Archive for September, 2013

Updating The List Of Tech Stocks I Follow

By: ispeculatornew | Date posted: 09.16.2013 (3:00 am)

$ORCLNot a big surprise but I’m a big fan of trading tech stocks. Why? Because I feel like I’ve developed a good understanding of the sector. I mostly trade them as part of my long & short strategy but I’ve also taken bigger positions for long term trades on stocks that I truly believe in. It does not happen frequently but last year I bought some Facebook (FB) and this year I got into Apple (AAPL). I try to be up-to-date in terms of news, earnings, new products and anything else for a group of stocks. You can see the entire list here:

Stocks I Follow

Every year, I make a few updates to this list in the hopes of:

-removing names that I’m unable to get a good feel on (thus unable to trade)
-adding new names that I think could make good trades

This year, I am adding one stock and also expect to add another one later this year. The other day I read a very interesting analysis along with a compelling case for owning Oracle (ORCL) over Microsoft. I’m not exactly sure if I agree but the arguments certainly made sense so I will try to do more research on Oracle and will be adding it to my list. The company does not directly compete with Microsoft but rivals it as a top software company in the world.

The second name is one that I’ll comment on later this week. I’m a big fan of Twitter and am absolutely thrilled to see it file its S-1 with an expected IPO later this year. As was the case for Facebook, I’ll likely stay on the sidelines for a few weeks/months as the stock’s debut could be bumpy. I’ll wait a few more days to give you my exact thoughts on Twitter!

Stocks I’ll Remove

To be honest, I’m a bit disappointed with several of the stocks on my radar. Why? I’ve had a very difficult time trading Chinese stocks in the last few months so I’ve been staying away from stocks such as Baidu (BIDU), NetEase (NTES), Sohu.com (SOHU), CTrip (CTRP). Why? There just isn’t that much information coming out so I’m having a difficult time getting a good feeling about them. Also, the Chinese market in general has been extremely volatile. I am hopeful that in the coming months I’ll be able to find better sources of information.

There are other stocks are simply too small or that I don’t see myself trading anytime soon. I will be removing these 3 stocks for now:

MakeMyTrip Ltd (MMYT): The India based company seemed promising but it remains a far smaller player than what I’d like to be investing in. I don’t have much knowledge of the Indian market either so even though trading online travel stocks has worked well, I don’t think this one should be on my list.

Netease (NTES): It will remain very difficult for me to get a good feeling for a company that operates many different businesses in China. I don’t see myself getting a good feel about the company anytime soon. My only source has basically been looking at financial statements and a few 3rd party research papers. Nothing close to what I’d need though.

Sohu.com (SOHU): Same arguments as for NetEase.

Once Twitter does turn public, I will be up to 41 stocks. I’m also hopeful that a few others including Dropbox do go public at some point next year. Time will I guess!

Here is the full list of stocks that I follow:

Adobe Systems Inc (ADBE)
Amazon.com Inc (AMZN)
AOL Inc (AOL)
Apple Inc (AAPL)
Baidu Inc (BIDU)
Blackberry Ltd (BBRY)
Blue Nile Inc (NILE)
Ctrip.com International Ltd (CTRP)
Demand Media Inc (DMD)
Dice Holdings Inc (DHX)
eBay Inc (EBAY)
Expedia Inc (EXPE)
Facebook Inc (FB)
Google Inc (GOOG)
Groupon Inc (GRPN)
IAC/InterActiveCorp (IACI)
LinkedIn Corp (LNKD)
Microsoft Corp (MSFT)
Monster Worldwide Inc (MWW)
Netflix Inc (NFLX)
OpenTable Inc (OPEN)
Oracle Corp (ORCL)
Orbitz Worldwide Inc (OWW)
Pandora Media Inc (P)
priceline.com Inc (PCLN)
QuinStreet Inc (QNST)
Rackspace Hosting Inc (RAX)
Rosetta Stone Inc (RST)
Travelzoo Inc (TZOO)
TripAdvisor Inc (TRIP)
Trulia Inc (TRLA)
ValueClick Inc (VCLK)
WebMD Health Corp (WBMD)
XO Group Inc (XOXO)
Yahoo! Inc (YHOO)
Yandex NV (YNDX)
Yelp Inc (YELP)
Youku Tudou Inc (YOKU)
Zillow Inc (Z)
Zynga Inc (ZNGA)

Do You See A Stock That I Should Add Or Remove?

Weekend Readings

By: ispeculatornew | Date posted: 09.13.2013 (3:00 am)

trainThere are dozens of things that I love about Japan. I could go on and on about the people, the food, the history, the beautiful things, etc. Today, I read about an upcoming train that will travel at peak speeds of 310 miles per hour. How is it possible that Montreal to New York takes over 10 hours by train yet in Japan, Germany and many other countries can go so much faster? I don’t get it….

