31 July, 2007

Market Manipulation bites Apple Inc.

Shares of Apple (AAPL) sank almost $10 in regular market trading (down almost 7%) on news that appeared to be no news at all. An article this morning on TheStreet.com (Link) referenced a "research note" from Miller Tabak & Co.

The note referenced chatter between Goldman Sachs traders that Apple had cut production on iPhone from 9 million to 4.5 million units. There was also further speculation that Apple had cut production in their iPod line also. For a company, as hush-hush about its supply-demand dynamics, Apple really let something slip, or did they? Where did this rumor come from?
With earnings barely behind the company does this make any sense? Earnings showed over 20% iPod growth and reiterated a sales goal of 10Million iPhones in 2008, so why the apparent production cut? I think the other question that has to be asked is what is really going on here? And who is Miller Tabak and Co.

Directly from the website of Miller Tabak and Co. one reads the following excerpt.
"Miller Tabak + Co., LLC (MT) is a twenty-four year old institutional trading firm specializing in the discrete handling of stock purchases and sales, portfolio rebalancings and listed options. We act as agent on behalf of sophisticated institutional investors, executing trading and hedging strategies imaginatively and aggressively."

I for one would call creating rumors out of speculative trader talk as both imaginative and aggressive. With the stock trading down heavily in the morning there was some talk out of Miller Tabak and one analyst, Peter Boockvar, in particular who noted that no research note was issued and simply gossip was passed down. If that's all it takes to shave almost $8Billion in market cap from this leading technology company than the market is more fickle than most would like to even imagine.

Granted the overall slide in technology stocks late in the day only compounded the problem but the seeds of doubt had already been planted. And on a day where Apple announced it had sold its 3Billionth song on iTunes.

Taking a hard look at this "research report" can point an investor only one of two ways. On one hand, if the rumors were in fact totally made up to stir selling so heavy-hitters can buy in at lower prices and extend profits further into the holiday season then that's complete and utter market manipulation. On the other hand, if there's any shred of truth to a production cut for iPhone, then maybe Apple's in serious trouble. But for this to come out only days after earnings with the company reiterating its sales goals for all of 2008, make little to no sense. The company did say several times during their conference call that product transitions would take place this quarter, which to several analysts meant either new iMacs, new iPods or both. So if Apple's cutting production on some iPods lines how could that be considered a bad thing? If this is to lead to a model refresh of the top of the line video iPod, or mid-range iPod nano or both, common sense would dictate that this would spark sales and growth rather than stunt it.

Perhaps the worst is not over yet in this drop from inflated highs for Apple stock, but those faithful Apple investors who believe in the company products and growth strategy should remain patient. And in fact have to use these opportunities to add to current positions so they too can play the game and be competitive with the "Big Bad Wolves" on the street.

Disclosure: Author is long AAPL

30 July, 2007

The Time is Right to Invest in NYSE Euronext

You're a trader, investor, market-maker, whatever title suits you. It's virtually all identical to NYSE Euronext (NYX), since a lot of your trading action goes through them. This mortgage crisis has led stocks lower lately, but with it has also brought virtually record trading volumes to the exchanges. This is a very sustainable business, the business of running an exchange. More individuals are getting into the investing game each and every day and this type of organic growth bodes well for the future as the market, through the Internet, becomes more accessible to a next generation of investors.

The markets have always had the perception of being smug, and a game for the big boys on the floor of the exchange. Not anymore as any kid with an online trading account can bump shoulders with the heavyweights in the volatile after-market. As the world expands, its only getting smaller. This is the type of philosophy management has taken with NYX. Their purchase of Euronext, which provides exchange services in the UK, Belgium, France, The Netherlands and Portugal, is a big step in consolidating trading worldwide. It's a lofty goal, but management is focused on this growth through acquisition mind state.

This stock was a Jim Cramer favourite on his CNBC Mad Money show and he even called it his growth stock of the year in the past. The market wasn't kind to the Old SkeeDaddy as NYX was pushed down from a high of $112 to it's current valuation in the high $70s. However, I think now is the time to really jump into this company as it prepares to announce quarterly earnings on Aug. 2nd. And hey it was just upgraded by Banc Of America from Sell to Neutral!
All the abuse that Jim takes over his daily changing picks, he's still right more times than he is wrong and the work he does to get the investing message out there has to be commended, even if NYX didn't turn out to be a star over the last 8 months. The fundamentals have not changed for this growth business and with a forward P/E in the 20s it is certainly time to consider investing. In fact it might be one of the only times to get in before the company leaves those on the sidelines in the dust.

Analysts targets vary from $76 to $113, with an average of about $92 over the next 6-12 months. That's an average estimated upside of 18% return according to the professionals. The sentiment about the company is increasing and hey they even payed out a dividend last month.
Oh and the company just made $550Million from the sale of LCH Clearnet, its clearing house. This will allow the company more flexibility as it meets requirements and regulations in Europe.

Analysts estimate sales growth of over 116% this quarter, 122% next quarter and an even 100% for the year. This kind of growth from a company that runs stock exchanges? Yes, and the expansion plans will only continue for NYX as it will try to keep ahead of its major competitors here in North America and abroad. Add this to the fact that trading volumes have never been higher for the company than they have been over the last month and the prospects are bright for future upside earnings surprises and an appreciation in the stock as analyst after analyst will have no choice but to issue an upgrade.

