Archive for January, 2011

Trading Recap January 17th 2011

By: ispeculatornew | Date posted: 01.17.2011 (5:00 am)


In the first week of 2011, we opened 5 trades and it seemed fitting with the first month of the year half way done to do a recap of how things have been going so far. The performance so far has been above expectations and very satisfying. That being said, both in 2009 and 2010, we started off the year with great success only to finish with limited success in the later part of the year. Why? It’s difficult to say honestly but in both years the overall performance was very very solid. Hoping that this year we can keep things up.Without further wait, here are the results of our 5 trades so far:

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I am very satisfied so far and while the rise by KNOT on Friday caused one trade to drop, 3 of the trades are doing better than 8% already!

Best Performing Pick so far: Long Apple (AAPL) +7,01%: I feel very comfortable being long Apple right now, especially with the expected launches of the Ipad 2 and Iphone 5, both expected to happen in the first part of 2011. It was great to see Apple finally confirm that its Iphone would be made available on Verizon (VZ) but the launches of more products will be even better for the top and bottom lines of Apple.

Worst Performing Pick so far: Short The Knot (KNOT) -8,45%: It continues to be a bit frustrating to see this stock be so volatile without any news. I did look to find something that would have caused Friday’s big move but given the low volume, it does not necessarily take much to move the stock.

The year is just getting started but I am obviously already looking forward to seeing one of these trades close up so I can start a new one!

Disclosure:

Long: Apple (AAPL), Amazon (AMZN), Dice Holdings (DHX), Priceline (PCLN)

Short: Blue Nile (NILE), The Knot (KNOT), Monster Worldwide (MWW), IAC Interactive (IACI)

The Gawker lessons and how it affects your investments

By: ispeculatornew | Date posted: 01.14.2011 (5:00 am)

You might have never heard about Gawker or you might be one of the millions that visit its blogs and websites every day. It is one of the largest blog networks on the web, competing with the Huffington Post among others. Like on this blog, visitors can post comments, discuss between each other. To do so, the users must simply register with a user name, email and password. Easy enough right? Most of you have probably done this on dozens if not hundreds of websites.

What happened to Gawker late last year is beyond the worst case scenario for most “digital companies”. Hackers were able to get access to the database that had the user names, passwords and email. Bad right? It gets worse in fact. They  then put up the file for download as a torrent file giving access to the information to millions of users. Some had no bad intentions but others did as you can imagine. So what can someone do with your Gawker password? Not much of course. But these hackers generally ran tests to verify if by any chance the users had the same password on their email, paypal account, etc.

Many users had the same passwords for their emails of course which gave hackers access to all kinds of information. Public relations nightmare! That means millions of users losing confidence in Gawker as a means of protecting their identity, their private information, etc. For a blog it is bad, but for other businesses it can get even much worse.

Google in China

It is well known by now that when Google decided to exit China, a big part of the issue was how Chinese hackers were increasing attacks on Google in attempts to get access to information from users. As data increasingly gets stored “in the clouds”, protecting information will become critical. Why? Because much of what Google does depends on the trust of its users. Why would you use Google’s email if you would be afraid that the company’s security is vulnerable?

Facebook

Many of the initiatives that I wrote about when I posted about being CEO Mark Zuckerberg for a year depend on continued trust from the users. While I did write that I consider Facebook’s current $50 billion valuation to be a bargain, that could be destroyed quite easily if ever word got out of a security breach. Would users still feel comfortable communicating with friends, putting up photos and other information if they felt that at any time it could be compromised?

How it affects my investing

Personally, here are some things that I am putting more effort into when evaluating technology stocks:

-How much are they willing to discuss security?
-Are there any whispers or rumors about security issues?

There are no easy ways to monitor all of this but personally I would remain very vigilant and could very well go short a stock if rumors appeared about such a breach.

Disclaimer: No positions

Should you short Bank of America (BAC), the next Wikileaks victim?

By: ispeculatornew | Date posted: 01.13.2011 (5:00 am)

Bank of America investors have gone through a lot in recent years. BAC was one of the main players during the recent credit crisis and was very much involved in the Lehman Brothers and Bear Sterns fiasco. We even called BAC a casino play at one point as the stock dripped from a high of $45.03 in February 2008 to a low of $3.14 about 12 months later, a drop of over 93%!!! Even by the very low standard of US banks at that point, BAC was a disaster.

