Tuesday, March 17, 2009

BBY: This run up is silly

The speculation is absolutely silly and these momentary good times
will soon burst like every other bubble. Seriously, a 8% gain in one
day? I gotta ask the question that everyone is asking: Really?

Think about it, there is a reason why Circuit City failed, they barely
had any traffic. It's absurd that Best Buy is rising because it's
getting 50% of Circuit City's non-traffic. Also to think Best Buy was
the reason why Circuit City went under is silly. The real reason is
the emergence of Amazon and Walmart in this consumer electronics

Let's also factor in the bigger picture. This is a bear market rally.
There are no fundamentals supporting this run up. Unemployment is
still rising. Companies are still laying off people. The government
can only do so much to stimulate the economy. It helps, but time is
really the only cure.

On top of that, consumers that are buying are looking for bargains and
those are not to be found at Best Buy. Best Buy may have lost a weak
competitor in Circuit City but now it has two real rivals in Amazon
and Walmart who sell 10-20% below whatever Best Buy can ever offer.

So here's another concept for you. Best Buy's competition is not just only consumer electronics stores. I'll give you a couple more. Apple iTunes and Netflix. People buy DVDs when it's a luxury however there is a reason why Netflix is doing so well right now. People are renting instead of buying. Also, those who say people still buy CD's like they used to is just silly. So if people aren't buying DVDs or CDs, and if that's the number one source of traffic to Best Buy... well, you know where I'm getting at.

Look, I'm not saying Best Buy is going away. It's not. I think in different times where people have more expendable income, I think Best Buy will do ok. But those times aren't now and we as investors need to see the other side rather than what the analysts feed us everyday. Let's not be sheep. To say Best Buy has no competition now is such sheer hubris.

Wednesday, September 24, 2008

Presidential Address - Bush Actually Wasn't That Dad

I'm as much of a Bush basher as anyone. I'm not red or blue. I'm not a liberal or a conservative. What I am is fair.

So with that spirit, Bush did a very nice job reaching out to the people in one of the darkest times, and there have been many, during his administration. Facing a situation that would really hurt all of us, he delivered a speech that explained the situation, the consequences and what the solution would do in a clear and concise manner. The fact that he didn't screw it up is an indication of how serious this is.

So hang in there America, help is on the way. I just hope it got through to everyone as it did with me.

Tuesday, September 23, 2008

Inside the Oracle's Eye - What does Buffett See?

Warran just invested in a financial company. Wait, I thought the world is telling us that not the play to make. Especially a company that just got it's application to become a holding bank accepted. Don't get me wrong, I'm totally with WB on this play. I scooped up BAC back at 18 and added to my AXP position at 32. As he says time and time again, "be greedy when others are fearful..." his 5 million dollar play on Goldman Sachs should make that clear to us that the bottom is upon us. To add upon that point, don't forget he just purchased Constellation Energy Group (CEG) before he bought into GS.

So with that. Let's remind ourselves that this is where people put themselves into a position to really profit from the market. Great companies at amazing prices. Money talks and Warran's money speaks even louder. It's a calming message to the markets that "hey, we are at bottom and let's keep our heads, take a look at what's going on and start making some money.

So what have I been buying and watching?

General Electric GE - $23ish (22.16 - 42.15) 52 week high/low
American Express AXP - $31-32ish (31.68 - 63.63)
United Health Group UNH - $23ish (21.20 - 59.46)
Apple AAPL - $120ish (115.44 - 202.96)

Allied Irish Banks AIB - $15ish (14.22 - 53.00)
Humbodlt Wedag KHD - $18ish (18.11 - 45.74)

Constellation Energy Group CEG - $26.5 (13.00 - 107.97)
Goldman Sachs GS - $115 (85.88 - 250.70)
American Express AXP - He recently added to his position
Wells Fargo WFC - He recently added to his position

I'll personally will be looking for an opportunity to get into GS and CEG in the next week. Assuming Mr Market provides me with an opportunity.

Monday, September 22, 2008

The Full Short Sale Ban List

Wow, the world is now banning short selling. That's crazy.

If you were wondering what stocks are on the short-sale-ban-list like I was, here is a link.

The list is up to date as of today and has the 28 NYSE stocks added to it.


Thursday, September 18, 2008

The Eye of the Storm

Wow, the last few days have been incredibly exciting. For the rest of the market, it's absolute madness! Sheer madness. It's so bad it's driving straight men into each others arms. Watch the two guys in the background of the video.

For me, I haven't been this excited about the stock market in my 10 years of investing and trading. What's happening now is what every stock trading book tells you about. To paraphrase; "Be greedy when everyone is fearful and fearful when everyone is starting to get greedy." So everyone is saying that this is only the middle of the crisis, and while that may be true, there are a few things that are happening that are really encouraging me to start buying in force.

So while there are predictions that there are more disasters comings such as the fall of Citibank. Here are some reasons why I believe we are going to be ok moving forward.

1) The world is now serious about combating this. Today, the banks of the world combined together to build up 250 billion (and still growing, Canada just joined up) in money to calm financial markets.
2) Merrill Lynch, WaMu and all other distressed companies have already positioned themselves to be bought up or combined if the need were to ever arise.
3) Short Selling, which is one of the biggest contributors to this crunch, just had it's leash around it's neck tightened. In the US, you are not allowed to do any naked short selling anymore and in the UK, you're not allowed to short sell at all until next year. On top of that, the SEC is forcing all hedge funds to publish the list of all of it's shorts and frankly, that will be a big deterrent for those companies.

So with that, I implore everyone to keep their heads and just watch, soon enough things will be better.

Wednesday, July 16, 2008

V (VISA) part II: Finishing what I started. Lesson learned.

