Archive for May, 2012

Weekend Readings – Happy Mood Edition

By: ispeculatornew | Date posted: 05.19.2012 (5:00 am)

Wow, I could not possibly have asked for a better Friday. Not only did Facebook finally (!!!!!) turn public but it was a very interesting trading day and more importantly, it does look like Facebook will continue to trade at reasonable valuations, which will certainly give me an opportunity to buy a few shares! Very exciting stuff! That and some good weather expected for the weekend were enough for me to truly enjoy my Friday! Did any of you follow the much anticipated IPO? Do you expect to buy at some point?

Without going further here are some great readings if you have some free time this weekend:

General Readings

Three ways to buy bonds @ Retire Happy
How to save and invest money for college @ MoneyCrashers
Should You Sell Your House And Avoid The Market Crash? @ Money Smarts Blog
Why I Have No Faith in Market Timing @ CanadianCouchPotato
Become A Safer Investor – Get Married @ Psy-Fi Blog

Dividend Readings

European Stocks Dividends @ Long Term Returns
Are You Bullish or Bearish – Does it Really Matter? @ TheDividendGuyBlog
Five of the Strongest Companies Raising Dividends @ Dividend Monk
Foreign Dividend Tax Treatment @ WhatIsDividend

Facebook & Tech Readings

The Epic Battle to Defend Facebook’s IPO Price @ TheReformedBroker
Chuck Schumer Is Ruining Facebook IPO Day For One Shareholder @ DealBreaker

 

Dividend Yield or Total Yield?

By: ispeculatornew | Date posted: 05.18.2012 (5:00 am)

I saw an interesting post regarding research done by UBS analyst Jonathan Golub. In theory, companies that are able to save enough cash with no significant investment opportunities are faced with a choice. They can either keep hoarding cash or end up paying back investors as Apple (AAPL) has finally decided to go ahead and do.

Paying Back Shareholders

In theory some investors prefer being paid back through dividends while others prefer other forms. Why? It could be because they do not want to receive income right now (and owe taxes). What alternatives exist? Stock buybacks. The company buys back part of its shares in the market, making the number of shares that share the earnings smaller, and thus earnings per share increase. It is also seen as a positive because it sends out a message that the company believes its shares are cheap and should be bought at this price.

Dividends = Buybacks?

If we would agree that both methods are ways for a company to return cash to its shareholders, one generating dividend/income taxes while the other results in an increased share price and thus future capital gains, then it could make sense to consider both when looking for quality stocks. That is exactly what the research did.

Total Yield

The following chart, presented in the Clusterstock post, presents the top names in terms of total yield, you can take a look here:

First take a look at these dividend stocks from a dividend only perspective.

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Then, take a look at their total yields:

I wouldn’t say that I’ll start using this data to invest, and it’s a challenge to get such data, but it was certainly an interesting read right?

Closing Trade (BIDU, XOXO)

By: ispeculatornew | Date posted: 05.18.2012 (4:32 am)

Today I will be closing the trade on BIDU and XOXO. Unfortunately, while my average return has not moved much, this trade’s return is now past the stop limit, with my average trade return this year still close to -1% on long/short stock picks.

How To Buy Facebook ($FB)

By: ispeculatornew | Date posted: 05.17.2012 (5:00 am)

I’m a true believer in Facebook in what will surely be a very controversial IPO. On one side, there are investors such as myself, who believe Facebook has tremendous value, that it is just getting started, that the numbers that matter are not the number of users but rather revenues increase and influence on the web. I am part of the group that thinks buying Facebook at a valuation of $100B is a real bargain.

On the other side, there are the millions who think that only muppets are buying Facebook, that it is the biggest proof that we are right back in bubble territory, that with its nearly 1B users, Facebook’s growth has stalled, that it’s not worth anywhere near the 50 P/E that it will become public at.

Choose Your Camp

This is a black or white issue, you have to take a side, there is no middle. You’re either with me or against me:) If you’re against me, no need to keep reading, please do come back tomorrow or skip to my next post!:) And please do not try to short Facebook, it’s like playing Russian roulette… you might win, but your odds are not great. The borrowing costs will likely be high as well.