However, being one of the big US banks certainly has its benefits and as the government and Treasury got involved to support the biggest financial institutions, and in the end it proved to be enough to help BAC and most of the others to make it through. While no one would say that they have fully recovered, their survival is no longer in question and that has helped investor confidence. Even when stress tests revealed that BAC needed $35 billion, the bank was able to get it done.

So life is good now?

For most of the banks, life is indeed going fairly well. Many have become solid dividend payers as you might have seen when we discussed the best financial dividend stocks and others such as Citigroup (C) are poised to resume paying dividends as they continue to restructure and improve their operations.

Wikileaks

There is one thing that might cause trouble in the banking system though. Wikileaks, an organization that has been discussed perhaps more than any other in recent months had disclosed a few months ago that its next target would not be the US or even another foreign government but rather a public company. Founder Julien Assange even made public that the target was a big US bank and that the information was important enough to collapse the entire bank. Rumors had been circling around that Bank of America was the target and the bank even seemed to think it was a possibility as it started hiring lawyers and PR teams to prepare for what could become a serious problem.

Today, CNBC confirmed that Bank of America was that big bank that would soon be the target of Wikileak’s next big documents release.

What kind of information could be leaked?

You would think that some illegal operations probably happened, perhaps surrounding the subprime mortgage. Proof of that and of knowlege by executives of the company could certainly mean major legal liabilities and even more important public relations nightmare. There could also be more information about bonuses being paid out, which would cause outrage in the public. There are probably millions of different things that these documents could contain including information about misdealings with clients, knowingly deceiving the clients or the public in general, etc. If the leak of the US government’s files is any indication of how serious things could be, BAC has a lot to worry about.

So would you sell BAC?

It’s difficult to say but honestly, I think that the possible demise of BAC is overstated. Let’s not forget how much support was given to these institutions by the US government. Even a couple of years after the crisis, the government is not going to let things go too far for BAC and would probably support the institution. So no, I’m not a big fan of going short BAC right now. I would consider buying a “Put Option” to possibly gain when the news comes out… but would close that option out when the leak did happen. It might work, it might not. If you are looking for a good future dividend payer, buying if the stock drips might be a great idea. The cost will be smaller and I don’t think that this leak will change the long term future of BAC as one of the premiere financial institutions in the world.

Disclosure: No positions on BAC

Verizon (VZ) dividend analysis

By: ispeculatornew | Date posted: 01.12.2011 (5:00 am)

Yesterday we wrote a post about the impacts of the Iphone being offered on Verizon (VZ) but we focused on Apple’s (AAPL) point of view. That being said, Verizon is one of the top dividend stocks in the US and this deal could significantly change the medium and long term perspectives for investors that are looking to build a strong and consistent passive income portfolio. Even in the past, I had considered adding Verizon to my top picks but this latest deal puts the carrier in a great position.

How does this change things for Verizon?

-Verizon is now one of two carriers that can offer both Android and Apple smart phones
-The fact that it was picked by Apple is a signal that the investments in its network  are paying off
-As an increasing number of corporate accounts consider using Apple, they will now have the option to bring their accounts to Verizon

So just how does Verizon rank as a dividend stock?

Of course, we will be ranking Verizon based off of the top 20 things that we consider when evaluating dividend stocks.

Dividend Metrics

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How often do you see a stock that has a dividend yield over 5% that has increased both over 1 year and over 5 years? It’s very rare. From a dividend perspective, Verizon is a very solid choice and the two main questions would be:

-Can Verizon afford to keep up the dividend payments?
-Can Verizon continue to increase its dividend?

Company Metrics

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No doubt, these numbers are not as impressive. Verizon has seen decreased earnings, is paying out more than what it is making, and has a fairly high level of debt. It’s not uncommon for a communications company to be struggling these days because of the very high level of competition in the industry. That being said, the sales are growing and the arrival of the Iphone should help sales growth accelerate but also improvement in the margins and earnings. Hopefully that will be enough to bring down the payout ratio without having to tough the dividend payout.

