Archive for March, 2012

New Stock Pick Long LinkedIn (LNKD) & Short Pandora (P)

By: ispeculatornew | Date posted: 03.19.2012 (5:00 am)

It continues to be a very interesting trading year so far and last week was a first “slow” week in some time with most of my trades barely moving at all. I’m not complaining at all and in fact am thrilled to open a 5th trade today! This one comes as no surprise for the IntelligentSpeculator Tech Mailing List members (free to join if you are interested!) as I had discussed this one last weekend.

Today should be a very interesting trade and I’m actually thinking about changing my rules for this one. I see this one as a long term trade and might keep it going a bit longer, I will certainly keep you posted but I think this is the perfect (and maybe only for now) way to play LinkedIn, which I think is destined to great things.  Let’s look at the numbers for these 2 stocks:

[table “377” not found /]

I’d like to invite you to see this chart of quarterly revenues for both companies. If I told you that the fastest growing company (LNKD) was also profitable (while P isn’t), that it faces little competition, is expected to increase profits significantly this year (while P will lose money this year and even next)… would you believe me if I told you that LNKD was trading at a lower forward P/E????? Crazy, I know.

Long LinkedIn (LNKD)

I have been a strong believer in LinkedIn for some time but have also been complaining about its high price. Unfortunately, that has not changed this year as the company continues to trade at sky high P/E ratios but I do think that as a profitable company and one growing as fast as Pandora with little competition, the valuation is much easier to justify. In face, I think LinkedIn has barely scratched the surface in terms of what it will be able to offer besides advertising.

I am not a momentum trader but still look at Trend Analysis numbers and the numbers certainly look very promising on this trade.

Short Pandora (P)

Ahh it`s not a big surprise to see me short Pandora is it? The music company was near the very bottom of my 2012 Tech Stock Power rankings this year at #29. It has been losing money for years, will be losing some again this year and is actually expected to lose over $0.15 per share in 2013. Seriously!? Sure, revenues have been increasing but not nearly quickly enough. There are so many things that make me run away from buying Pandora. The first of course is that making money in the music business has been a very bad bet for years now. Pandora faces competition from so many players such as Apple, Amazon, Google, but also many other smaller players. I can’t imagine Pandora gaining much power to negotiate lower costs with the music labels and with competitors willing to lose money in this business, it’s going to be an uphill battle.

Disclosure: No positions on LinkedIn (LNKD) or Pandora (P), this trade will be opened on Monday morning

Weekend Readings

By: ispeculatornew | Date posted: 03.17.2012 (5:00 am)

I’m a fan of Matt Taibbi’s work and while I don’t agree with everything (or perhaps even most) of his work, it is always very interesting and entertaining, you can read his latest piece about Bank of America here. Other than that, Peyton Manning is apparently down to 3 possible destinations… 49ers would be amazing:) Oh well, back to investing, here are some great readings for the upcoming week:

Daily ranking of the world’s 20 wealthiest individuals @ Bloomberg
Truth about technical analysis @ Long-Term Returns
Is the increasing income gap a myth? @ AllFinancialMatters
Target Date Funds/ETF’s, Good Products, But For Who? @ BuildYourETFPortfolio
60% of US workers have less than $25,000 saved @ CuriousCat
Italy said to pay $3.4B to Morgan Stanley on a derivatives loss @ Bloomberg
The man who broke Atlantic City @ The Atlantic

Dividend Readings

Dividend Stock Battle Can Campbell Soup Flood Heinz Ketchup @ TheDividendGuyBlog
3 Dividend Payers Benefiting from the Network Effect @ Dividend Monk
The Poor Rich Need Dividends? @ Dividend Mantra

Tech Readings

The Final Facebook IPO analysis @ ZeroHedge
Why UBS Just Cranked Up Its Apple Target To $675 @ ClusterStock

Buying Gold, A Battle That Will Never End For Me

By: ispeculatornew | Date posted: 03.16.2012 (5:00 am)

I have written about gold several times on this blog and despite the investment being so simple, I’m still unable to get my head around it. Think about it, when I am buying a stock I feel like I’m buying a stake in a company that will be earning money for decades. Some of those earnings are usually eventually paid out as dividends. Thus, the value of those stocks is quite simply the future value of those dividends and earnings (for companies that are too stubborn to pay out dividends.. Apple AAPL anyone?). What can influence the stock is extremely large, it can be growth, competition, costs, technology changes, etc. Some analysts work full time on researching a handful of companies.

