Recently, a friend of mine asked my thoughts on a stock whose products have been getting some strong exposure lately. Clearwire, a growing name in the wireless broadband arena, is attempting a major coup in the broadband internet industry. Through it's Clear brand, it's trying to lure people away from traditional broadband providers (cable, dsl, phone, etc.) into wireless broadband. If you're from Chicago, you've probably seen the ads around the city.
The Technological Advantage
When chatting with my friend about CLWR, the first question I asked was "How do they expect to compete with names like Comcast, AT&T and Verizon? These big names have huge market penetration already and switching costs can be fairly high for something as integral as internet service."
My friend explained that the key with CLWR is it's technological advantage. All of its wireless broadband service is 4G. Clear claims its 4G service is 4X faster than the current 3G used by the major names. CLWR is achieving this by partnering with Sprint's wireless network which has already been implementing the 4G network for over a year now. On the other hand, the big wireless providers (i.e. Verizon and AT&T) are at least 3-6 months behind in implementing 4G.
This technological advantage gives CLWR the edge in providing a better product than its competition which will help it lure customers away. Having fast wireless internet service anywhere in the city at a competitive price can really help CLWR get the market penetration it needs to be successful.
But The Stock Can Be a Different Story
One of the first things I learned when I started investing is, often times, comparing a company and its stock can paint two very different pictures. CLWR's product looks promising. They seem to be on the right track of changing the landscape of broadband internet. However, the stock looks more iffy and I'll explain why:
1 - Valuation - CLWR's stock is being very richly valued by investors. The price/sales ratio of 5.79 is almost 5X the industry average. A richly valued stock is usually appropriate for high growth companies like CLWR. But 5X I think is pushing it.
2 - Earnings History - After a fairly stable 2008, earnings for CLWR have been increasingly negative for 2009. This is most likely due to an aggressive expansion strategy. Nonetheless, losses are expected to continue their declaration this year.
However, even with these negative components, all hope's not lost. The company has a strong cash base of $1.96 Billion which is enough to cover all its debts. That helps offset the negative earnings. Furthermore, the recent pulback of the stock price has helped reduce the rich valuations, although it's still on the expensive side. Finally, insider buying/selling is pretty neutral, which helps bring confidence that management isn't at least getting out of the stock.
A Mixed Bag
CLWR has a lot of things going for it at this point. However, at least in the short term, I don't think this is the best time to buy the stock. I see continued downward pressure over the next few months. However, long-term, I definitely see strong growth for the company. Analysts are expecting a 92.7% increase in year-over-year sales growth for 2010. That's a tall order for any company. However, I think CLWR is taking the right steps to get there. Furthermore, I think CLWR can potentially be a takeover target by one of the big guys if they decide they want to get a head start in the 4G business.
Bottom Line
I would buy CLWR for a long-term investment. However, I'd first wait until valuations come more in line. It needs to get down to at least $5.50 before I seriously think about getting in. $5 would be a perfect entry point. From that point, I'd keep a close eye on the revenue growth (not so much profit numbers) and, as long as its consistent and meeting expectations, hold on for the ride upwards!
What are your thoughts?
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Sunday, February 7, 2010
Sunday, January 31, 2010
2009 Year In Review
2009 has come to an end and, thus, ends the first year of InvestingDecoded. I started this blog to help others learn about investing and try to make sense of something as complex as the stock market. I hope I've been able to make this happen. At the same time, however, InvestingDecoded has helped me learn more about investing for myself. To me, that alone has made the time worthwhile.
Now that the first year is over, it's time to look back. One of the biggest things every investor needs to do a assess his/her performance. InvestingDecoded is no exception. Let's take a look back at topics I've covered and see how the recommendations have performed.
Oil's Rollercoaster Ride
Early last year, I wrote a series of detailed posts about the oil industry. We discussed how the oil complex functioned and the price drivers. One of the big recommendations I made was a call on oil prices. When I originally wrote the post, oil was hovering around $35 a barrel. I wrote that the $35 price was artificially low and, eventually, prices would rebound. At the end of 2009, oil was trading at close to $80, slightly above my estimate of the mid-70s. If you had invested in oil when I recommended it, it would have been a fruitful investment.
The Banking Crisis
InvestingDecoded also had a series of banking related posts. Here, we peformed a detailed analysis on the balance sheet of various banks. From there, I ranked what I felt were the best banks to invest in, with Wells Fargo coming out the winner. Looking back at this prediction, it seems that I was likely somewhat off. WFC has slightly underperformed the overall industry ETF (graph below). Although I'm still convinced the bank has good days ahead of it, many of the pureplay investment banks (e.g. Goldman Sachs) have performed better.