Stock Metrics

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In technical terms, there is no doubt that the stock looks very attractive and it’s trend analysis score is also very impressive

Industry Metrics & Fit within your portfolio

No doubt, the communications industry is a difficult one and while it’s not as bad as the airline industry, there are quite a few similar aspects between the two. Large investments are required and there is so much competition that price pressures are very high which makes it very difficult to sustain a hgh profitability level. There is consolidation going on which will certainly help in the medium to long term.

That being said, Verizon is one of the companies that is starting to make a strong name for itself and the arrival of the Iphone will certainly help in those matters.

Overall Analysis

I think that if you do not have a communications company in your dividend portfolio, Verizon might be the one for you. It is in a great position and will certainly have a major sales and reputation boost that will translate in additional business outside of the Iphone as well. That being said, I’m a bit worried about the high payout ratio and the diminishing margins. The investments required to upgrade Verizon’s network if the Iphone demand is high could continue to put pressure on those margins.

So I would not consider Verizon at the very top of dividend stocks but it would still be a very nice addition to most portfolios.

Do you agree?

Disclosure: Long Apple, No positions on Verizon

A good day to be an Apple (AAPL) shareholder

By: ispeculatornew | Date posted: 01.11.2011 (5:00 am)

It had been discussed for ages and some had started to fear it would never happen. Apple’s Iphone has been the company’s door into the smartphone market and while it continues to compete with both Research in Motion and Google’s Android, Apple had one obvious issue in its most important market. While users in almost every other market in the world had the choice of at least 2 different carriers, US consumers were stuck. They needed to use AT&T (T) if they wanted the Iphone.

Even if AT&T was perceived as the top carrier, it would still take away significant market share. But knowing that AT&T is perceived as having many different issues, as offering inferior customer service and coverage was a good enough reason for many to look at Iphone alternatives. The other big thing was that with no competition, AT&T was able to offer the plans as if it were running a monopoly.

I had suggested offering the Iphone on Verizon (and other carriers) in my post about being Apple CEO Steve Jobs for a year and was surprised that there would be arguments about that specific point. But there were. The main thing that were said were that we didn’t know the terms of the transaction and how much AT&T was paying Apple to be the exclusive carrier. That is true. But that is not my point.

Long term vision

I consider that no matter what AT&T was offering, it was for Apple’s benefit, not for the users. In the short term that can work. But in the long term, Apple will be better served by offering a better product to its customers. The phone, the software, the apps are obviously huge parts of that. But so is the plan that users can get. Customers had been asking for unlimited data plan since the launch of the Iphone and Verizon (VZ) will be offering it as one of its options, which great news for potential customers. In the long term, being the number one phone will be worth a lot more than whatever AT&T is paying.

How important is this step?

Estimates are that Verizon will add 10 million additional Iphone users in 2011. That is 10 million users that will log into Itunes, buy Iphone apps and give even more incentives to outside providers to develop software and hardware for Apple users. It is a critical step in my opinion.

What’s next for Apple?

I know that many do not agree with this and it’s unlikely to happen given the history but support Adobe Flash would be a great way to take away the 2nd most important reason why users to not buy the Iphone. Apple has announced that limited support for Flash will be integrated through Apps so that is one big step. The next one obviously would be having the internet browser support Flash even if it were to notify users when something crashes because of Flash (such as what Mozilla’s Firefox does).

Disclosure: Long Apple, No positions on Verizon

Yes, Facebook at $50 Billion is still a bargain

By: ispeculatornew | Date posted: 01.10.2011 (5:00 am)

The numbers are making the headlines all over the place aren’t they? How many times did you read about Facebook’s incredible 50 billion valuation even though the Goldman Sachs investment was very much in line with recent valuations. But Goldman Sachs, with its reputation, certainly gave credibility to that valuation. Many were shocked. But even more surprising to those was the fact that Goldman is being forced to shut down additional investors: there is simply too much demand for Facebook stock at that valuation.

Some have argued that the valuation was way out of line including this post that was probably looking more for attention than actually being serious. How could someone possibly compare P/E ratios for Facebook and Apple. Regular readers know how much of a believer I am in Apple. But they would also know that I consider Facebook to be the best investment out there. Yes, you heard me right. Facebook is not overvalued but quite the opposite, it remains a great deal opportunity.

Google factor

Do you remember when a little search engine  named Google decided to IPO? Many critics said its 85$ IPO was crazy and expensive for a company that had not proved how it could expand it pricing model. You can take a look at one article from 2004 from Business Week… does that bring back any memories? How do you think that turned out? I don’t think many doubt that Facebook will likely become as big and important as Google eventually as it quickly becomes the center of the web experience.