I expect this cycle to begin as earnings are announced later this week. The old adage of "Invest in what you know and use" creeps up again. Chances are many companies you hold and trade are listed on the New York Stock Exchange.

Disclosure: Author is long NYSE

29 July, 2007

Gambling on gambling: Investing in Casino Stocks

Red, Black, Hit, Stand, the sound of slots ringing in every direction. The magic and lust of the casino. Las Vegas is an adult playground for sure, but is there money to be made when you're not at the table getting free drinks and losing another hand at blackjack? Perhaps you have an unbeatable strategy for Roulette, or maybe some Texas Hold 'Em is more your style, or maybe you're a sports nut and know the intangibles that will beat the bookies? Either way the casinos profit, and barring a real life Ocean-esque crew knocking over half of Las Vegas they'll continue to profit.

As a gambler, you might know some Casino names like the Bellagio, MGM Grand, The Luxor, Mirage. All owned by MGM Mirage (MGM). Harrah's Entertainment (HET) operates 48 casinos including Harrah's and Caesars Palace. Las Vegas Sands (LVS) operates The Sands and The Venetian, among others. But Vegas isn't the only party anymore, and to be a player in the expanding world of casino entertainment you need to be in Macau. This worldly entertainment center in Asia has exploded over the years as the large Vegas casinos migrate over to cover both ends of the world. But that's not the only place these firms are looking, Europe, Singapore, you name it they are thinking of expanding there.

So where do the investment opportunities lie? Well there's all kinds of buying and selling rumors hitting this sector of late and the one left out of the party seems to be the Donald himself. Trump Entertainment (TRMP) was on the block but reported being unable to find an attractive offer. Regulations problems have also plagued the company of late as it was denied a license in Pennsylvania. These troubles have led shares downwards from the 20s to $7 and change over the past year. Harrah's was in talks and is now going through the process of being sold to Apollo Management.

The Vegas heavy hitters MGM-Mirage, Las Vegas Sands and Wynn Resorts (WYNN) are worth taking a look at. A very high P/E plagues LVS as its growth through expansion led the stock to triple since mid 2005. The stock has since come back from it's high of $109 to a more reasonable $83/share. Still however, the stock seems pricey as earnings estimates for this year put its P/E at over 50. Forward P/E is more reasonable in the 20s and for a company with the expansion plan that it has unfolding in Singapore it just might be worth the gamble.

MGM sports more modest ratios but has also seen a double in market cap over the last year. It will also look for future expansion to increase it's stable of 23 casinos. Wynn is going full force into Macau with it's Wynn flagship resort and its stock has not fallen as hard as the others from their year highs.

Each of these fine casino operators are making money hand over fist and the competition to expand into the rest of the world will see cash flows tighten and margins contract. However the road to major profitability and market cap expansion lies in opening and operating more resorts in exotic and touristic locales. With LVS, MGM and WYNN all sporting market caps under $30Billion the possibility of growth accelerating through these expansions will only be beneficial to the stocks. If LVS is the hare, and WYNN is the tortoise it just seems to me that the steadiest ship in this race is the lion. And MGM can certainly roar!

Disclosure: Author holds no positions in any of the above mentioned companies

25 July, 2007

Apple Rides Strong Computer Sales to Blowout Quarter

One of the most anticipated earnings numbers of the season are in. Apple's (AAPL) quarter, which blew past street expectations showed that the company has got the motors running. The company reported $0.92/share vs. the $0.72/share the street was expecting.

First the raw numbers: 1,764,000 Mac computers, 33% growth year-over-year, which is 150,000 more than any other quarter in the company's history
9,815,000 iPods, showing that this business is still very good and growing at 21% year-over-year
270,000 iPhones sold in the first 30 hours of launch (June 29th from 6pm and June 30th), not half bad however with Wall Street expectations going from 200K to 700K this could be an area of contention.

Apple earned $818 million on $5.41 billion in revenues with gross margins increasing from 30% to almost 37% with management releasing a statement applauding the company results. However Apple shareholders know that this stock has been fueled in recent months by the announcement and build-up to the launch of the iPhone, and if this rocket is to continue to justify it's high valuation, the iPhone will have to be part of that limelight alongside the Mac and iPod businesses. One thing the iPhone hype did very well was get people talking about and looking at Apple's computers. With foot traffic in Apple stores at all time highs, how many patrons asking about iPhones and iPods thought to themselves "Wow, that's a pretty cool computer". I think it was plenty. As well as computers are selling for Apple this is admittedly only one leg of their 3 business strategy so part of management's opening statement may be troublesome for short-term investors.

Steve Jobs
"iPhone is off to a great start -- we hope to sell our one- millionth iPhone by the end of its first full quarter of sales -- and our new product pipeline is very strong."

No one can argue that it's off to a great start but with expectations being what they are, will this be trouble in the short term. This is either a case of analysts having no idea about supply and demand, or that the iPhone really is not as successful as initially hoped? Some street numbers called for as many as 700K iPhones to be sold over the first weekend, and there were rumors flying around that within a week 1 Million had been activated. Where these rumors were coming from, and their validity is certainly up in the air, but it seems like analysts really just had no clue. When the expectation window for 2 days of sales spans the range of 200K to 700K units, you know no one's reading the same book, let alone the same page. Either way selling almost 300,000, in a day and a half, of a device that fits in your pocket and costs as much as a Playstation 3 is certainly impressive.

