Are You Ready?

2007-04-17T21:09:00.000-07:00

I received the following email from a friend who, after asking me for some advice, bought her first stock and caught the bug:

so i ended up buying $1000 of CAT and $1000 of payless. so far so good!! i'm at 2044 right now... (that's after the 14 bucks it cost me to buy it!) soooo... i think i want to buy 2 whole shares of google. what do you thinK????

I thought I'd share my response as someone else out there may benefit from it:

I have mixed feelings about GOOG. First of all, considering your portfolio as a whole, buying 2 shares of Google would really skew your risk exposure. Google is much more volatile than the stocks you own -- if you buy 2 shares you are putting almost 50% of your portfolio into a stock which could lose 10% or more in a day. The stock is especially risky, however, because they announce earnings in 2 days!!! When earnings are involved, a tech stock can make much more significant swings-- in either direction. If GOOG beats estimates, you could go up 20% in one day. If they miss badly, you could find the stock crashing (especially because Google doesn't warn before announcing). That being said, I personally believe Google's got at least one more record-breaking quarter in it, and this might be it. Despite the huge drop in capital from purchasing YouTube, and the subsequent lawsuits that have swarmed the company, the fact that Google just announced a $3.1B acquisition suggests that they probably aren't hurting for cash. Additionally, Google has been moving into new, more experimental businesses. For example, Google Checkout (which I think is bound to give PayPal a run for its money), which Google is expending resources to promote (they are not charging fees for the service until 2008). There have also been talks about expanding into television advertising... in general these new business segments have a good number of skeptics and I think they make investors worry that growth in the core business is slowing down.

These are fair arguments. On the other hand, when the media starts speculating on the reasons a really hot stock will go down (I saw several articles last week about why GOOG is too big and why YHOO may be a better buy), it usually means it is going to go up.

If I were you and:
1) I'm willing to bet that Google had a really good first quarter, I would buy 1 share.
2) I like the company but I'm not sure if it had a good quarter, I would wait until after the earnings announcement and buy 1 share (especially if the earnings are good).
3) I'm willing to bet that Google had a really good first quarter, and I'm willing to potentially lose $350 at the risk of gaining $350 (and more in the coming weeks), I would buy 2 shares.

Technically speaking, the stock recently moved above its 50-day moving average and the 25-day moving average is crossing over the 50-day as people buy into earnings season. This is a positive sign, but rendered practically irrelevant due to earnings.

Anyway, I would be curious to hear why you selected Google. Remember, your own research is going to lead you to the best ideas...when you ask me about a stock, I'm just going to give you my interpretation of the information everyone has. True insight can only come from you! I recommend looking for at least one stock or mutual fund that is in a less-volatile industry than retail or tech, or at least one that is countercyclical. Also, look for at least one small-cap stock that you find interest in that you think has a really good idea. It shouldn't be something that you hear about everyday on CNBC...

2007 Trends

2006-12-26T10:00:00.000-08:00

Okay, so the new year is coming up, which means another 250 days of potential profits in the stock markets.

One thing that I have always advocated is watching trends. When you watch and understand general trends -- e.g., demographics, technology, political -- you are in a much better position for determining which sectors you should be in and even which stocks. Understand trends, figure out which stocks are best poised to benefit from those trends, and then wait for the fundamentals and technical indicators to line up. When they do, these stocks don't just break out, they can go on to become Ciscos, Home Depots, and Googles.

That being said, there was a segment on CNBC today about the biggest trends to watch for 2007. I think they are on to something:

1. Chindia
The combination of China and India represents the frontier of the new world economy. China's rapid growth over the last decade has already caught everyone's attention and irreversibly impacted global money flows. But where is it going next? Manufacturing outsourcing in China and services outsourcing in India are only the beginning. Chindia has a population of well more than 2 billion people, many of which are well-educated and extremely hard-working. These cultural factors combined with low wages have given China and India their economic edge. Now, as the countries are becoming wealthier and more sophisticated financially and technologically, these trends will continue to accelerate. Educational and structural improvements will be made in these countries and they will probably overtake the US in many ways.

One of the most important ways that Chindia will overtake the US is as a consumer market. Chindia's combined population is about 2.4B people, which is eight times that of the US. Translation: plus one point for companies who are in these markets.

2. Masstige
This is interesting -- people are achieving retail 'prestige' not by flaunting brand names, but rather value. Apparently these days women prefer to brag about getting a good deal than paying a lot for something. I cannot verify this trend from personal experience, but it makes sense to me. Keep an eye on Target (TGT).

3. Green
Energy prices were a big deal in 2006, and considering the fact that we aren't making any more oil, it will continue to be a big deal. I think that the term "sustainable energy" is finally gaining traction, and there is just too much technology and too many examples of companies making the effort to ignore this trend any longer. Starbucks, WalMart have good footprints to start making a difference. Tipping point.

In addition to these, there are a few other trends that cannot be ignored. Consumer-generated content and product R&D is one of the greatest overarching trends of our time. It is one of the central themes to Web 2.0 and the lifeblood of YouTube, Facebook, etc. Aside from that, increased consumer feedback gives consumers much more control over what they buy, which not only means that demand can be increased but also that it can be estimated more accurately allowing companies to avoid excess inventories.

