Intelligent Speculator

Ten years ago, the world relied on G7 countries to provide world growth but that changed to a point where the world turns to China for most of its growth. China is one of four developing countries with high growth potential with Brazil, India and Russia. They are now known to all as the BRIC countries and while they are very different, they all share a story of stunning growth that has brought them among the economic powers of the world. Think it’s by chance that 3 of the recent&upcoming Olympic games will be held in these countries? Socchi (Russia) and Rio de Janeiro (Brazil) are anxious to show off to the world and match China’s impressive performance in hosting the 2008 Beijing Olympics.

Who belongs in BRIC?

It’s always interesting to see analysts discuss if a country or another does not belong in the group because of specific problems. For Russia, reasons often discussed are its reliance on commodities and its aging population part of a bigger demographic problem. India also often needs to defend its membership in the select group. India is perhaps not yet at the level of the 3 others in terms of income and GDP but it’s potential is certainly comparable to China’s because its demography.

So I thought I would take a look to compare ETF’s for the BRIC countries to those from one of the four specific countries.

So let’s start with China ETF’s

Brazil

India

Russia

One very surprising fact in my opinion is that I’ve read in many places that investing in a BRIC index ETF was not a good idea because you would be stuck with the two underperformers, Russia and India. Turns out that their 1 year returns are 147.70% (RSX) and 142.97% (INP) which is much higher than the main ETF’s from China and Brazil.

Conclusion

What I think should be drawn is that all four of these countries are very interesting investments and personally I would much prefer investing in a BRIC index than trying to choose the individual country. The margin for error is simply much smaller. So without waiting, here are the main BRIC ETF’s.

For some reason, markets have been kind to me the last few Monday’s and this is another instance as the trade that had Long Ebay/Short Knot had a solid day and I will actually be closing off the trade when markets open tomorrow. The return as of tonight is +24,27%.

Not much news on Ebay today from what I could find, at least nothing major. There were some announcements regarding cheaper solutions for Paypal small transactions, but nothing major really.

In any case, another good trade, let’s hope things can keep up. This will also allow me to make another trade next Monday.

Here we are again looking for a new trade to execute and while taking a look at my stock screener, it now looks like the right time to go short on Valueclick, one of the more important online advertising companies. The major problem with Valueclick is that its technology and properties have fallen behind and are no longer on the cutting edge. Some years ago, Valueclick looked like an attractive target to major players such as Google (GOOG) and Yahoo (YHOO). But I don’t see that as being as likely right now. Valueclick’s sales have been drowning. Here is a quick summary:

Scary hey? Of course, because of this, Valueclick trades at a very low P/E ratio but I still consider that it is too high, especially when I compare it with the ratios of Google. Bloomberg estimates that Valueclick’s P/E ratio for next year will be 13.46 while Google’s will be 18.54. Google has been struggling to find high revenue growth (mainly because its revenues come almost exclusively from one source) but when you compare its growth to Valueclick, it looks much more attractive.

While Google has been trying various different strategies to generate new revenues, Valueclick seems content on remaining still. Of course, that is not good enough. With diminishing sales, there are few ways to make profits apart from cutting costs, and you can only do that to a certain extent. To give you an idea, just take a look at the Press Page on Valueclick’s page, there is nothing new in recent months. Compare that to Google which is launching almost one new product or initiative every week and you can understand why Valueclick is falling behind.

Here is a quick comparison of both firms financially:

Finally, here are the stock charts for both stocks. You can see how Google has now moved above its 50 day moving average and could hopefully break out to the upside. Google’s stock has suffered greatly this year but I am counting on a rebound with hopefully good results in Q2 (to be announced in April).

Good afternoon,

Just a quick post to let you know that I will be closing off the trade on Priceline(PCLN) and Expedia(EXPE) as the trade is now over +20% (+20,20%).

Today was also an interesting day for another trade, Research in Motion(RIMM) and Yahoo(YHOO), both gaining a lot:

-Yahoo(YHOO) was upgraded by a JPMorgan analyst
-RIMM(RIMM) was upgraded as well

The net result was a bit positive for me but it made for an interesting day without a doubt.

