Archive for July, 2012

What If…We Were Months Away From The Next Depression….

By: ispeculatornew | Date posted: 07.20.2012 (5:00 am)

I sometimes feel like I’m not myself. If you knew me, you would know that I’m this guy who smiles all day long, who loves life and tries to live every minute to its fullest, who always sees the glass as half full, etc. But when I look at the economic outlook or discuss things with friends, I’m simply unable to see how things could not end in a disaster. Give me one reason to think that we will be back near full employment with decent growth in the near future and I’ll have 10 reasons why we won’t. It’s looking very bad.

Depression?…

I didn’t think much about it but when I watched this video discussing the parallels between the current economic crisis in Europe and what happened in the 1930s, it’s difficult to not turn negative.

We all know that major economies such as Spain and Italy are in deep trouble, are unable to finance their debt at sustainable rates and will need a bailout. We also know that if tiny economies like Greece and Cyprus had so many problems getting bailouts, getting one for Spain or Italy seems like mission impossible.

In a more global economy than ever before, a European collapse would be more than enough to bring down everything else too.

Except That Is NOT It…

The US government has more debt than at any time in its history, major deficit problems, an unsustainable health and social security system and a government unable to tackle issues…The housing market continues to look fragile.

The Japanese government has an insane debt level, an aging population and will need to start cutting down on those deficits but how?

The global financial system which is built on confidence and faith continues to become more shaky after collapses from Lehman, Bear Sterns, major losses by JP Morgan, etc. European banks are still carrying sovereign debt as if it was risk-free when we all know that many of those countries will need to default. Since all of those banks are linked together, the collapse of 1 or 2 major players could be enough to create major issues all around.

What To Do?

Honestly, if there is even a decent chance that we are headed for a new depression, shouldn’t we start preparing? Some have been doing it but it’s not easy to prepare a portfolio for a nightmare scenario. I’m certainly one who would say that I hold the secret recipe. I would however stress the following:

Holding cash (cash is king in so many different ways)
Limit leverage (those investment strategies that require borrowing can turn against you in a depression like scenario)
Diversify your portfolio (having different types of assets, multiple companies, international diversification, etc)
Limit your exposure to banks and financial companies (they have incredibly complex balance sheets and seem like a poor risk/reward)
Reduce your debt level
Hold some exposure to hard assets such as gold, etc

I’d love to hear your thoughts on all of this and if you are preparing your portfolio for such a depression. I recognize that it’s far from a probability but it’s not as unlikely as most would think it is…

Sign That Times Are Bad.. Governments Desperately Looking For Revenues…

By: ispeculatornew | Date posted: 07.19.2012 (5:00 am)

Taxes are a good way to divide any group of individuals. There are a few that believe taxes should never be raised and almost be eliminated.. but despite the best attempts of Grover Norquist, most would agree that it’s not quite that simple.  All countries have to balance the desire to have a balanced budget over the long term with the quest to offer services and to redistribute part of what the top earners are making towards those less fortunate.

I’ve written a few times here about my frustration with those that think raising taxes on the rich is the answer to everything. It’s not that taxing the rich is a bad idea but rather that it’s so much more complex than that. Making the debate seem so simple might help to win elections but it’s not the right way to manage a country.

In recent months, many Western countries have been under heavy pressure to fix their finances. In Europe especially, governments from smaller countries such as Greece, Portugal and Ireland to bigger ones like Spain and Italy are facing huge challenges. Why? Investors no longer trust that they are “risk-free”. It’s not so certain that Germany will come to the rescue and a default is certainly within the possible outcomes. That has led to surging yields on their debt leading to unsustainable interests being paid.

Backs Against The Wall

These countries are now desperate to find a way out of this as soon as possible. Even the US government, which is still much safer than all of those mentioned governments has been accumulating record deficits which has translated into record debt. Obama and Romney are now set to argue over how to rectify the situation.