International Telecom Getting the Job Done
One of my more direct recommendations last year was Millicom International. The emerging market cell phone company was trading in the 40's. Now trading in the mid-70s, Millicom has shown it's quality as a company and a stock. I still think the company has room to grow to the 100+/share once global growth really picks up.
Other Names
Some of the other names I discussed were companies like Ford and Citigroup. Since those recommendations were made later in the year, it's hard to assess their success. Ford, however, looks like it's doing very well. I personally have made a nice 70% return on it and have cashed out some profits. Citigroup is having some issues, but it wasn't a outright recommendation when I had discussed it. Time will tell how both these once-powerhouses come through in this recovery
2009 was one of the most interesting years to be an investor. You could have made a lot of money if you took some risks. At the same time, you could've lost a lot as well. 2010 I think will be less volatile, but it will set the tone for the next few years. I'll keep on making recommendations in 2010. Here's to all of us having some success :-)
What are your thoughts?
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Now that the first year is over, it's time to look back. One of the biggest things every investor needs to do a assess his/her performance. InvestingDecoded is no exception. Let's take a look back at topics I've covered and see how the recommendations have performed.
Oil's Rollercoaster Ride
Early last year, I wrote a series of detailed posts about the oil industry. We discussed how the oil complex functioned and the price drivers. One of the big recommendations I made was a call on oil prices. When I originally wrote the post, oil was hovering around $35 a barrel. I wrote that the $35 price was artificially low and, eventually, prices would rebound. At the end of 2009, oil was trading at close to $80, slightly above my estimate of the mid-70s. If you had invested in oil when I recommended it, it would have been a fruitful investment.
The Banking Crisis
InvestingDecoded also had a series of banking related posts. Here, we peformed a detailed analysis on the balance sheet of various banks. From there, I ranked what I felt were the best banks to invest in, with Wells Fargo coming out the winner. Looking back at this prediction, it seems that I was likely somewhat off. WFC has slightly underperformed the overall industry ETF (graph below). Although I'm still convinced the bank has good days ahead of it, many of the pureplay investment banks (e.g. Goldman Sachs) have performed better.
International Telecom Getting the Job Done
One of my more direct recommendations last year was Millicom International. The emerging market cell phone company was trading in the 40's. Now trading in the mid-70s, Millicom has shown it's quality as a company and a stock. I still think the company has room to grow to the 100+/share once global growth really picks up.
Other Names
Some of the other names I discussed were companies like Ford and Citigroup. Since those recommendations were made later in the year, it's hard to assess their success. Ford, however, looks like it's doing very well. I personally have made a nice 70% return on it and have cashed out some profits. Citigroup is having some issues, but it wasn't a outright recommendation when I had discussed it. Time will tell how both these once-powerhouses come through in this recovery
2009 was one of the most interesting years to be an investor. You could have made a lot of money if you took some risks. At the same time, you could've lost a lot as well. 2010 I think will be less volatile, but it will set the tone for the next few years. I'll keep on making recommendations in 2010. Here's to all of us having some success :-)
What are your thoughts?
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Sunday, January 17, 2010
The Bonus Debacle
The post below is about a pretty controversial topic. I'd like to hear from readers what their thoughts are and if you agree with me. I think there will be some interesting opinions out there.
Among the biggest issues of the recent economic crisis is the debate over bonuses paid to financial professionals. Finance is a very well paying industry, and it has been for a long time. In fact, before the economic crisis, the average employee at Goldman Sachs was paid approximately $650,000 a year! Furthermore, most of this money was paid year-end bonuses instead of base salary. The idea is that employees are paid based on both his/her performance as well as the health of the company. However, as was proven by the economic crisis, somewhere along the way the tying of employee compensation to performance was loosened. Instead it became a competitive practice where employees were paid more and more to dissuade them from leaving to a competitor.
Enter TARP
As we discussed on InvestingDecoded earlier, almost all of the biggest banks in the country received government assistance in late 2008. Although the money was designed to provide assistance to the banks and stabilize the system until the economy recovered, it ended up having some unintended consequences.
As the banks received their money, they were put under scrutiny from the government about employee pay. There was a populist uproar from the Obama administration that bankers were excessively paid. If banks were being supported by the government, then they shouldn't be paying their employees excessively with taxpayer money, and I agree with that sentiment. Eventually, a commission was created (headed by Ken Feinberg) to monitor employee compensation for companies under TARP. All executive pay would have to be approved by Mr. Feinberg as long as the company was receiving government assistance.
