014
HASHasbro Inc54.653.1572.784/29/2014
MRKMerck & Co Inc56.423.12116.533/13/2014
PGProcter & Gamble Co/The77.483.1156.754/23/2014
SPGSimon Property Group Inc161.943.09112.095/12/2014
KMBKimberly-Clark Corp109.043.0858.083/5/2014
CLFCliffs Natural Resources Inc19.553.0725.095/13/2014
DOWDow Chemical Co/The48.443.0634.443/27/2014
RSGRepublic Services Inc34.043.0660.873/28/2014
GISGeneral Mills Inc49.863.0546.794/10/2014
VNOVornado Realty Trust96.483.03265.315/7/2014
KKellogg Co60.673.0336.163/4/2014
CACA Inc33.143.0248.486/9/2014
WYWeyerhaeuser Co29.283.0184.955/7/2014
WUWestern Union Co/The16.593.0134.723/13/2014
OXYOccidental Petroleum Corp96.05334.763/6/2014
IGTInternational Game Technology14.712.9932.743/18/2014

The answer? HCP Inc (HCP), a Health Care REIT


HCP Revenue (Quarterly) Chart

HCP Revenue (Quarterly) data by YCharts

HCP EPS Diluted (Quarterly) Chart

HCP EPS Diluted (Quarterly) data by YCharts

HCP Dividend Chart

HCP Dividend data by YCharts

New Trade: Long Expedia ($EXPE) & Short Travelzoo ($TZOO)

By: ispeculatornew | Date posted: 03.03.2014 (3:00 am)

It was a fairly slow week but things continue to go well so I certainly can’t complain. I’m considering closing my trade on EBAY & YHOO (currently up 28%) because of everything that’s going on with eBay these days (battle between the board and Carl Icahn) so stay tuned on that one:)

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 GrowthSales 5Y Avg GrowthEPS 5Y Avg Growth
EXPEExpedia Inc78.5337.5717.6912.7318.383.6416.541.1535.3713.3711.1816.23
TZOOTravelzoo Inc23.6221.4717.8310.794.673.672.090.6410.3614.214.2N/A

As you can see in the chart below, there is a significant difference in terms of growth between these two companies and that has been true for almost 2 years with no signs of an upcoming reversal.

EXPE Revenue (Quarterly YoY Growth) Chart

EXPE Revenue (Quarterly YoY Growth) data by YCharts

$EXPELong Expedia (EXPE)

For some time, I had my doubts about Expedia and how it would perform once the spin-off of TripAdvisor was a done deal. It does certainly look like Expedia is doing very well. There are some other travel-related that I prefer (TRIP, PCLN) but this trade made a lot of sense to me given the fact that they are trading at virtually identical forward P/E ratios.

EXPE

Next earnings release: May 1st 2014

$TZOOShort Travelzoo (TZOO)

Travelzoo is a stock that I have not traded in some time and while it does seem to be picking up a bit of momentum after a big fall, I would personally stay away. From all the traffic metrics that I see as well as slower growth in revenues, I simply do not trust TZOO at its current valuation compared to other players.

TZOO

Next earnings release: April 21 2014

Disclaimer: No positions on Expedia (EXPE) or Travelzoo (TZOO) but I will initiate the trade on the open today