With a stock that's fueled on expectations, lofty as they are, any signs of chinks in the armor will not be treated well. Apple's stock was halted upon the numbers release and when trading resumed after hours the shares found themselves down almost $4 to $133. Shares climbed back strongly and have been on the rise breaking new all-time highs essentially every minute as the conference call reveals more details about future iPhone software plans, and all other things Apple. Apple's shares are up almost $13 from their close of trading today.

Apple plays the guidance game very conservatively. The street thinks that $0.82/share is a decent estimate for next quarter and Apple executives low-balled everyone once again with $0.65/share and $5.7 billion in revenue. Apple continues to believe their high margins on things like flash memory are unsustainable, and they may be right. Those deals they cut for very large-scale continuous orders of memory are certainly paying dividends now, but it'll be difficult for the company to secure all the memory it needs with their growing sales and product base of iPods and iPhones. Analysts expect low-balled guidance from Apple and certainly will shrug this off.

What will end up being a big deal is the payment deal with AT&T for iPhones. Not only is Apple booking revenue over a 2 year period (Each iPhone sale will contribute 1/8th of its sale price in revenue each quarter over the 2 years), but AT&T is also reported to be paying Apple a hefty exclusive fee for each unit and a portion of the monthly service plan. According to executives, none of this revenue is seen yet or being counted. This is the type of news that could have Short Sellers running for the hills buying back their stock in the next couple of sessions.

In a recent article I wrote about putting the Muleta away and letting the Bull ride on Apple stock, well it certainly seems that management have put the company on a road to profitability never before seen in its history. This is something that has to be rewarded, and in After Hours trading the company sees its stock hit the landmark $150 per share number.

Bulls have seized control.

Disclosure: Author is long AAPL

Amazon Rewarded for Earnings Beat, but is the Party Over Now?

Amazon (AMZN) has stepped back into the good books of Wall St. with a run of increasing profitability that's making all those short sellers very nervous and is leading the stock to highs it hasn't seen since the Internet boom. Prior to yesterday's post-market-close earnings results, Amazon held an outrageous P/E in the 140s. Now that's paying for growth! But the company is delivering on this growth promise as it reported $0.19/share vs. the estimate of $0.16/share, and handily topping last year earnings of $0.05/share during the same quarter.

Current year-end estimates, which are bound to be raised by analysts soon enough put earnings just north of $1/share, which at current levels has Amazon sporting a P/E in the 80s when it reports for the December quarter. Do growth prospects continue to justify this valuation or is this a classic example of a tightly held company in a sudden short squeeze after a solid quarter. About 15% of outstanding shares were shorted as of mid June and it seems like that has something to do with today's 25% spike northwards. There has been contention over the last couple of years that the company is spending too much on internal technologies and off-shoot ventures like the UnBox movie downloads and the ever-popular music store in development rumors. A deal with TiVo to stream movie downloads to owners of the popular DVR device in tow and consecutive blowout quarters with ever increasing guidance has certainly silenced the critics.

Back in April when the company blew earnings out of the water it upped guidance to $13.40-14 billion in revenue for the year, and with the latest results lifted guidance to yearly revenue of $13.80-14.30 billion. Notice the pattern here? Everything seems rosy here doesn't it, but as any growth company can attest to, playing the ever increasing expectation game can be like walking a tightrope with a safety net made out of razor wire. Not only would the fall hurt, but the landing would as well.

Amazon's Prime service seems to be a big hit, it allows customers to pay a yearly fee for free shipping, and it is ideas like this that will eventually drive margins higher as Amazon cuts prices to sell more goods. The brick and mortar retailers, especially on electronics have been pushing these high-margin extended service/care warranties for years. Best Buy and Apple, through the ProCare program, love the revenue these services bring their respective companies.

All in all, while a compelling story, I for one think the Amazon boat has sailed for now and needs to dock before I would board. There was a great opportunity here for stock and option players and it should be time to profit take as I can surely see a downward spike coming before another one happens that would continue the climb. The market stays irrational for much longer than people usually think and while there might still be something here, I don't like the odds at these levels with a P/E that can seemingly only come down. If Amazon were to double profitability next year to $2/share you're still looking at a company with a forward P/E right now of almost 50. Now with Analyst estimates, likely to rise for 2008 from $1.30 per share the company has a lot of work to do to justify its price tag.

Disclosure: Author holds no position in AMZN

24 July, 2007

Da Bears take out their Claws

No, today the markets were not pummelled by a certain team for a certain Midwestern town that starts with a C, ends with an O, and in the middle has a Hicag. No, Ditka did not have his mind of 'oter 'tings either.

The market bears today were more vicious than that 80s defense pioneered by Coach Ditka, and they were just as unforgiving. The combination of a long summer rally, the overhang of the mortgage situation, oil uneasiness and disappointing earnings led the market to a broad sell off today.

The final body counts were as follows:
American Markets
Dow: down 226.47 points (-1.62%)
Nasdaq: down 50.72 points (-1.89%)
S&P: down 30.53 points (1.98%)

Canadian Markets
TSX: down 394.41 points (-2.73%)

23 July, 2007

GS or MS: Battle Of The Banks

In the truest sense of the old-school type Battle of the Bands, where local Garage hopefuls filled stages to compete for the attention of, and possible employment from a single club or record label owner, I present a Battle of the Investment Banks.