Exit TARP
Obviously, having the ability to compensate your employees limited by the government is a challenge. Remember, compensation became a competitive tool. If you can't pay as necessary, then you're at a competitive disadvantage. Some could make a good argument that the government was essentially shooting itself in the foot by limiting the compensation for TARP companies. TARP was an investment in these companies. Why would someone invest in the companies and then take steps to limit their competitiveness? It's a valid argument, but not the point of this post.
Instead, most banks did whatever they needed to to exit TARP. They essentially scraped the cash together to get out of Ken Feinberg's umbrella and free themselves of the constraints of TARP.
But Wait A Minute
Yes the banks were able to escape TARP. But that doesn't mean they escaped the Obama administration's populist scrutiny. Soon after exiting TARP, the banks announced huge bonuses for their employees - many at similar levels that were paid in 2007 and 2008. The government, angry that bankers were still paid handsomely while the country struggled with 10%+ unemployment, is now looking into a tax on bonuses paid in the financial sector. President Obama has said he wants to tax the banks until the cost of the TARP is recouped (to the tune of $90 billion over 10 years)
This has essentially become a war between Wall St. and DC, and I have the inkling that there will be no winners.
My Take on This
This is one of those topics where I actually have some strong opinions. Some of you that know me may think I side with the banks. I don't. I side with the open market. I actually think the banks made some DUMB mistakes in this process and are really getting punished for their stupidity more than anything.
Here are the reasons why I think the government is just pandering a populist agenda through this tax:
Overall, like I mentioned earlier, I don't think there will be any winners from this war between the government and Wall St. It's taking focus away from the country's real problems and shows irresponsibility on both sides.
What are your thoughts?
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Among the biggest issues of the recent economic crisis is the debate over bonuses paid to financial professionals. Finance is a very well paying industry, and it has been for a long time. In fact, before the economic crisis, the average employee at Goldman Sachs was paid approximately $650,000 a year! Furthermore, most of this money was paid year-end bonuses instead of base salary. The idea is that employees are paid based on both his/her performance as well as the health of the company. However, as was proven by the economic crisis, somewhere along the way the tying of employee compensation to performance was loosened. Instead it became a competitive practice where employees were paid more and more to dissuade them from leaving to a competitor.
Enter TARP
As we discussed on InvestingDecoded earlier, almost all of the biggest banks in the country received government assistance in late 2008. Although the money was designed to provide assistance to the banks and stabilize the system until the economy recovered, it ended up having some unintended consequences.
As the banks received their money, they were put under scrutiny from the government about employee pay. There was a populist uproar from the Obama administration that bankers were excessively paid. If banks were being supported by the government, then they shouldn't be paying their employees excessively with taxpayer money, and I agree with that sentiment. Eventually, a commission was created (headed by Ken Feinberg) to monitor employee compensation for companies under TARP. All executive pay would have to be approved by Mr. Feinberg as long as the company was receiving government assistance.
Exit TARP
Obviously, having the ability to compensate your employees limited by the government is a challenge. Remember, compensation became a competitive tool. If you can't pay as necessary, then you're at a competitive disadvantage. Some could make a good argument that the government was essentially shooting itself in the foot by limiting the compensation for TARP companies. TARP was an investment in these companies. Why would someone invest in the companies and then take steps to limit their competitiveness? It's a valid argument, but not the point of this post.
Instead, most banks did whatever they needed to to exit TARP. They essentially scraped the cash together to get out of Ken Feinberg's umbrella and free themselves of the constraints of TARP.
But Wait A Minute
Yes the banks were able to escape TARP. But that doesn't mean they escaped the Obama administration's populist scrutiny. Soon after exiting TARP, the banks announced huge bonuses for their employees - many at similar levels that were paid in 2007 and 2008. The government, angry that bankers were still paid handsomely while the country struggled with 10%+ unemployment, is now looking into a tax on bonuses paid in the financial sector. President Obama has said he wants to tax the banks until the cost of the TARP is recouped (to the tune of $90 billion over 10 years)
This has essentially become a war between Wall St. and DC, and I have the inkling that there will be no winners.
My Take on This
This is one of those topics where I actually have some strong opinions. Some of you that know me may think I side with the banks. I don't. I side with the open market. I actually think the banks made some DUMB mistakes in this process and are really getting punished for their stupidity more than anything.
Here are the reasons why I think the government is just pandering a populist agenda through this tax:
- Arbitrarily taxing compensation for a specific industry I think is just posing a class warfare that isn't good for anyone. I've supported the Obama administration since the elections began, but this is just getting to be ridiculous. This retro-active approach to punishing the banks is just pandering to the masses and unnecessary.