General Readings

Why are the Economists writers anonymous? @ The Economist
The Dow through the years @ MoneyBeat

Dividend Metrics

Four characteristics of successful dividend investors @ DividendGrowthInvestor

Tech Stock Metrics

A Trading Frenzy Over Oh-So-Hot LinkedIn Shares @ DealBook
If You Love Netflix, Thank Cable @ The Atlantic

Money For Nothing – Trailer from Liberty Street Films on Vimeo.

Who Cares About The Dow Jones Industrial Index?

By: ispeculatornew | Date posted: 09.12.2013 (3:00 am)

dowjones_logo_largeI remember how I used to look at the daily movements of the Dow Jones Industrial Average (DJIA). That was before I started working in finance. Why? Because that is what they showed on tv. It’s the main index they would report on.

In a sense, I understand. It’s a very easy index to understand. It includes 30 of the biggest companies in the world. Companies such as Walmart (WMT), Microsoft (MSFT), Walt Disney (DIS), JP Morgan Chase (JPM) and Coca-Cola (KO).

As I learn more about finance though, my opinion is changing.

The DJIA Is Irrelevant

It means very little. First off, having only the biggest blue chips doesn’t seem like a great way to build an index. That would be a matter of preference though and it’s certainly possible to argue that having an index of the biggest blue chip names has value.

What No One Can Argue

I personally think it makes no sense to have an index that is price-weighted. If you’re not aware. When the Dow Jones increases by the $8.24, that means that if you add up the daily gains and losses of the 30 stocks, you will get $8.24. What does that mean? The DJIA has not added companies such as Google (GOOG) and Apple (AAPL) because of their high price. Why? If Google and its $800 price were added to the index, it would be worth around 6% of the index.

For example, imagine a day where 28 stocks in the index do not move. Google drops by 2% and Bank of America (BAC) increases by 100%..! The DJIA would actually be down for the day!!!!

That makes no sense to me.

I personally look at broader market cap weighted indexes such as the S&P500 which give a much more accurate picture?

Why does the DJIA still exist? It’s well known, it has a history, a tradition, etc.

Do you pay any attention to the Dow Jones Industrial Index? If so, why?

Why Don’t Credit Card Stocks Pay Decent Dividends? (AXP,V, MA)

By: ispeculatornew | Date posted: 09.11.2013 (3:00 am)

AXPYesterday, I started on a mission to find the best dividend payers in order to possibly add them to the Ultimate Sustainable Dividend Portfolio. I’m not sure how but I ended up looking at the three main credit card companies: Mastercard (MA), Visa (V) and American Express (AXP). Clearly, it’s not the dividend that got me to look into those 3. For a reason that I have trouble understanding, these companies pay tiny dividend yields. I don’t understand why. Companies that have steady revenues and earnings and that tend to do well no matter how the economy performs are ideal dividend stocks.

Let’s face it, no matter what you think of them, credit cards are front and center in the US economy. Visa (V) is one of 3 companies that will be added to the Dow Jones Industrial Average (with Goldman Sachs-GS and Nike-NKE), one more confirmation of how important the company is.

maShould You Own A Credit Card Company?

I personally think they should be part of any diversified portfolio. No, they would not fit in a dividend/income focused portfolio such as the USDP but they certainly have a place in my overall portfolio. One big reason is that while the financial services/banking sector is a huge part of the US economy, I’ve been very public about my preference for not owning big US banks. There are so many unknowns and I find it very difficult to trust their balance sheets, earnings, etc. It’s not that there’d be fraud involved but simply that those numbers don’t really give a full picture of the risks involved if we see another scenario like we had in Europe last year. When Warren Buffet says he likes to buy companies that he understands, I agree with him 100%. I’ll ignore the fact that he did end up investing in Goldman Sachs and assume that the terms were just too good to be true in that – he had cash and GS needed it.

Which One To Own?

The question then becomes which one to own. Even though dividends are not as important, I’ll look into these using the top 20 things that I look for when judging dividend stocks. I’ll simply put a lot more emphasis on the company fundamentals aspect. So here we go:

Dividend Metrics

1

MA Dividend Chart

MA Dividend data by YCharts

Clearly, all 3 names have very weak dividend profiles with American Express (AXP) being the only one over 1%. They have all been increasing their payouts at a fast pace though so there is certainly hope. I’do go for AXP but this is only a small factor in my decision.

Company Metrics

2

American Express is a great credit card to hold but maybe not the best stock based on these numbers. Its revenues are growing much more slowly and while it is also cheaper in terms of P/E, I don’t think it’s enough to make up for the slow growth. I’d personally go for Visa (V) here although Mastercard comes in very close behind.