I screwed up a little today and I'm mad at myself for it. Being that the purpose of this blog s to track my notes and my growth, it's important that I publish my mistakes in order to keep myself accountable. I got overly emotional about a sell and short sell and the bottomline is that although I feel that I have done the due diligence in terms of research, I didn't do the last leg of the process and I didn't apply the rules of investment to my buying process.

The result was me losing an additional 100 bucks. Not a big deal and with a little dicipline, it will be made back quickly, but it's the principle that is the matter. I didn't finish the process and as a result, I got emotional and couldn't hang.

So with Visa, the opening day price was 63 and the high range is near 90. And I shorted at 68!!? Pretty stupid. Although Visa should be around 44, the reality is that I'm in the middle ground where I can lose a significant chunk or make a significant chunk. The bottomline is that I didn't have my buying rationale all thought before I made the purchase.

So let's remind ourselves what makes a good investment.
1 - after solid research (check and double check)
2 - with proper safety of investment (dammit)
3 - and with potential of an adequete return (maybe it will hit 200... maybe)

I didn't do my due diligence and I should have been more patient. The bottomline is that I would feel a lot better shorting around 85 and buying around 45. So until one of two scenarios appears, I should sit pretty on the V.

V (VISA): A Entry about punishment

This entry is about punishment. Over punishment in an overly emotional market, under punishment of certain stocks because of their honeymoon period and self punishment in the form of admitting that I didn't do enough research before making a purchase.

Today's lesson is a crucial one. I made the mistake on buying on weak research and all I got was the fluff that the pumpers have been vomiting out. Thank the good Lord that I caught myself early enough. Though Visa's stock has declined around 20% from the highs it hit after its March IPO, it has held up overall very well in the most bloody of markets.

After investing in at 73 and 68, I have finally gotten around did the real research I should have before even considering buying. Based of Visa's 10k they reported Net Income for the following years as:

2005 = $360,445,000
2006 = $454,561,000
2007 = $(1,076,095,000) LOSS

Before we freak out, the 2007 loss was due to litigation charges brought on by the American Express 2.5 Billion dollar lawsuit. Note that Visa is not done with their litigation charges as Discover just laid the 3 billion dollar lawsuit on today. FYI, part of the IPO money was set aside for future payouts. For now lets just take the litigation charges out of the equation so we can value the stock based on an ideal scenario.

To do this I took the litigation costs out of the 2007 Consolidated Statement of Operations and this gives Visa an operating income of $1,203,335,000. Assuming a 35% Income Tax (2005 had 40.18%, 2006 had 34.82%), we get a net income = $817,847,800. So that brings the 3 year view to:

2005 = $360,445,000
2006 = $454,561,000
2007 = $817,847,800 (sans litigation loss)

Divide Net Income in 2007 by 446,000,000 IPO Shares Outstanding and you get 1.834 EPS.

If we go by MasterCard P/E of 25 and your Visa per share value should be $45.85 (This is determined by multiplying the MA P/E of 25 by the adjusted EPS of 1.834). At the current price of 68ish the Visa P/E should be approximately 38ish. That is 40% higher than Master Card.


So although the boards (mostly idiots) say that without the charges, Visa had a Net Income increase from 06-07 of 80% (Actually, it's more like "More people will use Credit Cards. Buy now before it hits 200")... wait, I have something to say. Let's go to Google finance and pull the basic numbers and take a look at them to address the futures earnings growth of Visa.

MA (Mastercard) 248.86
Mkt Cap: 32.35B
Shares: 130.01M
52Wk High: 320.30
52Wk Low: 120.0
P/E: 25.40
F P/E: 26.46
Inst. Own: 69%

AXP (American Express) 37.02
Mkt Cap: 43B
Shares: 1.16B
52Wk High: 65.89
52Wk Low: 35.55
P/E: 11.15
F P/E: 17.67
Inst. Own: 81%

V (Visa) 68.42
Mkt Cap: 74.16B
Shares: 1.08B
52Wk High: 89.84
52Wk Low: 55.00
P/E -
F P/E -
Inst. Own: 7%

Look at the P/E and Forward P/Es of the companies... Visa doesn't have anything due to the loss but if you look at MA and AXP, the Forward P/E is higher than the Current P/E. That means that people are expecting the companies to make less than they did last year. So to say that Visa will likely keep on growing at that rate is very unlikely. AXP CEO Ken Chenault confirmed two weeks ago when he said that the business wasn't as healthy as he thought it was. Let's also not forget that the world economy is experiencing some purse tightening ergo, less transactions overall in the short term.

If you didn't already notice, I added one more statistic, Institutions that own the stock and MA is at a respectable 69% and AXP is at a whopping 81%. If Visa is really that hot, why do only 7% of the institutions own it? A better question is, what percent of the 7% of the institutions got it at the $44 dollar initial offering price.

I don't mind this stock. I bought it initially because I'm a big believer in investing in what you use. And frankly, it's comforting to know that pretty much everyone around you uses plastic, likely Visa, to do their shopping. But the bottomline is, you have to be good about your investments and according to The Intelligent Investor, an investment is a purchase made:

1) after thorough analysis
2) safety of principal investment
3) with the strong potential of adequate return

1 and 3 (3 is actually dependent on 2) are ok but frankly, I'm not so sure about the principal investment part. Every other stock out there has been punished beyond fairness but this one has not and frankly, that bothers me. The honeymoon period is wearing thin and people, myself included, have and will start sobering up about this one. I think this is a buy but not at these prices.

I'll wait for it to be properly punished first before I take a look back into it, but for now, I'm the one who has to eat it.

Good hunting.