It is time for another trade and since I do not carry more than 5 trades live, I will have to wait for one to be closed before entering another one. This one is a play on internet websites dedicated to employment. On one hand, a company known by almost everyone; Monster Worldwide, which already had a very strong brand but has recently been putting up marketing campaigns including ads at the last Super Bowl. A lot of money being spent and the question of course is how much of it will pay off. I’m not a huge believer in Monster because I think the model is not as good as some other websites.

Few would argue that companies such as big banks are willing to put up more money to find the right candidates than the local grocery or store. Monster of course is not dedicated to those but it tries to be a universal solution and I believe that a strong focus on finance jobs for example can pay off (even in periods like this one where banks are not as agressive in their hiring.

Dice Holdings is not a very known company because it operates very specialized websites such as EFinancialCareers and JobsIntheMoney, but it has a strong business model and its websites, which much smaller than Monster’s, have been able to show good growth recently. There is risk of course in doing a trade on such a smaller player against the industry leader but I think the valuation makes this trade one I need to do. Just take a look at this table.

Monster is not currently making any profits so earning ratios are difficult to compare but even when using next year’s estimates, I don’t think the valuations are right. It’s not as if Monster is growing much faster than Dice Holdings. In fact both are regressing in this tough job market but I would predict that the demand for Dice’s websites will stand higher than the overall market (i.e. higher than Monster’s).

To many, this might look like an odd pair to trade. And in many ways, I agree that it is. I was looking at my screen today trying to see the better opportunities and I thought the best opportunity right now is Research in Motion(RIMM). Yes, it continues to be under attach from both Apple(AAPL) and Google(GOOG) with Palm(PALM) slowly being taken out of the market. So the logical step was to pick RIMM against either AAPL or PALM. But I do already have a long position on AAPL (not that I would short Apple anyway… it would be almost as bad as shorting Baidu). Shorting Palm would be something to consider but at this point, Palm is down over 40% this year alone and everything seems to be going awfully wrong for the smartphone maker with its stock going dangerously approaching 5$.

Reaching that point is significant because many investors (institutional) do not have the authority to own low priced stocks (often defined as stocks below 5$) and so it could continue to fall for a while. So why not go short Palm? Because no matter what the company is, when its stock gets crushed so badly, at some point there will be a rebound. So I prefer going short a stock that should get crushed, instead of one that already did!

All regular readers here will not be surprised to see me go short Yahoo(YHOO). Last year, I did two trades on the stock (going short both times), and both ended up doing well. Among the stocks I follow, Yahoo seems to be the most overvalued right now. It trades at a P/E of 39 which is crazy for a company that is regressing right now instead of improving – its sales have actually been declining. It does have some assets worth mention but those are few and far between.

You can also take a look at the following chart published by TechCrunch about Yahoo users.. nothing more to say, case closed!

After closing 2 trades last week, I will probably be making at least 1 new trade in the next few weeks and I’m now ready to get back in the line of fire. The new trade is a bit risky because of I am going short a stock that was just crushed after announcing more bad results. TheKnot(KNOT) is a company that I traded twice last year but continues to show little improvement since then. The company is dedicated to everything related to weddings and continues to grow but is unable to get good margins. The company announced it has created 275 new niche websites related to weddings. That does sound great but building so many websites reminds me of Yahoo and AOL, when you build many average quality properties instead of focusing on core specialties. At the same time, it is increasing the frequency of its magazine publications, tv presence and more. There just seems to be a lack of focus on The Knot’s part.

Is there a danger in owning The Knot? Yes. It does hold a lot of cash and because of that, its “discounted future revenues” could rise very slightly and still bring up an important price rise.

On the other hand, I’m surprised to see Ebay(EBAY) not getting more momentum. Sure, its auction business continues to show flat growth at best. But the real treasure lies in Paypal, Ebay’s ecommerce payment service. The announcement by Facebook that it would turn to Paypal for its electronic payments instead of a smaller less known solution or even instead of a “in-house” solution does mean a lot in my opinion:

1-Paypal continues to be the best solution for ecommerce transactions
2-No other competitor has proved able to come up with competition and there are no signs of significant solution either

So personally, I do think Ebay warrants a more favourable P/E ratio than The Knot which is not the case right now.