Stock Metrics

3

MA Chart

MA data by YCharts

Industry Metrics

These companies are all very well positioned in a booming industry that faces very little competition and will continue to grow in emerging markets.

Fit Within Portfolio

Clearly, owning these names is not about generating dividend income but they should be able to generate value growth making themsolid holdings.

Do You Own Either Of These Names? If so, which one(s)?

Why I Avoid Trading Options When Possible

By: ispeculatornew | Date posted: 09.10.2013 (3:00 am)

optionIt’s a question that I’ve gotten many times in the past. If I believe so much in a stock like Facebook, why not buy a call option instead of buying the stock? The potential gains (and losses) are so much greater. It’s easy to understand why. If I buy for $5000 of Facebook, I’ll basically own about 100-150 shares.

However, by buying call options, I could have an exposure that would be 10 times the number of shares. It’s certainly tempting and I obviously would have done extremely well had I done that instead of buying the stock. So yes, in theory it makes a lot of sense and if you are right on calls like that one, buying options will end up making a lot more sense.

There’s More To Equity Risk In Options

The big problem of course is that when you trade an option your performance depends on much more than the stock’s price. The option will also move depending on changes in interest rates, dividend expectations and volatility. Those factors are not minor. I personally try to simplify my personal trading and trading volatility clearly does not fit that model. I’ve had the pleasure of working with many options traders and I can tell you one thing. They love trading against retail investors that end up making trading mistakes on options.

Trading Options Is Extremely Expensive

One thing that many retail investors don’t realize is how expensive trading options ends up being. Not only do options need to be rolled once they reach expiry (adding commission costs) but the spread is often much more significant. If you buy a stock worth $40 like Facebook, the bid-ask spread will usually be $0.01. Options that have much smaller prices trade at larger spreads. Over time, that cost adds up and can become significant.

There Are A Few Instances Where I Do Trade Options

In some cases, options really are the best option. Some stocks are very expensive to borrow so having a high delta option (that is in the money and moves very closely to the stock) so using options can work well. In other cases such as covered call strategies, I’ll leave the option selling to pros by buying covered calls ETF’s for example.

Do You Trade Options? If so, under which circumstances?

Is It Too Late To Successfully Compete With Amazon ($AMZN)? Not For These 2 Players

By: ispeculatornew | Date posted: 09.09.2013 (3:00 am)

$ebayA few weeks ago, I was very surprised to hear that eBay (EBAY) was planning on building some warehouses as it rushes to build its same-day shipping infrastructure.  Even more surprising was the announcement earlier this year that Google (GOOG) had started to test a similar service near its headquarters. I called it a critical mistake and so far have not seen anything that would convince me otherwise.

The move made a bit more sense for eBay which competes rather directly with Amazon in the ecommerce sphere and continues to diversify its offering (it’s looking less and less like an auction site).

$googThey Are Way Too Late

Google and eBay are understandably looking at Amazon’s (AMZN) position with a lot of envy. While it’s true that profits remain minimal at best, revenue growth remains strong and Amazon is becoming more and more difficult to compete with. A big reason why of course is Amazon’s incredible efficiency in the sale and distribution system. Amazon has been working on it for almost 20 years now and is approaching 100 warehouses making it increasingly possible to offer same-day delivery to the majority of its biggest market. It has also been improving its presence in Canada, Europe and elsewhere.

How in the world will players such as Google and eBay be able to compete with Amazon in building such an infrastructure? They do have cash but they are over a decade late. I just don’t see these players having an actual shot. Both Google and eBay should focus on their strengths instead of entering a market where they are most likely doomed.

ycharts_chart

$WMTThere Are A Couple Of Companies That Have A Shot Though

I don’t think it’s too difficult to look for a couple of companies that do have a shot at competing with Amazon. Both Walmart (WMT) and Costco (COST) have been moving very fast to better compete with Amazon. They have advantages and disadvantages compared to Amazon but I believe they have a decent shot at competing:

Much stronger physical presence (they have stores almost everywhere)
Stronger relationships with producers in many cases

Technology disadvantage (in terms of expertise they are far behind from every aspect – customers, website knowledge, etc)
More expensive cost structure (they own expensive land, have many times more employees, etc. These will not be easy to change over time. Having thousands of stores with dozens of employees in each makes it difficult to compete with a company like Amazon.

COST Chart

COST data by YCharts

Who Has A Better Shot At Competing?

Do you think companies that have a digital background and are moving towards physical goods (GOOG, EBAY, etc) would do better? I personally think traditional companies such as Walmart or Costco or better positioned.

Disclaimer: Long Google (GOOG)

Weekend Readings

By: ispeculatornew | Date posted: 09.06.2013 (3:00 am)

pmAhhh so many mixed feelings. I’m soooo thrilled that the NFL season is back, and that the Broncos led by Peyton Manning were able to crush the Ravens. What’s not as good is that I’m facing Peyton Manning in my first Fantasy Football matchup this week.. Ouch….