With Bear Sterns (BSC) being the latest to fall like a 100 year old Redwood doing battle with the sub-prime market. Reports have surfaced over the last week that a couple big hedge funds inside the firm that were heavily invested in this industry are now virtually worthless. Does the investment banking investor have any hope out there?

Well, there are choices aplenty in this space such as Goldman Sachs (GS), Morgan Stanley (MS), Lehman Brothers (LEH) or Merrill Lynch (MER), along with several smaller firms all fighting for business and your investment dollar. Not to mention that the big brick-and-mortar banks are expanding heavily into the investment sector.

Taking the stage here and now surely wont be a local teenager with a new birthday present electric guitar, as we're looking at and comparing the cream of the crop in the investment banking world. Goldman Sachs and Morgan Stanley are the two biggest firms by market cap and for good reason, both companies are very good at what they do, and that's attract big clients, charge huge fees, and make money off every kind of investment imaginable. Have you ever heard of Weather Derivatives? It's where people in the marketplace can place bets on how many days it'll be higher or lower than the average temperature in a given month. You've never invested in something like this? Didn't think so, but guess what, these firms do!

So which one is better now and years from now? First to the stage Goldman Sachs. (Come on, you're telling me that wouldn't make a great band name)
The stock has fallen from a peak of $234 to $205 as it's been sideswiped, like everything else in the sector by this risky-mortgage mess. More often than not it is credited as being the best investment bank in the world and it sits with a trailing P/E of 9.5! A single digit P/E for a company that's earning and growing like Goldman Sachs. This rock star sports a healthy estimated Price to growth ratio of 0.7.

Goldman is so good at what it does but seemingly analysts are confounded at exactly what it does and how it goes about doing it. Yes Goldman has booked tremendous gains over the last year in some early Chinese investments but it's investing in these kinds of things all the time and people are surprised by the success. The nature of some of Goldman's trading operations make it seem like that part of the business is being run like one large hedge that can crash and burn on a bad bet or two but I think professionals that cover this company are missing the point. These are the smartest market people on the planet and they have backup plans that have backup plans. There's risk taking and then there's too much of a good thing, that's bound to crumble, just ask those Bear Sterns funds.

Goldman appears to be masterful at managing its internal risks but they have yet to fully be rewarded for it. The run up of the stock from the 150s to the 220s last year and early into this year should've only been the beginning however a wall was hit and the shares are tumbling back to the 200s. Opportunity? I think so!

Let's look at the other company. Morgan Stanley. If you thought Goldman's fundamentals were impressive how about Morgan sporting a P/E of 7.7 and a Price to growth of 0.6. Now Morgan Stanley notoriously went through step after step of cost-cutting and re-tinkering over the last 12 months in order to boost it's shareholder value and it seemed to have spark a turnaround in the business as well. But it also was hit hard falling from a high of 76 to it's current levels around $67/share. As far as businesses go, Morgan Stanley would seem more transparent to the average investor as they have clearly drawn lines for its business units and even are a player in the credit card world with their Discover brand. However, that has been an area of contention for the company as many feel selling that business unit would ultimately lead to more value long term and as such the company announced June 30th as the day it would in fact spin off the Discover business resulting in a $14/share payout to shareholders.

Is there an opportunity here also? Yes, however here is why I believe Goldman Sachs is the better play now and for the longer term.
Both companies brought in revenues of around $39Billion over the last year, however Goldman earned a Billion more ($10B v $9B). Goldman clearly is able to more efficiently turn a profit at a slightly higher margin rate. Here's the kicker though, Morgan Stanley employs 55,000 people, while only 30,000 work for Goldman Sachs.

Not only is Goldman earning more from the same amount of revenue, they are doing it almost half the personnel! So is it likely that in the years going forward Morgan Stanley is going to go through a massive layoff spree to bring it's personnel down so it can compete with Goldman in terms of profitability? No. What does seem more likely though, is that as both firms grow Goldman should have more room to expand and hence earn more money running it's top notch trading operations and hence have more opportunities to lure business away from other firms.

Both firms look prime for a rebound later in the year however I think you'll find Goldman's songs at the top of charts more consistently than Morgan's.

Disclosure: Author is long GS and holds no position in MS

22 July, 2007

Earnings Week: July 23-July 27

Some earnings of note for the week of July 23rd to the 27th

Monday July 23
Merck (MRK): expected $0.72/share

Tuesday July 24
AT&T (T): expected $0.67/share
LeggMason (LM): expected $1.24/share

Wednesday July 25
Akamai (AKAM): expected $0.30/share
Apple (AAPL): expected $0.72/share
Baidu (BIDU): expected $0.43/share
Colgate-Palmolive (CL): expected $0.83/share
GlaxoSmithKline (GSK): expected $0.94/share

Thursday July 26
ExxonMobil (XOM): expected $1.94/share

Interesting week ahead as more financials and world banks report, and big oil takes center stage later in the week with Exxon. All eyes will be on AT&T and Apple for an incling of how well the iPhone sold in the first 2 days of its launch.

20 July, 2007

IMAX: Can Big Screens lead to Big Dreams?

Even if you've never seen a movie in IMAX (IMAX) and I suggest you do, I'm sure you've heard of their place amongst the entertainment and movie going crowd. They are the boys that bring you the 3-storey screens and ear-drum ripping sound systems that make effects-laden movies feel like the real thing. If you want a true movie going experience forget the 50 inch HD you just bought at Best Buy and see something revolutionary in an IMAX theatre.