- Most importantly, the Obama's justification for the tax is to make the banks pay the government back for the TARP money the received. Usually, that would make sense. However, what most people don't understand is the banks already paid the government back IN FULL for the TARP....PLUS INTEREST. Where did we lose money? THE AUTOMAKERS and AIG! That's where a vast majority of the money is being lost. However, the tax is specifically geared towards the financial sector. In essence, Wall St. is paying for GM, Chrysler, and AIG's losses
Overall, like I mentioned earlier, I don't think there will be any winners from this war between the government and Wall St. It's taking focus away from the country's real problems and shows irresponsibility on both sides.
What are your thoughts?
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Sunday, December 27, 2009
Government Credit Crisis
One of the hottest topics on Wall Street (other than bank bailouts, healthcare reform, and how it looks like we've narrowly avoided the sequel to the Great Depression) has been government debt. It may seem obvious, but the way it works is that governments (e.g. federal governments or municipalities, etc.) issue more debt during recessions. This is generally done to offset the loss of tax revenue due to the slower economy. Furthermore, many economic theories suggest that government spending is a tool that can be used to lessen the severity of recessions. In effect, a government can increase spending to offset the loss of corporate and consumer spending. This is the rational behind the government stimulus package passed earlier this year.
Since this economic downturn has been particularly strong (we avoided the Great Depression Part Deux, but we got pretty darn close), government spending has also increased markedly. This is not only a US phenomenon, but a global one. This debt, known as sovereign debt, has been the source of much concern and controversy. I recently stumbled on a listing of the countries whose sovereign is considered to be the riskiest based on credit rating (countries have a debt rating just like you and I and companies). Check out the slideshow here. Here's the list of the riskiest countries starting by the highest risk.
What's it to you?
So that's all well and good, but you're probably thinking how this applied to investingdecoded readers. You guys are here to learn about investing. Unless you're a government official (and I don't think Tim Geithner reads this blog), you can't really invest off this information, can you? Well, thanks to the world of ETF's, now you can! As I've mentioned in the past, one of the advantages of ETFs is that they give the average investor access to unique investments. The PowerShares Emerging Markets Sovereign Debt ETF (PCY) gives investors access to the government debt of up-and-coming economies. Of course, there's a good amount of risk here because it is focused on emerging markets (i.e. non fully industrialized nations). But a nice 6%+ dividend yield is a good compensation for that.
Bottom line, a lot of countries have been having issues with managing their debt loads. That usually would be an indicator to stay away from Sovereign Debt ETFs. However, being that contrarian investor that I am, I think there's some good value propositions in sovereign debt - big investors are still nervous to get in. This is usually a great entrance opportunity. I think PCY is a great way to play the sovereign debt market while also diversifying away from stocks.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Since this economic downturn has been particularly strong (we avoided the Great Depression Part Deux, but we got pretty darn close), government spending has also increased markedly. This is not only a US phenomenon, but a global one. This debt, known as sovereign debt, has been the source of much concern and controversy. I recently stumbled on a listing of the countries whose sovereign is considered to be the riskiest based on credit rating (countries have a debt rating just like you and I and companies). Check out the slideshow here. Here's the list of the riskiest countries starting by the highest risk.
- Venezuela - The socialist government set by Hugo Chavez is expensive to manage. Estimates are that the oil rich country needs to have oil prices at at least $100 a barrel to be fiscally sound. Oil's been below $100 for quite a while now, meaning the country's in trouble.
- Ukraine
- Argentina
- Pakistan
- Republic of Latvia
- Dubai - Many of you may have heard of the recent debt troubles Dubai has been having. Over Thanksgiving weekend, Dubai requested a freeze on all debt payments to its creditors - a rarely performed action. The once booming emirate was recently bailed out (again) by it's Oil rich neighbor, Abu Dhabi. But the conditions are much tighter this time and there's certainly a crisis of confidence that will likely have lasting ramifications.
- Iceland - This island nation was the first poster child for the credit crisis. It defaulted on its debts early after getting caught up in sub-prime investments, and has since been in emergency mode to recover.
- Lithuania
- California - Remember when I mentioned earlier that government debt includes municipalities? Here you go. California is the 8th largest economy in the world. When it has issues, ripples ensue.
- Greece
What's it to you?
So that's all well and good, but you're probably thinking how this applied to investingdecoded readers. You guys are here to learn about investing. Unless you're a government official (and I don't think Tim Geithner reads this blog), you can't really invest off this information, can you? Well, thanks to the world of ETF's, now you can! As I've mentioned in the past, one of the advantages of ETFs is that they give the average investor access to unique investments. The PowerShares Emerging Markets Sovereign Debt ETF (PCY) gives investors access to the government debt of up-and-coming economies. Of course, there's a good amount of risk here because it is focused on emerging markets (i.e. non fully industrialized nations). But a nice 6%+ dividend yield is a good compensation for that.