Bonds have different characteristics and certainly have fewer components but the future value of cash flows can certainly become complex as is the ability of companies/governments to pay back bondholders.

Then there is Gold

Gold has became much more popular in recent years. Why? Because it’s seen as so many as the best (hardly perfect, but the best one available) hedge for inflation and as governments such as the US and European ones continue to lack the urgency to fix their growing levels of debt, it’s the belief of many that gold should be part of any long term portfolio of investments. I’m not there yet. I know of so many that are putting significant amounts of money into gold. Others are simply buying a few % of their holdings, every year into physical gold. Why? It’s their belief that if the system collapses in some way, and that assets such as US dollars end up losing a lot of value, the value of gold will hold up. To be fair, that has been largely true throughout history.

Hence The Growing Appeal Of Gold

I would imagine that at any period in time where the value of other assets becomes more questionable, gold’s value would rise and with everything going wrong in the world right now, many are starting to worry about the assets that had been seen as safest, such as US dollars, bonds issues by the biggest countries of the world, etc.  Could we be at risk of losing much more than is possible to imagine? What if the end of Europe is near and that could bring massive issues to the US and others? Of course, these are very pessimistic scenarios and I would not consider them anywhere near likely but would not trying to protect against such a scenario be irresponsible?

Gold, Really???

There is one big problem with gold though and I had trouble putting it into words but Warren Buffett said it well recently when he said that gold had little to no value to him. Why? First it has no “inherent” value, it does not produce anything. Sure there is some jewelry made of gold but that is responsible for such a small portion of gold’s value. Why is gold worth close to $2000? Its value is mostly driven by perception. That creates huge issues for me. See, that “perception” can change so quickly, and it could just as easily drop down to $1000 as it could rise to $5000 as some predict it will. I’m not nearly smart enough to have a strong opinion on the direction of gold prices. Thus, it becomes very difficult for me to pull the trigger. Having decent protection in case all goes to hell? Yes! But buying gold today at these prices? I’m just having trouble with the concept.

That being said, I will likely be buying some gold in the next decades, as a very small percentage of my portfolio, just “in case”. Crazy? I guess time will tell.

What are your thoughts on gold?

The Speed Of Light… And What It Means

By: ispeculatornew | Date posted: 03.15.2012 (5:00 am)

Yesterday, if you were anywhere near planet Earth, you heard about the Goldman Sachs exec who very publicly decided to leave the company while at the same time voicing his opinion that Goldman was more than happy to screw its clients and sell it poor products in order to enhance its numbers. On the face of it, those are not shocking revelations. What is however is to see this guy write a piece in the NY Times about it. Even more surprising to me is how quickly things happened after that. Within a few hours, it seemed to be all over the news even forcing Goldman Sachs and CEO Lloyd Blankfein to react to the news:

“We disagree with the views expressed, which we don’t think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.”

All of this happened within a morning.

A few days ago, when Apple finally launched its much anticipated iPad, in a matter of seconds, everyone in the Western world seemed to know exactly what had been launched, how it was different, etc.

Don’t get me wrong, I know that things have changed, that information is going at the speed of light. But it still surprises me every time. The social networks have only made this even more evident. You are probably on Facebook, Twitter, LinkedIn or some other network. If you are not, I would bet a lot that many of your closer connections are. That means good and bad news can reach a record number of people within a few minutes. Reputations, customer bases, all of that can come and go so quickly.

When Bank of America (BAC) announced its new $5 fee, the backlash was so severe that it finally decided to backtrack, looking like a bit of a fool in the process but avoiding what was quickly turning into a disaster. Then there is Netflix (NFLX), which I’ve also discussed which made a terrible PR move which it continues to suffer consequences from.

What Does All Of This Mean?

I personally think that more than ever, the fate of a product, a company, or even an industry can change within a day. Every company is one bad move, one bad decision or one bad press release from suffering big losses. This reinforces my view that:

I want to hold innovative companies: Apple is a prime example but so would Google, LinkedIn, Amazon, etc. Companies that are unable to come up with the best products will increasingly be left behind

I want to hold companies that treat their customers as kings: With social media, word of mouth’s power has exploded making companies such as Apple that surprise their users every time they release a product rewarded for doing so.

Passive Investing Remains King for most investors: If you’re not able to spend time every week or every month looking at your investments, you should be going for passive investments. There is just so much happening every single day now that I believe less in less in “permanent portfolios” that can be bought and left alone.

What are your thoughts? Doesn’t it feel like the speed of everything keeps getting faster and faster?