The company has had its stumbles of late as the stock reached a bottom of $3.30. Since then the company has gone though phases of trying to sell itself, then trying to grow itself, being delinquent in filings and back again. The company has to restate everything going back to 2002! Now that's a lot of extra work, and a mistake the company will not make again. Still with a market cap of $189Million and revenue growth reported 17% higher year-over-year in their latest report maybe the picture is becoming clearer and pardon the pun, bigger.

While some traditionalist movie-goers may find the IMAX experience over-kill, there is a growing contingent that embrace the sheer volume of picture and sound that only this kind of experience can offer. In fact major theatre operators like AMC and Regal Entertainment (RGC) are introducing more screens and plans for more screens revenue at IMAX should continue to grow. How long can these theatre chains wait before it makes sense to snap up this company.

Now, the picture is only starting to clear up, there is still plenty of work to do for the company if it wants to become profitable, it currently posted a loss of $0.12/share this quarter, however this was better than the expected loss of $0.14/share.

Continued success of big movies like Spider Man 3, 300 and the current IMAX opening record holder Harry Potter, really give a chance for the speculative investor to take a closer look at the company and gauge just what the possibilities could be. If IMAX is truly past its internal problems and looking to turn the corner towards profitability then whether it expands the screen base on their own or through a buyout revenue growth is available. Going the buyout route would ultimately yield big gains shorter term as a company would have to pay a healthy premium for this name and growth prospects. So one thing screams out about this entertainment play, there's plenty of upside for the speculator.

Disclosure: Author holds no position in IMAX

19 July, 2007

Investors Punish Google for Expenditures

Google (GOOG) reported earnings after the close today and investors saw the numbers and headed for the exits not in single file but in a horde. Google earned $3.56/share excluding employee options expenses and other things. The street wanted $3.59/share, so Google missed expectations, however the highest analyst opinion had an estimate of $3.93/share. Keep that in mind. Shares were sent down from $550 to as low as around $510 in extended-hours trading.

The raw numbers. $3.8Billion in revenue which is a 58% year over year increase and a 6% quarter over quarter increase. International revenue inched closer to being on par with US revenue with the split now being 52% to 48%. Of note, Google said that strength came from Spain, France and Italy. Every other call and talk about international markets, especially in Europe centered around the UK and Germany as being Google's strongest points. It's good to see strength increasing across the board.

Another key metric Traffic Acquisition Costs actually fell in the quarter to under 30% of revenue, this is how much Google spends on other sites to make money through ads on affiliated sites. In essence more and more traffic is coming from core Google.com properties.

Here comes the troubling or not so troubling part of the equation, depending on your investment time frame. Costs and Expenditures. While costs of Revenue stayed flat this quarter at about 40%, there were cost increases across the board for Research & Development, Sales & Marketing and General Administration. These cost increases led to overall margin deterioration from 33% down to 28%. That's a full 5% fall in profit margins. This is huge and the main reason for the earnings miss, which caused the stock to plummet after-hours.

Let's take another look. A company growing like Google, as a long term investor would I want my company investing in the future of its core businesses and beyond, researching into new revenue streams. I say yes. Shorter-term investors would probably say No, as they were looking for a quick gains, riding the coat-tails of this Internet giant. Google was helped in the past by favourable tax rates and more information will be shed on the tax issue during the company conference call. However, with Google looking to expand into other businesses, it should be no surprise to investors that Google would heavily invest in R&D. It certainly takes a lot of capital to invest in the heavy computing infrastructure that Google develops so it can provide the ever-increasing bevy of services that it provides such as Adsense, Adwords, GMail, Google Calendar, Google Apps, YouTube, Blogger, Picasa and more. It is through this R&D that will allow Google to continue to innovate as it tries to expand past search ads into new revenue streams.

To a long-term investor in the stock, as I am, I see this as a blip on the radar screen and look forward to the buying opportunity provided by these dips in the stock. Had Google not decided to book large increases in R&D this quarter how would the numbers look?

$3.87Billion in revenue dispersed over 315Million shares and using an average margin of 33.3% gives a Earnings Per Share number of $4.09!

Without the R&D spending increases Google would have blown away numbers by posting $4.09 vs. the expected $3.59, that's a $0.50/share earnings beat. Would this make shorter-term investors happy? I bet it certainly would. Being a long term holder I wouldn't complain if Google reported a number like this. Google's strategy of being a longer-term looking company (chalk that up to the Warren Buffet style of investing) is certainly showing its colours this quarter and with this brings disappointment to the growing crowd of Google fans who are growth investors.

The choice on Google becomes very simple at this point. Are you a believer that Google can effectively diversify its revenue streams making all this R&D spending worthwhile? Or do you think they are throwing money at the wind and should stick to what they both best in the short term, Search ads?

For a long term investor the choice seems easy, however a company as highly valued in the marketplace and as young as Google, brings with it high volatility and much risk, and today's earnings backslash showed this in full force.

Disclosure: Author is long GOOG

WC Articles featured on SeekingAlpha and Yahoo Finance Blogs

Just a little update as the past 2 days a few of my articles were accepted to SeekingAlpha.com and subsequently available on Yahoo! Finance pages within the Blog sections.

All of the articles that are on SeekingAlpha can be found here http://seekingalpha.com/by/author/chris-krasowski
This has certainly increased exposure for the articles and SeekingAlpha features more reader commentary. It's one successful stepping stone in the growth of this blog.