Bottom line, a lot of countries have been having issues with managing their debt loads. That usually would be an indicator to stay away from Sovereign Debt ETFs. However, being that contrarian investor that I am, I think there's some good value propositions in sovereign debt - big investors are still nervous to get in. This is usually a great entrance opportunity. I think PCY is a great way to play the sovereign debt market while also diversifying away from stocks.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Wednesday, November 25, 2009
A Bumpy Road for GM
Check out the comment posted by a InvestingDecoded reader on the previous post about Motorola's DROID. Definitely some good insights there. Feel free to share your thoughts on that or any other post as well!
Yesterday it was announced the GM's deal to sell its Saab brand had fallen apart because the buyer pulled out. Koenigsegg, the Swedish sports car maker who had initially agreed to buy the struggling brand, said that it was having trouble coming to a consensus with partner investors on how to take the brand forward once the acquisition was complete.
Whether that was the actual reason or not, I believe that this incident is just another example of the challenges that GM will continue to face as it tries to conecntrate its efforts on its core brands (i.e. Buick, Chevy, Cadillac, and GMC) and shed non-core assets. It also provides further evidence of what I've though for several months already - there's opportunities here that competing carmakers can take advantage of here and opportunities where investors can capitalize.
It's Been a Long Year
2009 has been the toughest year in the century long history for the American automakers. 2 of "The Big 3" have declared bankruptcy, and government money was injected to keep them from going completely under. I've written extensively on what I think is the reason behind the downfall, so I won't rehash previous posts. But what has happened here with GM I think is a good example of how bankruptcy restructuring can't cure all the ailments of a troubled company.
The Saab deal is the 3rd deal this year that has fallen through for GM. Earlier this year, a deal to sell Saturn to Penske Automotive Group (owned by Indycar racing legend Roger Penske) fell through due to financing troubles. Furthermore, a deal to sell GM's German brand - Opel - fell through because GM decided it was more prudent to keep the brand in house and restructure.
It's Not As Simple As You May Think
When GM initially declared bankruptcy, it stated that selling these 'non-core' assets was integral in their restructuring efforts. The thought on the street was that a bankruptcy would allow GM to clean its balance sheet and make these assets more attractive to buyers. Some even went as far as to say they would come out with a competitive advantage of other automakers because they will have paid down their debt levels drastically through the bankruptcy process.
I think it's obvious now that bankruptcy is not a magic ticket as some may have thought. If the company still makes poor products that continues to lose market share as is the case with GM, it will be a long, difficult process to come out of it. In the case of Saab, sales are down 61% over the past year. I find it hard to believe this little tidbit didn't scare Koenigsegg at all.
Where You Can Capitalize
So, we now know plenty about GM's troubles, but what does that mean to you? Well, like I said, you need to make great cars to be successful in the auto industry. A pre-packaged bankruptcy won't solve all your problems. Enter Ford. The only American automaker to not take government money, Ford took steps to sell some of its non-core assets before the economic downturn. It sold Jaguar to Tata Motors on what now seems to be a very very good price for the seller. It has also continued to invest heavily in new products while competitors were forced to cut back. It now has, by far, the freshest pipeline of new cars coming out of the Big 3.
Because of this and what I believe is the best management group in the industry (CEO Allan Mullaly was the head of Boeing Commercial Aircraft and got the hugely successful 787 program going before taking the Ford job), I feel that Ford is a great investment at its current price. I bought the stock a few months ago at $6.70 and it now trades near $9. That's a long way from the $1 it traded at in March. It continues to take marketshare from both domestic and foreign competition and I believe has great potential to capitalize on opportunities when auto sales finally recover. I would sell if the stock got close to $10, but would still keep a close eye on it.
The car industry is one of the most complex and challenging out there. Just ask Private Equity firm Cerberus, who's investment in Chrysler fell flat on its face in a real hurry. Because of this, picking winners and losers can (ironically) be a little easier because it's so hard to recover from a bad situation. GM still has a long way to go in its restructuring and will continue to hit bumps on this road. Long term I think it can succeed as well, but for now, Ford has a big leg up in the domestic auto market.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Yesterday it was announced the GM's deal to sell its Saab brand had fallen apart because the buyer pulled out. Koenigsegg, the Swedish sports car maker who had initially agreed to buy the struggling brand, said that it was having trouble coming to a consensus with partner investors on how to take the brand forward once the acquisition was complete.
Whether that was the actual reason or not, I believe that this incident is just another example of the challenges that GM will continue to face as it tries to conecntrate its efforts on its core brands (i.e. Buick, Chevy, Cadillac, and GMC) and shed non-core assets. It also provides further evidence of what I've though for several months already - there's opportunities here that competing carmakers can take advantage of here and opportunities where investors can capitalize.