General Readings

Optimistic about Europe? @ NYT

Dividend & Passive Income Readings

11 stocks to hold during the next market crash @ TheDividendGuyBlog
Buybacks & dividends at risk @ Bloomberg

Tech Stock Readings

Apple ($AAPL) + China Mobile = ?? @ AllThingsD
Microsoft ($MSFT) buys Nokia for $7.2B @ TechCrunch
Yahoo ($YHOO) picks a new logo @ TechCrunch
Get real about Yahoo ($YHOO) @ Gigaom

And lastly, I’m generally a big fan of Wall Street movies and this one looks very promising, I can’t wait:)

The Perfect Time To Buy Microsoft ($MSFT)?

By: ispeculatornew | Date posted: 09.05.2013 (3:00 am)

$msftThese days, no one would dare call Microsoft boring. Sure, it has that ancient combination of Windows operating system and Office software which generates the bulk of its business. But in recent years it has added a money losing online division, a leading gaming product in the xBox. Then, in the past month, controversial CEO Steve Ballmer announced he would be stepping down within a year and the company announced it would acquire cell phone giant Nokia. Too much too soon? Investors seem clueless what they should do:

MSFT Chart

steve-ballmerI do own Microsoft (MSFT) in the USDP and I think this might be a good time to get in on Microsoft. Why? A lot of upside and limited downside. That’s the winning combination I always work to find. Here are a few key metrics that I’ve been looking at:

msft1

 

Solid numbers here right? Let’s look at fundamentals:

 

msft2

 

Again, there’s not much to be concerned about. The 10.36 P/E is attractive for a company that is growing and has so little risk and volatility in its revenues and earnings.

Much Of It Rests On The Next CEO

I’m not going to lie. Microsoft’s future is very much tied to who the board will end up choosing. Many are concerned that it’s impossible to expect a great pick given this board was the same one that picked Ballmer. But just look at Yahoo which also had a bad board and how well the stock has done since hiring Marissa Mayer. I don’t think anyone would argue that Microsoft’s potential is even greater.

YHOO Chart

YHOO data by YCharts

What do you think? Would you buy Microsoft?

Disclosure: Long Microsoft (MSFT)

Are You Buying Metals?

By: ispeculatornew | Date posted: 09.05.2013 (2:00 am)

gold_bullionI’ve discussed the role of metals quite a few times in recent months and they certainly seem to be as relevant as ever. Fact is that the world economy looks extremely fragile these days and I continue to believe that if we end up seeing more inflation, the value of physical metals, especially gold will end up increasing significantly.  I’m not saying that you should start investing as if the end of the world were coming but at the same time, it makes a lot of sense to hold assets that would do well under such circumstances.

For many of you know that means buying ETF’s in a trading account while others insist on buying the actual gold and holding it either at home or in a bank safe.  There are other ways to make such an investment as well. Like what? You could have a precious metals IRA. You can see the Top Gold IRA Companies in 2013 as a few examples.

Is This The Right Time?

Obviously, I’m not a big fan of trying to look for the perfect timing in a purchase like this one.  It’s almost impossible to do and not worth the effort and risk if you’re making a long term investment. However, some are worried about the recent hold chart:

GOLD

I personally think it’s more than fine. Gold has suffered a bit from the fact that there are less of those horror economic stories in the headlines these days. But if you think about it, none of those countries (Portugal, Italy, Greece, etc) have been able to make significant changes so things are not better. Those stories will come back and when that happens, gold should rebound.

Have any of you been in the market for gold or silver lately? What do you think of current prices?

 

What To Do When A Whole Market Is Overvalued…?

By: ispeculatornew | Date posted: 09.04.2013 (3:00 am)

As many of you know, in the process of building myself a solid and diversified income source to become financially independent, I have looked at many different options. Clearly, my dividend income strategy will end up representing the core of that income over but I’ve also considered options such as real estate. Then, yesterday while reading the economist, I came across this chart:

photo

I do already own real estate in both Canada and the US but since I’m much more familiar and closer to Canadian markets, I’d be more likely to invest there. Those numbers look very scary for Canada don’t they? It’s hard to argue that prices should move in similar ways to rent and income? Canadian Real Estate looks very overpriced. It’s even worse when you consider how much debt Canadians have.

Of course, Japan seems extremely cheap based on those metrics but I’d hesitate very much to invest in Japan real estate these days.

I’m not sure what I’ll do. It’s difficult to wait for a bubble to “pop” but in a case like this, buying just before a crash would end up being a very poor use of my money.

Any thoughts on this? Should I Wait?