It should be an interesting aftermarket today as Google reports earnings after the bell.

Apple's Computers: Still A Growth Story

A report came out from market research firm IDC giving numbers and growth rates from PC's shipped. Link is here to AppleInsider http://www.appleinsider.com/articles/07/07/18/apples_u_s_mac_market_share_rises_to_5_6_percent_in_q2.html

The numbers show once again at how Apple (AAPL) is growing its market share in the US computer industry. In 2005 it was reported to have 4.4%, in 2006 4.8% and in 2007 5.6%. That's a lot of Macs in homes that have never had Macs before. The so-called "switcher". Steve Jobs frequently talks about Apple Retail Store foot traffic and how about half of Mac buyers are first time Apple computer buyers. This trend clearly shows just how true this statement is.
This rising trend emulates exactly how Apple's grown to become the third biggest music retailer in the US.

Call it the halo-effect from the iPod, the publicity surrounding the company lately with it's other products like iPhone or AppleTV, but one thing's for sure. Apple has its businesses clicking like never before, and its earnings numbers are expected next week. With the stock crashing through an all-time high of $140 this morning on these news you might think there's a sell the rumour buy the news opportunity prior to the quarterly earnings announcement. I wouldn't be so quick to jump on that side of the fence, while expectations for performance have never been higher for the company, they do have a juggernaut waiting in the hangar that hasn't had any official sales numbers released yet. This of course being the iPhone. While sales numbers for Macs and iPods are expected to beat consensus estimates, and handily at that, what the stock really needs to keep its upwards momentum is a clear indication that iPhones are flying off the shelves.

So what's the strategy going into earnings? I think like all growth orientated stocks you have to know what you're getting into and what the prospects are. If you're an iPhone believer and this it's truly the next big thing then get in now before the next run in Apple's stock really takes shape. A quick look at the Option interest for January 2008 shows some very optimistic investors as almost 50,000 call contracts are open for a strike price of 200. And as of today these options go for $3.60 a contract. A lot of money is being bet on the continued rise of Apple shares. So is it safer to go with the bullish herd or go against the grain and swim upstream on the bearish side of the stock? I for one believe a company as innovative as Apple, currently in the business growth cycle it finds itself in is a hard bet to pass on, so I've put away my Muleta for now and let the bull run.

Disclosure: Author is long AAPL

18 July, 2007

What's better for eBay, More from Less or Less from More?

As eBay's (EBAY) quarterly earnings came out there seemed to be both some answers and yet more questions, so I'll pose another one. Which is better More from Less or Less from More?

In other words, can eBay continue to provide revenue growth (a.k.a. More) from a shrinking number of listings (a.k.a Less) by increasing prices, or would it be better for the company to spur growth by driving More listings and perhaps charging Less?

The company reported official earnings of $0.27/share vs. $0.17 a year ago, and when taking into account everything reported $0.34/share vs. the consensus $0.32/share. So shouldn't every thing be rosy with an earnings beat? Well not so fast because digging into core business metrics reveals another story. Listings, a staple of eBay's business fell once again by 2% compared to a year ago. To make matters worse for the stock, management said that revenue growth would outpace listing growth.

eBay has made strong acquisitions in the past with PayPal and it's recent purchase of StubHub.com. It's purchase of Skype for billions is still up in the air, however revenues from that division were $89 million in it's second straight profitable quarter. But the question still remains, what happens to the company growth prospects if the current listings trend continues? There will eventually be a point where eBay customers will not want to pay more, so the company has to find some way to entice new customers.

However, for the time being management seems confident in the overall business as it raised guidance for the rest of the year. Should you be as confident in the stock's resurgence mainly through other revenue streams? I for one would wait to see some sort of turnaround in the core listings business before paying 38 times earnings for a company that praises the performance of secondary revenue streams PayPal and Skype.

Disclosure: Author holds no position in EBAY

17 July, 2007

Satellite Radio and Apple Inc.

An interesting combination, that probably engineering teams on both sides have thought of. Could the iPod have the ability to let its users listen to Satellite Radio?

Apple (AAPL), XM (XMSR) and Sirius (SIRI) could do decently well for each other by talking about this. The satellite radio companies have each tried to develop and release their own handheld device to overall little fanfare and now with the merger news swaying back and forth almost daily, the main talking points seems to have shifted from growth in the industry to cost savings from synergies. Why not take a look to the poster child of growth and innovation and figure out a way to spark subscription sales?

How many car owners would continue their Satellite Radio subscription after the free 3 month trial if they knew they could get satellite radio streams on their iPods and through iTunes?
Apple and AT&T have just revolutionized the wireless industry consumer sign-up process, so why couldn't they try to do the same thing for satellite radio? Wouldn't it be relatively easy to work out a sign-up process through iTunes so new and existing customers of satellite radio could activate the availability of getting their radio on their next gen iPod/iPhone? The potential new subcriber additions for the Satellite radio companies is huge.

First major question is the engineering involved, could it be done right now? Is there a way for the brilliant engineers of Apple, Sirius and XM to figure out how to put the satellite radio decoding hardware into the same/next generation shapes of the iPod and the iPhone?