It's Been a Long Year
2009 has been the toughest year in the century long history for the American automakers. 2 of "The Big 3" have declared bankruptcy, and government money was injected to keep them from going completely under. I've written extensively on what I think is the reason behind the downfall, so I won't rehash previous posts. But what has happened here with GM I think is a good example of how bankruptcy restructuring can't cure all the ailments of a troubled company.
The Saab deal is the 3rd deal this year that has fallen through for GM. Earlier this year, a deal to sell Saturn to Penske Automotive Group (owned by Indycar racing legend Roger Penske) fell through due to financing troubles. Furthermore, a deal to sell GM's German brand - Opel - fell through because GM decided it was more prudent to keep the brand in house and restructure.
It's Not As Simple As You May Think
When GM initially declared bankruptcy, it stated that selling these 'non-core' assets was integral in their restructuring efforts. The thought on the street was that a bankruptcy would allow GM to clean its balance sheet and make these assets more attractive to buyers. Some even went as far as to say they would come out with a competitive advantage of other automakers because they will have paid down their debt levels drastically through the bankruptcy process.
I think it's obvious now that bankruptcy is not a magic ticket as some may have thought. If the company still makes poor products that continues to lose market share as is the case with GM, it will be a long, difficult process to come out of it. In the case of Saab, sales are down 61% over the past year. I find it hard to believe this little tidbit didn't scare Koenigsegg at all.
Where You Can Capitalize
So, we now know plenty about GM's troubles, but what does that mean to you? Well, like I said, you need to make great cars to be successful in the auto industry. A pre-packaged bankruptcy won't solve all your problems. Enter Ford. The only American automaker to not take government money, Ford took steps to sell some of its non-core assets before the economic downturn. It sold Jaguar to Tata Motors on what now seems to be a very very good price for the seller. It has also continued to invest heavily in new products while competitors were forced to cut back. It now has, by far, the freshest pipeline of new cars coming out of the Big 3.
Because of this and what I believe is the best management group in the industry (CEO Allan Mullaly was the head of Boeing Commercial Aircraft and got the hugely successful 787 program going before taking the Ford job), I feel that Ford is a great investment at its current price. I bought the stock a few months ago at $6.70 and it now trades near $9. That's a long way from the $1 it traded at in March. It continues to take marketshare from both domestic and foreign competition and I believe has great potential to capitalize on opportunities when auto sales finally recover. I would sell if the stock got close to $10, but would still keep a close eye on it.
The car industry is one of the most complex and challenging out there. Just ask Private Equity firm Cerberus, who's investment in Chrysler fell flat on its face in a real hurry. Because of this, picking winners and losers can (ironically) be a little easier because it's so hard to recover from a bad situation. GM still has a long way to go in its restructuring and will continue to hit bumps on this road. Long term I think it can succeed as well, but for now, Ford has a big leg up in the domestic auto market.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Sunday, November 15, 2009
The Deal with DROID
In my last post, I talked about Motorola's attempted resurgence with the new line of Android based phones known as the DROID. My thoughts were that the DROID would be the first and crucial step in Motorola finally returning to being a serious player in the handset market. I recommended MOT on the basis that the stock price/sales ratio is much cheaper than the industry, and, should the DROID be successful, the stock could easily move up to be comparable to its peers.
Well, the numbers are in! As John Paczkowski mentions in his article, there were 100,000 DROIDS sold during the launch weekend. Respectable numbers for a company that hasn't had a hit in a long time. However, there are some concerns I have about the future of the DROID. During the launch weekend, my brother-in-law and I made a trip to a local Verizon store to check out the DROID. He is out of contract with Verizon and, as a professional in the banking industry, is a perfect candidate for the DROID. I wanted to see the phone in person as well as talk to the store manager about traffic he's seen in an effort to gain insights on if my stock recommendation was accurate. Here's a few tidbits:
So the first experience with the DROID caused me to take pause on my recommendation and re-evaluate - something I recommend any investor to do, especially for riskier investments like MOT.
But then my brother-in-law sent me this. You can basically get the DROID 35% off if you sign a 2 year contract extension with VZN. This type of discounting so early in the products launch really caused me to take pause. If the DROID was doing really well, Verizon would have the pricing power to not offer these kinds of promotions...at elast for a while.
So, with all this information processed, my updated reommendation is a more cautious one for MOT. Yes the DROID has been selling well. It's launch weekend did fairly well. But there are indications that sales may drop of dramatically post-launch weekend. The stock closed on Friday at $8.78/share. I think that still gives the company fairly cheap valuation for a company that has a phone that's doing well. I would reccomend watching the DROID numbers very very closely during the holiday season. If this type of discounting continues and the sales are harder to keep up, then I would consider selling. At the very least, a close trailing stop should be applied to any positions to protect against potential bad news (I'd say around $8.50).