Austerity vs Growth

The big debate in Europe concerns the best way to fix this big problem. Some such as Germany want austerity, which ends up being cuts in services and expenses while others like France and most of the troubled economies prefer a pro-growth approach where a stronger economy would lead to higher tax receipts and eventually a balanced budget. I guess some of both is required…

Raising Taxes

Somehow though, governments around the world think that raising the taxes might be the shorter term solution to their problems. It’s happening everywhere and is seriously worrying me. Let’s look at a few examples:

-The US has been pushing hard on money earned by their companies and citizens outside of the country. It is the only country to tax individuals that live outside the country and has been pushing hard on increasing their revenues on taxes from expats. Faced with many that are not coming clean, the IRS is offering special deals for those that do.  In terms of companies, the IRS is working on legislation that will prevent companies from tapping their offshore cash stockpiles

-The United Nations has been looking at the possibility of taxing the ultra-rich and while the idea is certainly worrying, I don’t think anyone seriously think countries would agree to such an idea.

-France remains scheduled to move ahead with its 75% tax on income over 1 million Euros in a year.

-The recent health care changes, named Obamacare have successfully passed the Supreme Court, but only once they were considered as taxes

Taxing Should Be Done With Extreme Caution

The French government will scare away companies that were thinking of setting up a shop in France.. these are exactly the type of things that will hurt the economy in the long term… It frustrates me to no end that so many people don’t get this. Not only does taxing (especially at extreme levels) reduce incentives for individuals but it puts a bigger share of the economy in the hands of the (inefficient) government. Governments should not enact policies simply because they are “popular” or easy to move through. It should be about long term growth more than anything else.

I’m not saying they should not be raised. Many tax loopholes should be eliminated and there are certainly some taxes that should be added to favor new energy, etc. But in the past 30 years, the top 1% has gone from paying 19% of the total federal taxes to over 37%…. how much more do you expect them to pay? The entire bill?

Next Time You Hear About Raising Taxes…

Please ask yourself or the person that is discussing it… “Does this tax increase make sense or is it just a desperate move by an even more desperate government”.

 

Ultimate Sustainable Dividend Portfolio – July 2012 Update

By: ispeculatornew | Date posted: 07.18.2012 (5:00 am)

Last September 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 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):

[table “419” not found /]

Dividends Received

The Month of July is a low cash flow month for the Ultimate Sustainable Dividend Portfolio. It should be back with a high payout (hopefully a record one) in August:)

 

Ultimate Sustainable Dividend Portfolio News

Today I decided to take a look at the entire portfolio to see how much they’ve increased their dividend payout since September. One of my big assumptions when calculating the impact of retiring on a portfolio like this is holding stocks that can increase dividends at a high pace.

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As you can see, a few stocks have not increased their payout yet. Although I do expect most of them to do so:

SJM 8.3% dividend increase expected in the August payout
ITW 5.5% dividend increase expected in the September payout
DOV 13% dividend increase expected in the August payout
COP Did a spinoff which might affect the short term dividend increase

On average, in about 10 months, the average stock has increased its payout by over 11%!!!!

Returns

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

 

Trades

No new trades for today but I do expect to have 1 or 2 changes either in August or September, which will mark the 1 year anniversary of this portfolio!!!

Big Day In Tech… What It Means For Google ($GOOG), Microsoft ($MSFT) and Yahoo ($YHOO)

By: ispeculatornew | Date posted: 07.17.2012 (5:00 am)

Yesterday turned out to be quite a day for for technology stocks. Not so much in terms of stock price movements (a few stocks such as Rosetta Stone ($RST), Sohu ($SOHU) and Youku ($YOKU) suffered big losses but the real interesting stuff happened outside of the market.