Second major question is monetary. Certainly Apple would demand a share of monthly subscription revenues, perhaps an upfront connection fee and total control over the engineering involved with the hybrid devices. Would Sirius or XM agree to those terms? Seems like we're talking iPhone all over again and that's seemed to work out well for AT&T so far (With the official sales word coming next week during Apple's quarterly earnings report).

I can certainly see such an announcement would benefit all the companies involved. With Satellite Radio still being an industry of fluctuating but sustainable growth it seems like spark is needed to reignite the passions of investors in shares of Sirius and XM. The merger talk and cost savings have taken their toll on both companies year-to-date and while there is no guarantee they will be allowed to merge, an idea like this could put both companies subscriber numbers back on the path of blockbuster growth.

Disclosure: Author is long AAPL & SIRI

Life Certainties: Death, Taxes and Alcohol

When times are good and when times are bad, it's a fact of life that people will drink either way.
Probably one of the most sustainable business models on the planet is making various alcohols. So for those interested in the long term investment opportunities, where would you start looking?

Well in your own liquor cabinet of course! Any bottles of Johnnie Walker scotch lying around? Maybe some Smirnoff vodka? Perhaps some Cuervo tequila is more your style? Oh you're a beer drinker is that it? Ever had a Guinness?
What do all those brands have in common, well they are all owned and distributed by Diageo (DEO).

This is a company that has had a very good 8 months with the stock moving from a 52 week low of $65/share to a high of $87. With the stock sitting at $85, is it still worth looking at? I say yes.
Sales growth is increasing worldwide, but most notably in North America, where trends of late are showing spirits are making their way into more homes while traditional beer drinkers are turning away. Maybe it's the whole carbs craze, but either way, the numbers don't lie.
Diageo sits with a P/E of about 18 right now, and pays almost 2.5% in dividends, which is very reasonable for this type of company.

Yes, Diageo is the biggest player in terms of market cap in the alcohol space, but it is growing and relatively cheap compared to it's main competitors, which include the likes of:
Brown-Forman (BF.B), which owns Jack Daniels, Finlandia vodka and Southern Comfort.
Constellation Brands (STZ), which controls Constellation wines and spirits and Crown products.
As well as the beer kings Molson Coors Brewing (TAP) and Anheuser-Busch (BUD).

The age old adage of "invest in what you know and buy yourself" certainly applies to these investments, so it's a matter of opening up the good cupboard, taking out your fine bottle of scotch and going from there. If it happens to be a Johnnie Walker, then by all means get on the Diageo train.

Disclosure: Author holds no positions in the above mentioned companies

16 July, 2007

Money Holders: The Bank Story

All this excitement over the sustained tech rally combined with the lingering negative sentiment from the sub-prime mortgage meltdown has given the Bankers a bad rap.
Year to date the major bank stocks in America are either flat or down, all this while the market rallies longer and later in the year than usual.
And banks are typically very solid dividend plays, so what gives with the lack of respect?

It's clear that once this sub-prime fiasco is put to bed the industry can lift itself from the under performing rug and enjoy the spoils that investors have bestowed on seemingly the rest of the market. Earnings announcements are coming this week from JP Morgan Chase (JPM), Merrill Lynch (MER), Banc Of America (BAC) 4.5% yield, Citigroup (C) 4.1% yield, and Wachovia (WB) 4.3% yield

The chance to get in on these major banks is now as the forward P/E's of BAC, C and WB are below or right at the magic 10 multiple.

On the Canadian side of the market, the banks have performed very well over the last 6-8 months, however these gains are being put under pressure due to raised interest rates on inflation fears, the continuing strength of the Canadian Dollar, and simple valuations. However as these Canadian banks have come off their highs, buying opportunities are available.
CIBC (CM) hit a 52-week high of $107, while now sitting at $98
Royal Bank (RY) hit a 52-week high of $61, now sits at under $58
Similar patterns can be seen for Bank Of Montreal (BMO), TD Bank (TD) and Bank of Nova Scotia (BNS), although the latter 2 have not fallen off their highs as much as their peers.

This industry is lying in the weeds and it seems ready to join the party in the coming months. And while the waiting game is on, it's always a good thing to cash in on those +4% yields.

Disclosure: Author is long BAC, C, WB, RY

14 July, 2007

Google Estimates and Analyst thoughts

Google (GOOG) price targets have been raised by analysts for years since the company became public. Simply the street can not get a grip on the type of growth that the advertising sector is experiencing on the internet. And they don't seem to understand just how good and efficient Google is at spreading its internet reach. The notion of large advertising accounts is a typical stance that any analysis takes, however Google is so effective at the "small business" crowd, and those 1000s of companies, spending small dollars certainly add up, especially overseas. Google doesn't give any guidance so clearly the traders, bankers and analysts are left scrambling for "best-guesses". One conference call, Eric Schmidt said that he thought Google could one day become at 100billion yearly revenue company. Now that's a lofty goal but with their global expansion and diversification into other revenue streams it sure seems possible. As for the current earnings, which are to be announcement this coming Thursday, it's once again best guess and a race for each analyst to go above the other analyst. A quick look at the pattern for the consensus revenue expectations over the last 3 months shows this leap-frogging. The expectations are raised constantly, yet Google still manages to beat them. Google's international business is making up a bigger portion of revenue every quarter and this trend should continue in this quarter. With the strong overseas currencies and weak US dollar the international numbers are inflated when brought back in USD terms, thus creating a larger EPS than otherwise would have been.