The DROID is an interesting phone and still has the potential of saving MOT's handset division. The company has already stated it wants to spin-off the unit, but it needs to be financially viable for it to do so. Hopefully the DROID sales can keep up and these indications I've been seeing are wrong. But there's no reason for everyday investors to get caught off-guard if the indications are right after all.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Well, the numbers are in! As John Paczkowski mentions in his article, there were 100,000 DROIDS sold during the launch weekend. Respectable numbers for a company that hasn't had a hit in a long time. However, there are some concerns I have about the future of the DROID. During the launch weekend, my brother-in-law and I made a trip to a local Verizon store to check out the DROID. He is out of contract with Verizon and, as a professional in the banking industry, is a perfect candidate for the DROID. I wanted to see the phone in person as well as talk to the store manager about traffic he's seen in an effort to gain insights on if my stock recommendation was accurate. Here's a few tidbits:
- According to the store manager, traffic was fairly quiet that weekend. I initially treated that as a negative for the DROID's prospects, but now it looks like that anecdotal data was an anomaly.
- The DROID itself was very heavy. Significantly heavier than the iPhone. My brother-in-law saw that as the biggest weakness for the phone, but not a deal breaker.
So the first experience with the DROID caused me to take pause on my recommendation and re-evaluate - something I recommend any investor to do, especially for riskier investments like MOT.
But then my brother-in-law sent me this. You can basically get the DROID 35% off if you sign a 2 year contract extension with VZN. This type of discounting so early in the products launch really caused me to take pause. If the DROID was doing really well, Verizon would have the pricing power to not offer these kinds of promotions...at elast for a while.
So, with all this information processed, my updated reommendation is a more cautious one for MOT. Yes the DROID has been selling well. It's launch weekend did fairly well. But there are indications that sales may drop of dramatically post-launch weekend. The stock closed on Friday at $8.78/share. I think that still gives the company fairly cheap valuation for a company that has a phone that's doing well. I would reccomend watching the DROID numbers very very closely during the holiday season. If this type of discounting continues and the sales are harder to keep up, then I would consider selling. At the very least, a close trailing stop should be applied to any positions to protect against potential bad news (I'd say around $8.50).
The DROID is an interesting phone and still has the potential of saving MOT's handset division. The company has already stated it wants to spin-off the unit, but it needs to be financially viable for it to do so. Hopefully the DROID sales can keep up and these indications I've been seeing are wrong. But there's no reason for everyday investors to get caught off-guard if the indications are right after all.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Monday, November 2, 2009
Is Moto Getting Its Mojo Back?
A few weeks ago, a good friend of mine asked me what I thought of Motorola (MOT) as a stock pick. My initial response was a resounding 'Run...run far far away'. For years, the company has been getting beaten up in the cell phone market by the likes of Apple and Research in Motion (the makers of Blackberry). Not since the MotoQ has MOT been able to come out with a phone that generated any sort of buzz. Not since the Razr has the company come out with a phone with significant buzz. Over the past 5 years, the company's earnings have declined by 29%. Why would anyone want to invest in in something like this??? I told my friend that I'd have to do more research, but my initial thought was stay away.
How Bad Is It?
Since that email, I've started reading up on MOT. From my readings, on paper, this company is a mess. Here's a few of the tidbits that are especially scary:
Even if you don't entirely know what these numbers mean, you can probably see that they're pretty ugly. But as I looked deeper into these numbers, I found something interesting. There's a classic theory in investing that Warren Buffet states best - "Be fearful when others are greedy. Be greedy when others are fearful." From the looks of it this saying can really apply to MOT. The numbers are so bad for this company that the market has a generally negative sentiment on the stock built in. You're going to be hard pressed to find someone (until very recently) that really likes the stock. Usually, this is the BEST time to buy that stock! Why? Because all the selling has already happened. Over-arching negativity usually signals a bottom for a stock. I think this applies to MOT right now. The stock is fairly cheap in terms of valuation (Price/Sales is 2.05 vs. 3.17 for the industry and Price/Book is similarly ratioed), and I don't think the market has factored in a successful product launch.