How To Trade Facebook

If you are a believer in Facebook, you might be one of the 10-20 people that have emailed me, let’s go over how you will be able to get it done. A few months ago I was complaining about the fact that it was nearly impossible for me to trade the stock but as it will become public, I think now is a good opportunity.

IPO Purchase: If you are a client of one of the underwriters of the Facebook IPO, you might have been contacted already about buying stock. If not, you can always try although your odds are probably not great. This is without any doubt the best way to buy the stock, it’s likely the lowest price you can get. In fact, very few stocks open that close to their IPO prices. They sometimes trade much higher as was the case for LinkedIn (LNKD).

The Unlucky Ones

If you are part of the majority that cannot get its hands on Facebook stock at the IPO price, you are in for a much more difficult task. The biggest problem is that the stock is likely to be CRAZY in the first few hours, just take a look at the trading on LinkedIn in its first day:

 

It gets a bit better after that first day but still remains too volatile for me. I know that it might mean getting the stock cheap but it could also mean overpaying by 10-20% or more. That is not something I’m interested in as I would be buying Facebook with a long term perspective. If you are planning on trading Facebook in the first day or first few days, it would be for short term trading purposes which can work but will prove difficult as you will be trading against a bunch of machines, algo traders, etc.

How I Will Proceed

Quite simply, I will wait a couple of weeks for Facebook’s stock to become more calm and then evaluate it from that position, hoping that it still represents a great buy. If it is the case, I will be making this purchase, not as a long & short trade but as a long term speculative buy. What about you? What’s your plan regarding Facebook?

Closing Trade (LNKD, P)

By: ispeculatornew | Date posted: 05.17.2012 (4:22 am)

Well, not a great week clearly, as I am closing this latest trade on LinkedIn (LNKD) and Pandora (P) which had been traded successfully earlier this year but is now stopped after only 3 days!

 

Ultimate Sustainable Dividend Portfolio – May 2012 Update

By: ispeculatornew | Date posted: 05.16.2012 (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. I did do one last month so nothing new is coming in April. I do discuss the search for new high quality sustainable dividend stocks that can be added in our free mailing list, 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):

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Dividends Received

The Month of May will be the highest paid month for the Ultimate Sustainable Dividend Portfolio. Only $70 or so has been paid out so far this month but the other dividends have already been confirmed!

 

Ultimate Sustainable Dividend Portfolio News

More good news as 3 of the 20 names increased their dividend:) Also, COP had a spin-off go ex-dividend on May 1st. I did end up selling the spinned off unit that same day to buy more of COP.

[table “399” not found /]

Returns

Not much change, the USDP did outperform the S&P500 slightly over the last month but still trails by a few dollars…!

 

Trades

After adding Aflac (AFL) in March’s update, I do expect to keep more or less the same stocks for a while now. We’ll see how things go:)

Why the next Facebook might never have to pay taxes

By: ispeculatornew | Date posted: 05.15.2012 (5:00 am)

I discuss taxes frequently on this blog. It’s a polarizing subject and one that I hate to see simplified. Some such as the new left wing French government think that simply raising taxes will bring in more revenue. That might be true in the short term but not in the long term.

Why Raising Taxes Is Not Always The Best Solution

I’ve discussed how companies such as Facebook ($FB), Google ($GOOG) and General Electric ($GE) have managed to pay a tax rate that is often below 5% through various strategies. The high US corporate tax rate is a big reason why these companies have been given enough of an incentive to be creative with their corporate structure. There is nothing illegal about it either. For some companies that ship physical products it is more difficult but even those have been able to pull it off. Apple has huge cash reserves but the vast majority of those are held overseas where they avoided the big tax payments. That also makes it more difficult to use the money for dividends or to reinvest in the US but in many cases, it’s a price that is deemed to be worth it.

An Extra “Creative” Step To Reduce The Tax Bills And Avoid Immigation Laws

As many of you know, I’m very interested in technology companies and many of these companies have been incredibly innovative in saving taxes. A big part of that is that they are very recent companies and I imagine that even non-tech international companies being set up these days put a lot of energy into creating an “optimal corporate structure” for tax purposes.