Microsoft Unveils Office 13

Microsoft unveiled some of the features of its upcoming Office13, which remains critical to Microsoft. With Windows, Office remains the backbone of the company and the product that has enabled Microsoft to continue to spend vast amounts of money to develop other businesses such as the the xBox, the upcoming Surface tablet and its online division among many others. It’s critical for Office to remain the dominant player and that is exactly what it hopes to achieve. What was especially interesting was seeing how Microsoft will attempt to use its new version to help other initiatives such as:

-Social
-Cloud based computing
-Integrate products such as Skype

It will be a much improved experience and it is clearly a bold move although you could argue that Microsoft has no choice but to move quickly if it hopes to continue fending off competitors such as Google. I personally think the biggest game changer is the cloud offering. Other initiatives such as integrating social and Skype will be great if they are well done.

What It Means For Microsoft’s (MSFT) stock: I don’t think this will have a critical impact on Microsoft’s stock as little of this information is shocking or even surprising. That being said, it does reinforce Microsoft’s long term position which makes longer term investors and dividend investors a bit more likely to do well over the long term. So small win for Microsoft, it was a good day.

Yahoo’s (YHOO) Hires Google (GOOG) Exec Marissa Mayer As Its New CEO

Wow, what a nice surprise for Yahoo shareholders. It hired its Marissa Mayer, one of the earliest Google employees who had been working on several key initiatives. The company has been struggling to find solid leadership for years and Mayer will end up being the 5th person in charge of Yahoo in the past year. It is a very high profile hire and one that few Yahoo supporters believed could truly happen. Mayer had been working on local initiatives in recent

One big change is that while Yahoo, like AOL had been hiring leaders focused on sales and bringing revenues, Mayer seems to be more focused on the quality of products which should bring longer term growth in traffic and revenues. I’ve been very vocal in my frustration of Yahoo’s lack of improvement on several of its products.

Mayer said, “I am honored and delighted to lead Yahoo!, one of the internet’s premier destinations for more than 700 million users. I look forward to working with the Company’s dedicated employees to bring innovative products, content, and personalized experiences to users and advertisers all around the world.”

What It Means For Yahoo’s (YHOO) stock: I think that this could have a very good effect on Yahoo. The company has terrific Asian assets that are worth about as much as the entire company. That means there is more or less no value being given to all of its core assets. Mayer will likely bring a new vision, a lot of hope and give Yahoo a better shot at retaining key personal but also hiring some talented individuals that were previously very reluctant to move to the purple company. I think there is a terrific opportunity here and while it’s uncertain what kind of odds she has, I think the downside is fairly limited.

As the very credible Michael Arrington put it: “Yahoo hired out of its league” – read more about it here.

What It Means For Google’s (GOOG) stock: I don’t think this will have any effect on Google’s stock. As talented as Marissa Mayer has been, she was one of several strong leaders at Google and not been promoted as much as many had expected when Larry Page returned to his CEO position. She was certainly key and takes away a lot of knowledge but Yahoo is not really a Google competitor so I don’t think this changes my opinion of Google’s stock.

New Trade: Long LinkedIn ($LNKD) & Short Pandora ($P)

By: ispeculatornew | Date posted: 07.16.2012 (5:00 am)

It will be a very busy morning as I will be closing off 2 trades following a week that was positive overall. I am closing one winning and two losing trades.

Long TripAdvisor (TRIP) & Short Blue Nile (NILE) +20,04%

Long Travelzoo (TZOO) & Short Yahoo (YHOO)  -28,51%

Long LinkedIn (LNKD) & Short Zillow (Z) -27,72%

After a fairly good week, I am back with a new pick today which I hope will bring the long & short stock picks much closer to the success that I’ve had with power rankings and the yearly stock picks competition. Today I am back with a trade that involves two very high P/E ratios that carry a decent amount of speculation. I simply believe much more in one than the other and think that this trade, in the medium to long term is a clear winner. Hopefully that translates into this trade.