The New Buzz
But I'm not going to recommend a stock just because everyone hates it. Everyone hating the stock doesn't mean that the stock will go up. It just means there's a good chance it'll stop going down. What you need for the stock to go up is some sort of revamp at the company. For a company like MOT, this means new products. Over the last week I've been hearing A LOT about MOT's new phone - the Droid. This phone is supposed to be strong competition to the all powerful iPhone as well as the Blackberry. Coming out on 11/6, there's a few reasons why I think this phone is going to be a game changer:
Gotta Be Careful
There's a lot that MOT has going for it right now with Droid. But, as always, there's real risks associated with the stock
Bottom Line
I think MOT is a very intriguing investment at this point. You really have an opportunity here to buy a company that's trying to rebuild its brand and again become the leader it once was. Recently, an analyst at Citi upgraded MOT to a "Buy" AND downgraded RIMM and Palm to "Sell" because of the Droid. That's going out on a limb right there! But I don't totally disagree.
I would rate this stock a "Buy" long term. However, I think the stock has had a great run over the last couple of weeks (up 12%+ on Droid rumors). I would buy on a pullback to hopefully around $8.75 and sell if any indication comes up that Droid isn't selling well.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
How Bad Is It?
Since that email, I've started reading up on MOT. From my readings, on paper, this company is a mess. Here's a few of the tidbits that are especially scary:
- Sales growth of -27% during the last quarter (much worse than the industry avg of approx -10%).
- Sales growth of -25% over the last twelve months (industry avg of -1.7%)
- Gross Margin of 28% compared to the industry avg of 53.6%
- Profit Margin of -16.9% compared to the industry avg of 5.6%
Even if you don't entirely know what these numbers mean, you can probably see that they're pretty ugly. But as I looked deeper into these numbers, I found something interesting. There's a classic theory in investing that Warren Buffet states best - "Be fearful when others are greedy. Be greedy when others are fearful." From the looks of it this saying can really apply to MOT. The numbers are so bad for this company that the market has a generally negative sentiment on the stock built in. You're going to be hard pressed to find someone (until very recently) that really likes the stock. Usually, this is the BEST time to buy that stock! Why? Because all the selling has already happened. Over-arching negativity usually signals a bottom for a stock. I think this applies to MOT right now. The stock is fairly cheap in terms of valuation (Price/Sales is 2.05 vs. 3.17 for the industry and Price/Book is similarly ratioed), and I don't think the market has factored in a successful product launch.
The New Buzz
But I'm not going to recommend a stock just because everyone hates it. Everyone hating the stock doesn't mean that the stock will go up. It just means there's a good chance it'll stop going down. What you need for the stock to go up is some sort of revamp at the company. For a company like MOT, this means new products. Over the last week I've been hearing A LOT about MOT's new phone - the Droid. This phone is supposed to be strong competition to the all powerful iPhone as well as the Blackberry. Coming out on 11/6, there's a few reasons why I think this phone is going to be a game changer:
- Viral Marketing - The fact that someone like me - by no means a techie - is hearing so much about this phone already means something. The blogs out there are overwhelmingly positive about the phone, and these guys are usually right.
- Android - The phone will be using Google's Android OS. MOT has always been weak in the OS field. Android will help right that ship while also making apps easy to create like AAPL and unlike Windows Mobile and Blackberry.
- Verizon's Hero - Cell phone carriers often pick a single phone to strongly promote in the hopes that it will bring in new customers while also forcing other phone makers to step up their marketing efforts. These so called 'Hero Programs' often help the phone makers by reducing marketing costs and increasing exposure. Verizon has selected Droid as a Hero Phone.
- Enterprise Email - Being able to get your work email on your phone is obviously important. But not all work email is the same. Getting your email to your blackberry costs your company a lot more than getting email to your Windows mobile phone. That's because Blackberry uses it's own proprietary technology to accomplish this. Android will use exchange server (same as Windows) for enterprise email. This will make corporate adoption significantly easier than was the case for Blackberry
Gotta Be Careful
There's a lot that MOT has going for it right now with Droid. But, as always, there's real risks associated with the stock
- MOT's new co-CEO has basically put all the company's R&D efforts on this phone. If it fails (think Palm Pre who had similar buzz), it can be catastrophic to the company.
- Read the numbers I mentioned above. They're still bad. They haven't shown much signs of improvement. Buying the stock means you're betting those numbers will improve, which may be more difficult than just one good product.
Bottom Line
I think MOT is a very intriguing investment at this point. You really have an opportunity here to buy a company that's trying to rebuild its brand and again become the leader it once was. Recently, an analyst at Citi upgraded MOT to a "Buy" AND downgraded RIMM and Palm to "Sell" because of the Droid. That's going out on a limb right there! But I don't totally disagree.
I would rate this stock a "Buy" long term. However, I think the stock has had a great run over the last couple of weeks (up 12%+ on Droid rumors). I would buy on a pullback to hopefully around $8.75 and sell if any indication comes up that Droid isn't selling well.
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
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