A look at the numbers

What many are bringing up is the estimated profits for Facebook in 2010, a respectable $500 million. So yes, the company is currently trading at a 100 P/E ratio. Expensive right? Some companies such as Open Table trade at even higher P/E’s. Comparing Apple’s P/E to Facebook’s is silly. Why? Because Facebook is growing at a very impressive pace and that is one of the most important factors when evaluating a P/E ratio. For example, it’s very realistic to expect that Facebook could increase profits by 100% in 2011 to $1 billion. That is not a stretch by most estimates. If that were to happen, investors that bought the current shares at a 100 P/E would now get twice as much earnings for the same value, or a 50 P/E. Add a few more years and you will see what I mean. As much as I like Apple, what are the odds that the company will double its profits in 2011? Zero….

Can Facebook keep up the growth?

If you agree with the analysis so far, the main question would be how much growth Facebook can sustain. As I’ve said in the past, Facebook is growing its revenues quickly, but not as quickly as its users because it is fully focused on the product rather than the profitability. I did suggest some things I would do if I were Mark Zuckerberg for a year but those will likely not happen as Facebook will continue to focus on the product. If Facebook were to focus on the revenues & profits, I would expect growth to be much higher than 100% in the first few years. But the company is focused on the long term and that is unlikely to change for some time (and why should it?).

So please stop the nonsense

I think that Goldman Sachs has been making a brilliant investment that will pay off in many different ways over the next few years and anyone who thinks the P/E ratio can come back here in a few years to discuss, I’ll be more than happy to take a look back!

Disclosure: I unfortunately do not have any positions on Facebook but have a long Apple position

Financial Ramblings

By: ispeculatornew | Date posted: 01.08.2011 (10:47 pm)

Wow, what a week it was as we went all in to start 2011 with a heavy schedule and 3 posts per day on average! Thanks for all of the comments sent by email, Twitter or on the posts directly, they were very appreciated. There were a lot of other great readings to start off the year and you can find some of our favorite ones here!

Best wishes again to all of you for 2011

Top 10 Greatest trades of all time @ The Big Picture
3 questions to help you sell your stocks @ TheDividendGuyBlog
2011 Stock Picks @ MyTradersJournal
CBOE to publish VIX like indexes for individual stocks @ Vix and more
2011: What to watch @ BalanceJunkie
What is shorting? @ Momvesting
2010 Goals reviewed and 2011 Financial Goals @ TheFinancialBlogger
Book review: The millionaire fast lane @ Personal Dividends
Keeping the motivation up for the CFA exam @ SmartFinancialAnalyst
Best Canadian Energy plays for 2011 @ MoneyEnergy
Some non predictions for 2011 commodities @ Macro Man

New trade: Long CTrip (CTRP) & Short Valueclick (VCLK)

By: ispeculatornew | Date posted: 01.07.2011 (6:30 am)


The streak continues! In fact it is coming to an end! We have already published four technology stock picks this week and this one will be the last until one of them is closed out! It usually does not take too long but I will certainly keep you posted on the progress! If you have followed this very busy week on IntelligentSpeculator, you can probably guess what company I am going long in this post. Of course if I am selecting CTrip as one of my four stock picks for 2011, it will be one of my picks here as well. Logic right?

Before getting started, here are the main numbers that I used to decide on this trade:

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Trend Analysis

It’s a no march in terms of trend analysis as Ctrip (CTRP) crushes Valueclick (VCLK) which had a good run but has slowed down quite a bit

Long CTrip (CTRP)

CTrip is one of the leading internet travel companies and the leader in the Chinese market which is booming. You will not be surprised to read that Ctrip’s revenues and profits have been increasing very quickly. The company has a great spot in an emerging business in China but still has its challenges, especially in dealing with Chinese airlines and other partner companies. If you look at their chart, you will see a major drop last July when there were problems while negotiating rates and those could certainly occur at some point in 2011. However, the fact remains that the growth is too solid to pass by, especially for a stock currently trading at a reasonable P/E.