Ultimate Sustainable Dividend Portfolio – March 2012 Update – New Trade

By: ispeculatornew | Date posted: 03.14.2012 (5:00 am)

Last year 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 but also show how I would manage such a portfolio. I have said it before, I do not believe in stocks that you can hold “forever”. Thus, even in a long term portfolio such as this one, I will end up making some trades from time to time. Today, I am making the first such trade that you can read about later on. I did discuss the search for a new stock to add in our free mailing list recently, 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 20 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 (please note that currently, dividends are not reinvested automatically through a DRIP strategy):

[table “374” not found /]

Dividends Received

Obviously, dividends will continue to be volatile, and have waves since most of these companies pay quarterly dividends. Still, having a bigger amount than in December is one more sign that we are on the right track:

Ultimate Sustainable Dividend Portfolio News

[table “375” not found /]

Returns

In a rising market, it’s very impressive and perhaps even surprising to be able to outperform the S&P500 total return index. So far so good…

Trades

For the first time since initiating the portfolio, I am ready to open a trade which will be done on today’s close. Please remember that the two main deficiencies from this portfolio that I had discussed were:

over exposure to the oil/commodities sector
lack of international diversification

I’m also looking to avoid at all costs holding stocks that slow down their dividend growth.

Stock coming out

The stock that I am taking out is Murphy Oil Corp (MUR) which seems to be doing ok but it has failed to raise dividends in the past 18 months which is by far the worst performance in the current portfolio. That is also convenient since it will reduce my exposure to oil stocks.

Stock Being added:

Today, as discussed in the newsletter, I am adding Aflac (AFL) which has an incredibly strong profile, adds an insurance company that has strong exposure to Japan which is good diversification. See the numbers for both here:

[table “376” not found /]

That is all for now, let me know if there is anything you’d like to see added in these reports!

What Portion Of Your Portfolio Should You Invest In Bonds?

By: ispeculatornew | Date posted: 03.13.2012 (5:30 am)

This is a century old debate (if not longer) but it never gets old. Why? You can easily debate from either side. Don’t underestimate the impact of this decision though. For most investors, there are two main (and often only) asset classes; stocks and bonds. Sure you can add alternative classes like commodities, REIT’s, private placements, etc. You can also break down both of those into subclasses such as domestic stocks, emerging stocks, etc. Bonds can domestic or foreign, they can be short term, long term, inflation protected, corporate, government, etc. You get the picture right?

It Is Perhaps The Most Important Decision For Your Portfolio

It’s easy to get insanely complicated but hear me out. Asset allocation is by far the biggest factor in determining the performance of a portfolio. No other decision regarding asset allocation is more important than your allocation between stocks and bonds. Why? In theory, here is the breakdown:

Equities – Higher returns, more volatility, perform best in good economic times
Bonds – Lower returns, less volatility, performs best in flat/down markets

I know, I know, some might that dividend stocks for example react in a closer to bonds, etc. But let’s stick to bonds vs equities.

Which Asset Class Is Better?

Of course, there is no right answer to that. It always makes me smile when I see charts about bonds overperforming stocks (or vice-versa) because it always depends on one critical factor; the time period. I could easily pick a period that would show you how bonds outperform stocks or the opposite as you can see here:

It simply depends on the dates that I am using. The fact is that we should all own some stocks and some bonds. The big question is how much of each.

It’s NOT A Life Threatening Decision

One thing I hate to see is so many investors being unable to make a decision. They fear getting it wrong and want to over-analyze the decision. I know it’s difficult to come up with a set allocation… What you have to remember though is that the allocations will likely change every year and perhaps even more often. The critical part is getting started and then seeing how your portfolio reacts to market movements. Then, you can adjust both proportions to better reflect what you are looking for.

Make Your Life Easier

The universal rule is quite simple. If you own 100% of your portfolio in stocks and bonds you would invest so that:

Bond proportion = your age %
Stock proportion = 100% – bond proportion

So a 30 year old would own 30% of bonds and 70% of stocks. Of course, this is a general, well known rule meant to be easy to track and understand. I still think it’s a good starting point. From that point on, you can adjust in the following way:

-Higher tolerance/capacity to take risk => diminish bond % and increase stocks %
-Lower tolerance/capacity to take risk => increase bond % and diminish stocks %

What determines your willingness and capacity to take risk? Basically, an investor that can take risk and is willing to take more risk than the average investor would:

-sleep well at night no matter how the markets reacted
-be earning more than average or own more than the average
-not need aggressive returns to reach the target retirement
-etc

So basically, depending on your profile, you would adjust slightly your proportions. I personally consider myself more willing/capable of taking risks so the %bonds in my portfolio is less than my age. Not by tons, but it is.