Let’s start off by looking at the number for LinkedIn and Pandora:

[table “411” not found /]

Long LinkedIn (LNKD)

LinkedIn will be reporting earnings at the start of August and I fully expect to see more signs of growth as the company continues to gain market share, to expand into a bigger animal and while it does not aspire to be a second Facebook, it is quickly becoming the other social network that ever professional “needs” to be on. That is translating into great advertising and product opportunities. I just think that LinkedIn is one of the few companies that can justify its high P/E ratio.

Short Pandora (P)

Pandora has been doing fairly well by most people standards in recent weeks as it continued to increase its business by now offering its service in Australia and New Zealand helping some starting to call it a quest for world domination. There is no doubt that Pandora has a compelling product but I just think that the competition level is so high that decent profitability will be difficult to reach, no matter how many users Pandora is eventually able to get.

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

Weekend Readings

By: ispeculatornew | Date posted: 07.14.2012 (5:00 am)

July is already halfway done… it’s crazy. The only positive sign is that with the end of summer comes the start of the NFL season, which should be incredibly interesting!! In the meantime, hopefully we get enough sun to play some tennis, go running a bit and enjoy the summer:) I hope you are all doing the same! Here are some good readings from the Blogosphere in the meantime…!

General Readings

The government and your wallet @ HopetoProsper
Conflicts of interest in the financial industry @ BalanceJunkie
What if my life would be a mini retirement? @ TheFinancialBlogger
Money buys UNhappiness when you are obsessed @ FabulouslyBroke

Dividend Readings

3 strong high yield telecom stocks to look into @ DividendMonk
Dividend growth index Q2 Update @ TheDividendGuyBlog
How to generate income from your nest egg @ DividendGrowthInvestor

Tech Readings

Betaworks acquires Digg @ TechCrunch
Could Facebook determine 2012 elections? @ MarketingPilgrim

How Much Is Kayak ($KYAK) Truly Worth?

By: ispeculatornew | Date posted: 07.13.2012 (11:45 am)

We’ve seen it before.. A hot tech IPO that is web related turning public amid some hype. While Kayak will not generate anywhere near the level of attention that Facebook ($FB) got a few months ago, myself and many others have still been anticipating Kayak’s IPO. Why? The obvious starting point is that the company has a great product in a growing market. I also find it very helpful to have other online travel companies being traded which makes it much easier to estimate its valuation, especially when trading long & short trades.

Kayak should start trading very shortly and while it’s difficult to know how much the first few trades will occur at, I would guess that following the $FB IPO, the underwriter Morgan Stanley will be very motivated to ensure that things go smoother (i.e. there is a decent pop on the IPO day). It is currently being reported that shares will be priced between $22-25. Then again, Kayak was supposed to turn public several months ago and has been postponing in order to get more favorable conditions. I don’t think it was able to get those but given all of the uncertainty, it could take a while so I guess now is as good of a time as we will have for a few more months.

Kayak ($KYAK) Financial Analysis

As is the case with the analysis of any IPO, there is only limited publicly available information. Let’s go with what we have. In terms of annual sales and earnings per share, the numbers are as follows:

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[table “416” not found /]

And we do have the past 9 quarters as well as the expectations for Q2 2012 from Kayak (I used the middle of their range for both sales and earnings):

Shareholders

The top companies selling will be ones you’d expect for most web related IPO’s so Sequoia Capital, Accel Partners and General Catalyst which is Kayak’s biggest shareholder.

Other Points Worth Noting

Strong Product: You would think that travel search would be a fairly simple business but from the experience of so many users that I know, Kayak has been the one strong product available. It offers more flexibility but more importantly better results.

Strong Brand: Kayak is one of the stronger internet travel brands and has thus been able to grow quickly with little advertising, through word of mouth. It has also made Kayak the first stop (and often only one too) in traveler’s search for flights, hotels and more.

Weak Community: While some competitors such as Travelzoo (TZOO) have access to user emails, a much more personal way that creates better customer retention and TripAdvisor (TRIP) has been able to build a strong community, built off of Facebook’s infrastructure, Kayak has not put much focus on that. The issue that creates in my opinion is that its downfall could happen much more quickly as users would simply move on if better products emerge from Kayak’s competitors.