Short Valueclick (VCLK)

As I was writing about CTrip, it was difficult to focus on the Chinese company and all of its growth without remembering how little excitement there is for Valueclick. The company has been struggling to find any growth and it’s not surprising when you look at how they are doing. Their technology has been lagging other companies such as Yahoo, Google and Microsoft and they own few properties to offer to their advertisers. They do have an impressive network of partner websites but given their problems in other areas, Valueclick is having trouble offering competitive payouts to those partners. The result? Lesser quality websites, less satisfied advertisers, etc. It’s a fairly simply but sad cycle for Valueclick shareholders and I do not see any indications of a turnaround right now. This stock has little growth in it and makes for a perfect short.

Just take a look at the charts for both companies:

Disclosure: I do not hold positions on either stocks

2011 stock picks: REIT ETF’s

By: ispeculatornew | Date posted: 01.07.2011 (5:00 am)

So you have been building up a passive income portfolio and are at a point where you want to add more diversification to what you have? REIT’s would certainly be a great addition but they are often difficult to choose from without spending a lot of time and while some of us want to spend the time to choose the best ones, many others want an easier solution. Of course, that is where ETF’s come in.We wrote about REIT ETF’s briefly last year and received a lot of positive feedback because of the lack of information about the options.

REIT ETF’s are not new but they are certainly gaining steam and right now, Vanguard’s VNQ looks like a very solid winner. It has a very low 0.13% annual fee which is by far the best you will find in the sector and pays a very reasonable 3.42% dividend yield. And things are changing fast. Last year, VNQ was the category leader but had less than $5 billion in assets under management. These days, VNQ counts on over $15 billion and has distanced itself from rivals. It has investments in 104 US REIT’s although over 40% of those assets are invested into their top 10 holdings.

Real Estate Outlook

There remains some degree of risk involved in the real estate market as many investors continue to worry about a double dip in prices and REIT ETF’s are certainly not for everyone. If you do not have much assets besides your house, you might already have a big enough exposure to the real estate market (although you would admit that exposure is not very diversified) but as your portfolio grows, gaining more exposure is probably a good thing as it will make your passive income portfolio more solid, steady and reliable in the long term.

My first recommendation would be to take a look at the 20 things that I consider when selecting ETF’s, but if you want to cut straight to the case, I would consider the two main choices here to be VNQ and RWX (an internationally diversified real estate ETF), but here are most of the options that you have:

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Building a socially responsible dividend portfolio in 2011

By: ispeculatornew | Date posted: 01.06.2011 (7:00 am)

It’s always a challenge isn’t it? We hear about social investing, about making the world a better place but it’s easier said than done. Through our actions, we can make a big difference in the world and while one investor making “socially responsible” choices will have a small impact, grouped together they can have a much more significant one. It is the same as recycling isn’t it? One person recycling would have a very limited difference but the green movement is starting to have a very real impact not only on the environment but on how businesses are being run.

Of course, the primary goal of investing is making good returns. Just as the primary goals of making income are to save and spend it. But many of us still take time to make charitable donations in order to have a positive impact in the world. So my question to you is: Will you take the opportunity of the New Year to make your passive income portfolio a more socially responsible one?

There are an infinite number of ways to get this done and even the definition of socially responsible investing (SRI) is debatable. The definition from socialinvest..org is that “SRI investors encourage corporations to improve their practices on environmental, social, and governance issues“. Please note that this is different from ethical investing. How so? I do think that an oil company can be a good socially responsible investing for example if it can provide more sustainable and favorable business means than its competitors from an environment and social point of view.

What I did was take components of the S&P500 that were included in socially responsible investing indexes such as the Dow Jones sustainability indexes. That left me with about 100 names. From those, I took out all of the names that paid less than 2% of annual dividend yield which left me with exactly 50 names. Then, it becomes about selecting good dividend names and I did that using the 20 things that I look for in dividend stocks. I removed stocks that had a payout ratio over 50% or that had dividend growth under 5% for the last 5 years. How many names are left? 19! And many familiar names are left of course such as Pepsi (PEP), part of my 4 stocks picks for 2011, H&R Block (HRB) which came out as a top dividend financial stock, Entergy (ETR), one of the big dividend growth stories among others.

My final cut will be taking out stocks that have a debt to capital ratio over 50% which leaves me with 16 names that on the surface seem to be socially responsible and good dividend payers. Doing good in the world while investing, is it possible? I would love to hear your thoughts about this:

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