I would love to hear what you think about this question and what you personally have been doing?

New Stock Pick Long Dice Holdings (DHX) and Short MonsterWorldwide (MWW)

By: ispeculatornew | Date posted: 03.12.2012 (5:00 am)

It’s been a very active year so far, no doubt about it. Things have been decent and much more stable in recent weeks which I guess was to be expected with earnings season now behind us. I had a very tough time deciding on today’s trade as I did see 3 great trading opportunities, as you might have seen if you are a member of our free Tech Stocks Mailing list (if you’re not, what are you waiting for?):)

Today I am back with a familiar trade which in the end proved to be too good of an opportunity to pass up. I am trading the 2 job search engines companies, Dice Holdings and Monster Worldwide, which I’ve had success trading in the past. Let’s look at the numbers for these 2 stocks:

[table “373” not found /]

And just look at this chart, it tells the story.. tell me how MWW is trading at a higher forward P/E:

5 Year Normalized Quarterly Revenues (1997-2011) For DHX and MWW

Long Dice Holdings (DHX)

It’s insane that we are once again back here. How is it possible that MWW is trading at a higher forward P/E than Dice Holdings despite history proving over and over that DHX growth is stronger, revenues and profits are improving faster. The brand is not as strong but that is not anywhere close to being a valid reason.

I am not a momentum trader but still look at Trend Analysis numbers and while DHX is not quite as strong as MWW, they are close enough.

Short Monster Worldwide (MWW)

Monster used to be a powerhouse, a highly respected web company that seemed to be leading the way towards a new way of recruiting and finding jobs. How things have changed. It is no longer at the cutting edge and its losing whatever edge it has very quickly. The company that tries to be the “everything solution” is losing business to LinkedIn (LNKD) but also to smaller companies that focus on geographical regions or specific industries (such as DHX). Think about it, Monster was making much more just a few years ago (both revenues and earnings) and I don’t see things improving quickly anytime soon.

Disclosure: No positions on Dice Holdings (DHX) or Monster Worldwide (MWW), this trade will be opened on Monday morning

Weekend Readings

By: ispeculatornew | Date posted: 03.10.2012 (5:00 am)

I hope you are all having a great weekend, it’s been a few weeks since I got the opportunity to post one of these, it’s been incredibly busy.. and no, I did not spent my entire week being sad about Peyton Manning leaving the Colts, only nights:) Ah well, time to move on I guess…

10 books I’m thinking about paying my kids to read @ AllFinancialMatters
Important lesson from Buffett’s annual letter @ Dividend Monk
The catch-22 of Active mutual funds @ Long-Term Returns
13 biggest losers that could make you the biggest winner @ TheDividendGuyBlog
The worst article ever – why Apple stock is better investment than a house @ Darwins Money
CFA level explanation @ SmartFinancialAnalyst
How to create financial content @ TheBigPicture

Tech Readings

The New iPad: Bow Down @ The Reformed Broker
The final Facebook analysis @ ZeroHedge

Updating The Stocks I Follow (YELP, SNDA)

By: ispeculatornew | Date posted: 03.09.2012 (5:00 am)

It has been a few months since there was any change among the stocks that I follow and as much as I would love to say that today’s update marks the addition of Facebook (FB), it’s not quite that exciting. For newer visitors to this blog, the stocks I follow are those that I usually track the news for and eventually make trades on. These technology stocks are not generally used for dividend stocks since most prefer to hoard cash (yes Apple, I am talking mostly about you) but rather for long & short stocks and longer term speculative picks.

If ever you have interest in these names, I highly recommend that you join our tech stocks newsletter, it is a free newsletter sent between 2-4/times per month on average.

Removing Shanda Interactive (SNDA)

Shanda Interactive is an upcoming gaming company in China. While I clearly have strong belief in Chinese internet stocks and have done well with some, it’s so difficult to trade them because of the lack of information. I have found a good source of news recently that might help but I’ve still been reluctant to trade these names recently. When I do, Shanda will not be part of it as the company was acquired by Premium Lead Co Ltd, a private company located in the British Virgin Islands from what I can see…I am removing it from the stocks that I follow.