There may very well be some profit taking prior to the earnings announcement, but expect (as most do) for Google to blow the doors off another stellar growth quarter. While any dip would represent a great buying opportunity as long term Google has it sites set on being the largest technology company in the world. And that means an even larger market cap than the company enjoys right now, which is something investors can sleep comfortably thinking about.

Disclosure: Author is long GOOG

Earnings Week: July 16-20

Earnings season has gotten underway in full swing in the American markets.

Weekly earnings that are of note:

July 17th
Intel (INTC) : Expected $0.19/share
Merrill Lynch (MER): Expected $2.02/share
Coca-Cola (KO): Expected $0.82/share
Yahoo (YHOO): Expected $0.11/share

July 18th
Altria (MO): Expected $1.13/share
eBay (EBAY): Expected $0.32/share
JP Morgan Chase (JPM): Expected $1.08/share
Pfizer (PFE): Expected $0.50/share

July 19th
Banc Of America (BAC): Expected $1.20/share
Broadcom (BRCM): Expected $0.27/share
Google (GOOG): Expected $ 3.59/share
Microsoft (MSFT): Expected $0.31/share

July 20th
Citigroup (C): Expected $1.13/share
Wachovia (WB): Expected $1.22/share

complete earnings schedule available at Yahoo Finance

It'll be a big week for financials and banking as investors will get to see how munch of an effect the sub-prime meltdown spillover has continued to have. Also a big week for technology, specifically in the Internet space as Google will once again be in a position to overshadow Yahoo and Microsoft in the search earnings space.

13 July, 2007

Long Term Growth Rates of Nasdaq 100 Companies

Interesting list of companies that make up the Nasdaq 100 and their projected long term growth rates. Link provided below.


Those investors looking for companies with future growth propects, this I believe is a great starting point for additional research.

Of note: Google (GOOG) ranks 6th, Akamai (AKAM) 7th, Yahoo (YHOO) 12th, Apple (AAPL) 22nd

Innovators within Technology

It's really Apple (AAPL) and Google (GOOG) that are the two driving forces of innovation within the Internet/Computer part of the technology sector. When Google's CEO became an Apple board member there was some signs that the companies would work together on many more projects. We're seeing this now with Google Maps integration into the iPhone, YouTube on AppleTV and the iPhone and Google's search being prominent in Safari and Leopard.

Yahoo (YHOO) also is involved with Apple providing push e-mail to the iPhone, the Stock app and a host of other innovative services, however, it's a company very much in limbo, having just ousted long time CEO Terry Semel. Any reaps from their long-awaited ad platform Project Panama have yet to show major dividends and it seems like Yahoo has a long way to go to steer the ship in the right direction.

Microsoft (MSFT) on the other hand seems stuck in the mud, is a company that has far too many silos for its own good and cannot innovate as quickly as the others. While companies like Apple, Google, and Research In Motion (RIMM) are busy combining all of their products and services over a common platform, Microsoft is missing the party by having completely separate divisions trying to integrate separate products into a common themes. However thus far very few have ended in success and nothing but bad press surrounds this "innovative" company of late with Vista issues, charges on Xbox problems and who could forget the almighty Zune.

Disclosure: Author is long AAPL & GOOG

12 July, 2007

Running of The Bulls

If any market day's a Bullish day, then this was certainly it.
At the closeof trading markets were up across the board. The final tallys looked like this.

Dow: up 283.86 points (2.09%)
Nasdaq: up 49.94 points (1.88%)
S&P 500: up 28.94 points (1.91%)
TSX: up 189.91 points (1.34%)

Thoughts on Apple Inc.

Apple's (AAPL) foundation of software is the driving point within all their products. Not to take anything away from the hardware, because Apple does design some of the best. However that is a smaller issue when you look at the company's successes.

With apple being able to customize everything within a given device due to native software fitting in native hardware, it certainly puts other companies behind from day 1. It would be very hard for a Verizon or a Sprint to come up with something like an OSX for their handsets, and just the same it'll be as difficult for Motorola or Nokia. On the flip-side Microsoft has Windows Mobile but it's designed to work on such a vast array of devices that it works very well on only a few.

The new OS X core of Apple's product lineup (upcoming Leopard Macs, iPhone, AppleTV and soon iPods) bring with it that level of functionality and ease of use that can only happen when a piece of software is designed to work with a piece of hardware. The iPod's success came from it's ease of use and the iPhone is, and will (through software updates) strike(ing) the exact same cord. This will in turn extend to a larger halo effect which will in turn drive more users towards the Mac platform.

Which, in the investment mind frame should launch Apple's future valuation to $150B and beyond.

Disclosure: Author is long AAPL

Genentech (DNA) Earnings & Market Reaction

Genentech (DNA) announced earnings after the closing bell yesterday and it beat expectations ($0.78/share vs. consensus $0.72/share). The company also raised EPS guidance for the remainder of the year. [Earnings Release] *courtesy genengnews.com

How did the market respond? Currently shares of DNA are down $1.75 or almost 2.5%
My thoughts are that this selling is a blip and could prove a good entry point for longer term investment through the end of the calendar year. I look for DNA to come back this fall and move much higher by the end of the year.

Disclosure: Author long shares of DNA

11 July, 2007

Inaugural Blog Post

It's official now. The WC Power Tech Fund has a blog!

Investing ideas, insights and updates to the fund holdings will be shared here.
Best of luck the arm-chair traders