Disclaimer: No return is guaranteed and each recommendation should be considered within the investor’s individual situation. As with any financial investment, there are risks involved.

It seems like every week, a new country has an ETF to its name. Last week I had taken a quick look into the difference between investing in a country’s currency or its stock market and while doing that I had the opportunity to take a look at all of the single country ETF’s that are currently traded on US markets. Then, today I noticed that Market Vectors confirmed a new ETF on Egypt would soon be trading, EGPT.

So I decided to take a look at every country that has an ETF to its name. I excluded all regional ETF’s so this means that the Middle East and Africa for example are not very represented. But I thought it would be interesting to take a look. It is stunning to see how Ishares has the top ETF (in terms of market cap) for almost every country available. But as companies like Market Vectors launch ETF’s on countries like Egypt and Vietnam, it will be interesting to see if Ishares can remain on top.

Another trend is for new ETF’s to be launched on subsectors of these single countries. This obviously leaves almost unlimited possibilities. The difficult part will be to get investors to buy such ETF’s.

I was also surprised to see that countries like Taiwan & India have more important ETF’s than major economies such as Germany, France and Spain. I’m not sure to have an explanation. Any ideas?

I would have expected to see higher fees for less developed countries such as Thailand but Ishares seems to have all their ETF’s on single countries at more or less the same fee ratios.

Any thoughts on the table? Do you know of any missing country ETF?

It is now time to close 2 trades, one that went badly and the other which went better than I could have hoped. I will start with the good one!

LONG NFLX/SHORT NILE

Blue Nile is a difficult stock to short because it is very volatile and trades at very high P/E’s compared to its peers (in my opinion). While I like the company and think it does have a very good future, its high ratios continue to shock me. I had gone short against Netflix, who announced very good earnings as well as a few more partnerships. This was the best example of a long/short trade that went for the best as Netflix gained 26.61% while Blue Nile lost 17.51% of its value for a total gain of 63.04%***

***As explained in the past, when you do long/short trades, you actually put up margin only, no capital and so returns are divided by .7 to account for the fact that 10,000$ portfolio would not have 10,000$ short and 10,000$ long but rather 14,000$ long and 14,000$ short.

LONG GOOG/SHORT BIDU

I knew that shorting Baidu was a risky proposition but simply believed it was also an overvalued stock at this point. I did turn out to be wrong. Google did remain steady (-2.19%) but Baidu gained (-15,82%) enough to make me a loser on this trade, a loss of 24.79%.

The other two trades that I currently have are both going fairly well so far:

LONG PCLN/SHORT EXPE +9,64%

LONG AAPL/SHORT AMZN +8,67%

So far this year, it gives me an average return per trade of 14.14%, well above expectations. Remember that I was quite happy last year with the 2,53% return I had given the short time the average trade lasts. I should have a new trade next Monday, hoping that they can continue to do well!

I always personally feel like a good way to find an ETF for a specific subject or sector is to look at what the big players are using. It’s not a perfect way to do so, but it does give you a good idea of ETF’s that are generally liquid and have low fees. These ETF’s most likely have low spreads, lots of trading activity and are priced accurately (close to NAV).

So here we go, as of this morning, here are the top 25 ETF’s based on their outstanding market cap:

As discussed last week, SPY, the Spider which tracks the S&P500 Index is by far the biggest with GLD holding the second position, but there are still many interesting facts about this table:

#1-The three most expensive funds are all Ishares funds: EEM has been discussed in the past and there is no excuse in my opinion to not hold VWO. However, it is not as true for FXI and EWZ. Those markets have more fees & regulations for outsiders that make it more expensive to trade. I do not expect a much cheaper alternative to come around right away. Cheaper? Sure. But not anything comparable to the EEM vs VWO situation.

#2-The number of top ETF’s dedicated to bonds is higher than even a few months ago (5) and rising fast as individuals look for more efficient ways to invest in fixed income. The expense ratio fees of Vanguard’s BND of .11% is very impressive considering it is trading bonds which are usually more expensive to trade than equities.

#3-Despite all of the talk about energy and commodity ETF’s, very few made the top list. GLD sits at #2 of course but you then have to wait for #22 to see the next (and only other) commodity ETF.

Any thoughts? Any surprises when you look at this list?