Adding Yelp (YELP)

This is a much more interesting one. I did learn my lesson a few months ago after trading TripAdvisor (TRIP) and will not trade YELP right away but to me, this seems like a great opportunity. No, not a buying opportunity, but a great name to short. If you do not know YELP, it is a huge review website that helps users find critics and reviews of restaurants, and many other types of businesses. The business model is similar to TRIP actually but is a much broader website (compared to the travel direction of TRIP). I am generally not a big believer in companies that try to be the answer to such a large audience and YELP has been known for questionable practices that would make it very difficult for me to buy the stock.

Yelp IPO

Yelp started trading last week after a $15 IPO but started much higher almost instantly in a similar way to many others

Valuation Is Crazy

While I’ve said that you’d be crazy not to own Apple (AAPL), the opposite could be said about YELP. Why would you own a stock that has growing revenues but also growing losses and that trades at a valuation of $1.2B despite only having $80M in revenues for the year. The company lost over $1 per share in the past year and while there are certainly some scenarios where YELP would be a good buy, I think that LinkedIn (LNKD) which has a very similar profile (strong revenue growth, similar multiple for price to revenues, etc) is a much much stronger company. The main difference between the 2?

LinkedIn is already profitable and has been seeing increases in earnings while YELP is going into the opposite direction, has slower growth.

Oh and did I mention that while Yelp competes with the likes of Google, LinkedIn faces little to no competition? I mean honestly, I’ve had a hard time going long LinkedIn (LNKD) because of the high valuation but when I compare it to Yelp, it looks like an amazing bargain.

Believe me, if things do say close to this, I will end up going long LinkedIn (LNKD) against Yelp (YELP)…

So please, if someone knows a YELP holder, please ask them to explain themselves here? What am I missing? Is there a more obvious short?

P.S: As if things were not bad enough, there continues to be a lot of questions about Yelp’s tactics which will eventually backfire…

Why You Should Build Your Own Dividend Portfolio Rather Than Buy ETF

By: ispeculatornew | Date posted: 03.08.2012 (5:00 am)

I’m a huge fan of ETF’s, they provide an incredibly easy, cheap and diversified exposure to several asset classes that would be much more difficult to obtain. In fact, I personally think that ETF’s should increasingly be considered an essential part of almost any type of retirement portfolio, especially when it comes to fixed income investments but also many other types. It’s a no-brainer really. That being said, I don’t agree with one type of ETF that is quickly gaining popularity; Dividend ETF’s that buy companies according to a set of filters might be a good solution for some as discussed just a couple of weeks ago but I would argue that most dividend investors should stay away. Why?

#1-Save On Fees: Even though ETF’s are very cheap, especially compared with other types of investments such as mutual funds, they do still have a cost. If I take an ETF such as DVY, the Ishares Dow Jones Select Dividend ETF, that expense is 0.40%. That might not look like that much but over the years it does become significant. Take a look at a sample portfolio worth $50,000 that pays a 3% dividend. Let’s imagine that the standard dividend portfolio increases dividends by 3% per year (very reasonable) while the other increases them by 2.6% (as 0.40% goes to the fees from the fund). Take a look at the difference, it is significant over time in my opinion.:

#2-More Transparency-As nice as it is to have someone else do all of the work, the truth is that in most cases you will not know what the ETF that you own holds. That might not matter much for many of you but when events such as the financial crisis occur, you will regret not knowing what the ETF holds and how exposures you are.

#3-Less Flexibility: While building the Ultimate Sustainable Dividend Portfolio, I’ve been able to adjust it according to what I consider to be good diversification, focus on dividend growth to a certain degree, etc. Sure there are ETF’s that focus on specific dividend sectors such as dividend aristocrats or dividend growth, or high yield dividends, but even those will not provide you with the flexibility that you have when you are managing your own portfolio.

There Are Some Exceptions

Like anything else in life, there are exceptions to this rule as some people might be better off holding dividend ETF’s, especially:

Those with fewer assets (less than 10K?): It’s difficult to have a diversified dividend portfolio (or any other type for that matter) with so little money. You can always start building and accept the reality of being less diversified in the first few months but if you’d prefer not, holding ETF’s while you grow your assets might make a lot of sense.

Those with no time: No matter how efficient you become, managing a dividend portfolio does require time. If you hold between 5 and 20 companies, you will need to monitor them, make sure that they are still good holds, reinvest your dividends, etc. Like so many other things in life, it’s important to maintain it as much as possible.

As Investors Grow Older: At some point, all of us will want to spend less time and energy on the markets. For some, that will happen shortly after retiring while others love it so much that they’ll keep going at it for a couple of decades after retiring. In all cases though, it’s probably a good idea at some point to start scaling back on the required decisions and that might be a good time to move to more passive investing.