Existing And Emerging Competition: In what is already a very competitive space, with Priceline (PCLN), Orbitz, Expedia, TripAdvisor and many other smaller players, there looms the threat of a much stronger competitor. Google was able to buy ITA, a company that gives access to a database of flgihts and potentially gives Google the ability to both build a much stronger search engine but also shut out to some extent competitors such as Kayak. It’s unlikely to happen overnight but there is no doubt that Kayak and others lobbied hard for antittrust authorities to veto the deal.

Valuations

In the end though, it comes down to valuations. First off, let’s take a look at the main competitors:

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I would personally argue that given its growth in recent quarters, its outlook, and risks involved, the company should be trading at a P/E of a bit under 20.

A P/E of 20 over the EPS of the past 3 quarters + estimate for Q2 2012 would give me a value of $29 or so per share.

I’d love to hear your thoughts on Kayak ($KYAK).. Do you think I’m way off?

A False Choice: Dividends Or Assets Growth

By: ispeculatornew | Date posted: 07.12.2012 (5:00 am)

Is it just me or does this myth get thrown away too often? I sometimes feel like many investors, especially those trying to build dividend portfolios end up making a decision to go for dividend instead of growth. Each time I hear a comment from someone that decides to focus on yield it makes me cringe.

It Should Not Be A Choice

Yesterday, I took a look into RadioShack (RSH), a stock that pays a 12% dividend yield. That is great and I can understand how someone trying to build a high yield portfolio would be tempted to buy. A 12% dividend yield would certainly help to lift the overall yield of a portfolio.

It’s Not Just About Yield

The problem of course is that if you are receiving a dividend of $0.25 per share but the stock loses $0.40 in value during that same period of time, I think it’s fair to say that you do not have a winning trade. Stocks like RSH or FTR (which was at the top of the top S&P500 dividend stocks earlier this month) are attractive on the surface but I personally believe in buying stocks thaat have a stable or ideally growing underlying business.

Back To The Sustainable Dividend Portfolio Concept

In the end, it’s about buying stocks that will be able to afford their current dividends and hopefully even increase their payouts over time. I understand how some investors have a focus on a higher current income. That is perfectly fine. I had discussed the difference between the current USDP and a higher yield one that would help someone that needs or wants a high yield. In both cases though, I’m always looking for high quality companies that are paying less than they are making and will be able to provide in the long term, companies like Pepsi (PEP), Aflac (AFL) and others.

There Is A Drawback

Of course, any company that pays out a dividend will usually see slower price growth. Part of it is because it is paying back some of its earnings instead of keeping it in its cash or reinvesting it. The other part is that in general, companies that pay out dividends are seen as companies that have less growth left. Part of it is a perception but there is some truth to it as well. However if you think about a company such as Intel Corporation (INTC), you will see that the company is not only paying out a decent dividend but has seen its stock price increase in the past few years.

What are your thoughts on this?

RadioShack (RSH) Dividend Analysis – Too Good To Be True?

By: ispeculatornew | Date posted: 07.11.2012 (5:00 am)

The other day, after posting the top 100 dividend stocks from the S&P500, I was asked why RadioShack had not made the cut. The answer did turn out to be because the stock is not part of the index. That being said, after a quick look, I could see why I was being asked about it. A stock that pays out a dividend of 12% with a fairly known brand? Seems like a great buy right? Or is it one of those deals that sounds fishy from the very start? Today I thought I would do further analysis using the top 20 things I look at when judging dividend stocks but also trying to determine if it would be a sustainable dividend portfolio or could maybe fit a higher dividend portfolio.

Dividend Metrics

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Clearly, RSH isn’t that easy to judge. It had paid out a quarterly dividend until 2001, then changed it to a yearly dividend which did increase a few times until it reached $0.50 last year. Then earlier this year, RSH resumed a quarterly frequency paying out the same amount but on a more frequent basis. That is certainly a good thing but it’s not exactly a stable or predictable pattern either. Overall, the dividend remains very strong and if it could remain at that level, RSH would become fairly attractive for some investors.