The other big issues that tech companies have these days is hiring top talent, especially when that talent is abroad. Many bright engineers go study in the US but are then unable to get a green card to work legally in the US…

A Brilliant Idea

The latest idea is a project that is being built right now. A huge ship will be stationned 12 miles off of the coast of California where tech companies will be able to rent space. The ship will be in international waters so no US work visa is required. In theory, foreign workers could either spend weeks on the ship, going back to California on weekends or maybe even do the transit every day. Companies that are stationned there would have no problem getting qualified employees that are struggling to get US cards, would not technically be operating in the US so would be able to avoid paying the big US tax rates…

Brilliant No?

Read more about it here

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

By: ispeculatornew | Date posted: 05.14.2012 (5:00 am)

Wow, another brutal week as my average trade return is profitable this year but not by much and not anywhere close to last year’s very solid results. Today, I’m opening a trade that I opened just a few months ago with success.  This one comes as no surprise for the IntelligentSpeculator Tech Mailing List members (free to join if you are interested!).

Let’s look at the numbers for these 2 stocks:

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I’d like to invite you to see this chart of quarterly revenues for both companies, the same chart that I posted for the last trade, I had also written the following:

“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)

A company that I love, that I truly believe in and that I think will end up doing extremely well, perhaps even better than the soon to be public Facebook. That being said, it is trading at a very high P/E, one that makes it very difficult to trade. The only way I’ve seen so far is trading it against another very high P/E stock.

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

Short Pandora (P)

Not a big surprise to see me short Pandora, which 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. The company continues to face tons of competition and is trading at a forward P/E that implies very strong growth and a profitability in the very near term. I doubt either will happen so it’s a fairly easy short.

 

 

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

Closing Trade (ZNGA, NILE)

By: ispeculatornew | Date posted: 05.14.2012 (4:30 am)

This morning I will be closing off a new trade, which stands at -21.16%, bringing down the average trade return so far this year to 0.86%!

Facebook ($FB): It’s Not All About Revenues

By: ispeculatornew | Date posted: 05.11.2012 (5:00 am)

Everyone knows it, I’m a big believer in Facebook, in its stock $FB, and where it will lead its users, employees and investors. Facebook seems to be increasingly polarizing as its IPO approaches. Many see the biggest and most obvious sign that we are back in the a tech bubble while others such as myself think that while very risky, it:s still a great investment opportunity. I think there are plenty of arguments that are very solid reasons to think twice about buying $FB. Many others however are poor ones. Today I wanted to discuss one useless stat that has been coming up over and over:

Google revenue – $40 billion; market capitalization $200 billion (plus $40 billion of cash). Facebook revenue $4 billion; market capitalization $100 billion” – ZeroHedge

It makes a great headline, but really? Microsoft ($MSFT) makes $70B in revenues per year, less than twice Google’s but is worth nearly 3 times more. Does that Microsoft a bargain? Or maybe Yahoo ($YHOO) with a market cap of nearly $20B with revenues of $5B.

Want an even better one? Research in Motion ($RIMM) has revenues about half of Google ($GOOG) but a market cap of $7B….3.5% of Google!! I understand if you need to stop reading for a few minutes while you go load up on $RIMM…. it trades at a tiny P/E too:)

Let’s Get Serious!!!

Judging a stock with those 2 numbers is ridiculous. It might make a good headline but it’s a solid way to make investments. If you want to knock Facebook,there are plenty of good arguments to be made (recent revenues and profits decline, competition, lack of growth opportunities, questionable motives by Zuckerberg who has nearly complete control, buying shares with no actual voting power, etc). Looking at revenues misses 2 major points:

-Facebook has much higher margins than competitors
-No investor is buying Facebook at these prices based on what it has done

The second point is critical here. If Facebook is going to make revenues by selling small ads on the sidebars, generating growth by increasing its number of users and pageviews, then its valuation is insane. However, many such as myself think that Facebook will put more effort into a lot of different initiatives that will generate growth opportunities. Seeing half of Super Bowl ads point to a Facebook page has to tell you something about how much these companies believe in the value of their Facebook pages. How exactly those will be converted into dollars remains to be seen but that is why I am putting such a high value on Facebook. The company has barely tried to make profits so far. Instead, it has focused on building a strong user base, the best social network and strong relationships with corporations providing them with incredible value.

Do you agree or am I off base? Don’t get me wrong, I’m more than willing to accept criticism on my Facebook outlook but please don’t base your judgment on some meaningless stat.