Company Metrics

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No doubt, these numbers are a lot weaker with sales growth being almost flat, earnings growth a bit negative. The payout ratio is high but remains within reason. What I think is worth looking at though is the progression in annual earnings per share in the last few years. It’s not exactly encouraging. Sales have been able to keep pace to some extent but profits are quickly declining.

Stock Metrics

[table “414” not found /]

No doubt about it, RSH is quickly losing its momentum…

Industry Metrics

It’s fairly obvious that while RadioShack operates in a fairly solid industry (retail consumer electronics), it also faces very stiff competition from similar players (Best Buy, etc), general retail stores (Walmart, etc) but also the online players like Amazon (AMZN). That has certainly squeezed margins for most players making life miserable for those that do not have a competitive advantage. RSH has smaller stores that are not equipped to compete with its powerful competition. It’s a good industry to be involved in but only for the few players that are able to compete.

Fit Within Your Portfolio

I don’t think there is any doubt that RSH would not fit in a long term sustaianble dividend portfolio. Its business outlook remains very uncertain. There might be some higher yield dividend portfolios that could use it but even that seems to be a bad idea. The stock was recently rated a sell with a $2.68 price taget by RW Pressprich and Oppenheimer issued warnings that the company will likely cut or even eliminate its dividend in the coming months. That is exactly the type of stock you would want to stay far away from.

I’d be curious, do any of you see value in RSH?

One Type Of Bond That I Would Buy

By: ispeculatornew | Date posted: 07.10.2012 (5:00 am)

I’ve been very vocal about my opinion that buying individual bonds is something that most of us should stay far away from. Why? The number one reason is that bonds are not traded electronically. The impact is that it’s not very transparent. Like other such products, it’s usually the dealers that make the most profits. They have wider spreads and can give less than optimal fills, especially for smaller size trades. If you’ve traded individual bonds before, I have one question for you.

-How good was the fill that you got?

What do I mean? If you buy a stock you can instantly verify that the price you received was the price that was being traded on the exchange.When you buy a bond, you can easily end up losing 1% or more from the moment the trade is done. Chances are that it will happen on every single bond.

The Solution

The main solution that I always discuss is buying a bond ETF. Why? There are many reasons but I would say that the main ones are that such funds trade for very big size, are able to price and shop around before making trades ensuring good trading. Even more important is the fact that these funds market themselves based on their returns and how well they can do over longer periods of time. The funds have every possible incentive to get great pricing. They are paid in terms of the assets that they manage and the only way they will gather big assets is by performing very well.

The other big reason of course is that because of the high level of competition between ETF issuers, they are able to offer very low fees, much lower than other funds such as mutual funds have been able to offer.

Done Entirely With Buying Individual Bonds Then?

You might think that I’ll never buy another bond and I did also think so. Then, I heard about a type of bond being issued by Wimbledon which caught my interest. Wimbledon is the most famous tennis tournament in the world, played every year in London, UK. This year, the Olympics are actually being played there. Part of its mystique is its history but also the fact that it is the only grand slam played on grass. The tournament is extremely popular making it very difficult to buy tickets.

Innovative Bond Structure

What did Wimbledon decide to do? It issued bonds that are almost entirely paid back through tennis tickets. Good investment? I guess it depends who you ask but as a big tennis fan, I’d certainly be very tempted!! I don’t seem to be the only though as the bonds currently pay back about $3100 worth of money in 4 years but cost over $100,000 in the markets… so yes, that both means that you are getting the large majority of your money in tennis tickets but also that if you were to calculate the return, it would likely come down to a very negative yield.

From the tournament’s perspective, it’s a great outside the box idea that gives them access to cheap financing… win-win for everyone right?