Look for innovative companies that consider these trends... the outcome will be good for them.

Morning News

2006-10-10T06:30:00.000-07:00

Google buys YouTube.
YouTuble is costing the internet giant $1.65B in stock, a rather hefty price tag, if you ask me, for a company with no revenue. In the midst of other high-profile web acquisitions, such as that of MySpace and potentially that of Facebook, this raises the interesting question of how much is a customer worth? I will compile a list of customer acquisition costs for some companies (GOOG, NWS, SIRI, XMSR, etc) and perhaps put it up here.

Googtube faces many potential lawsuits due to copywrite infringement, as YouTube users are constantly posting clips from movies or TV shows. Google has deep pockets, making it a reasonable target for publishers to continue the IP fight that has been waging since before Napster. This is a very complicated situation that is just starting to be resolved by innovative companies such as Apple... I can't wait to see what Google's plan is.

Ford to buy out workers.
This company's got issues. Luckily they have a good amount of cash too, because they are offering 8 different buyout plans and career counseling to all 75,000 of its US hourly workers. This to help cut 30,000 or so workers along with the 14,000 salaried workers that can expect the boot. Meanwhile Toyota, which recently breezed past Ford, introduces a new Corolla to go after GM's number one spot.
-Bloomberg, AP

Go Blue.
I'm not talking about the Dodgers, it is too late for them. But a study by pro-democrat Blue Investment Management released a study yesterday suggesting that companies that primarily donate to Democratic campaigns do better than both the S&P and the companies that primarily donate to the red cause (I don't mean communism -- companies investing in China are certainly outperforming). Examples of "blue" companies: AAPL, GOOG, COST.

Sorry Goldman, Sachs.
-MarketWatch.com

30% of Americans believe that the recent decline in oil prices was engineered by the government to secure a Republican votes.
This unfortunately does not astound me. Only 35% attribute the price changes to supply and demand.
-Washington Post

I'll have a Vista Latte

2006-10-05T14:51:00.000-07:00

Today on Kudlow and Company, Noah Blackstein had some things to say about how Microsoft is spending all of its excess cash:

"I think I'm going to go into my office tomorrow morning and read that Microsoft announced that they are opening up a specialty coffee store to compete with Starbucks."

I think that this was funny and an excellent way to illustrate his point, which was that Microsoft ought to partner with companies such as Google instead of face them head-to-head, and instead use the cash to focus on their core business.

Just that that was amusing, especially amidst all the talk about the HP and Apple scandals.

Getting a Grasp

2006-09-28T11:23:00.000-07:00

I haven't been following it everyday, but from what I've seen in the markets recently has confused me a little. Several elements are moving: oil prices have fallen dramatically as the summer nears its close; bonds have rallied like they have bulls chasing them, the 10yr yield falling 20 basis points in just a few days; gold prices apparently rising on overseas demand; the nazz making a stunning recovery and the DJIA at an all-time high of 11,700.

Sounds like good news to everyone, as long as you are on the long side of whatever you are trading. I know that I have done well, especially with AAPL which I continue to like. Speaking of which, I am becoming more and more attracted to companies whose products I can sense the demand for. AAPL is such a company with clearly palpable demand. I am still kicking myself for not buying it when I started college and everyone wanted iPods. Heck, I have been a Mac user all of my life -- I should have known that the other die-hard fanatics like me would keep the company in business until Jobs had the breakthrough we were waiting for. Well, it happened, but rather than dwell on the five or six digits I missed out on, I jumped on the next opportunity: a skeptical street crunching iPod demand figures but neglecting to enter an Apple store or a college campus. By the way, the highly touted "halo effect" is real.

In a similar manner, I have also fallen in love with TGT. I now have a friend working for them and she provides the internal confirmation for what I've been seeing at the mall: a continuing refinement of the brand, the execution of a unique expansion plan which includes leveraging the brand and the [tar-JAY] joke to enter higher-end markets as well as new store openings. There was an article in Financial Times (Monday's issue, I believe) about urban resistance to WalMart and preference for Target.

With the holiday season approaching, now might also be the time to look at clothing retailers. If you bought AEOS after reading my October 24th post, congratulations, you are up 110%. Almost half of that increase has taken place in the last two months, which means it is time for scrutiny. I would not buy this stock here, on the common-sense grounds that it is overextended and liable to fall back quickly in the event of any bad news. I am concerned that, barring Martin+Osa which I know little about, demand has not been extraordinary for this store. This is my gut feeling based on the number of people I see in the stores... it could be a big mistake, but I am not clinging to this company.

URBN, is another retailer that I think deserves some attention. The orange color means that I am undecided on where it is going. It is #67 on Fortune's fastest growing companies list, but the feat is mediated by the fact that they were #39 last year. Nonetheless, that should probably put it at a substantial PEG premium to AEOS which didn't even make the top 100. I used to love this company and I owned the stock going into the 2004 holiday season. Recently I was impressed with the palpable demand amongst their primary 20somethings targets, and further encouraged by the fact that the appeal was spilling over into the highly profitable high school crowd, resulting from the sibling effect. However, that demand seems to be dwindling according to my fashionable friends, and I have definitely noticed a decrease in foot traffic and an increase in sales in the Westwood Store. These friends that I mention, who are formerly URBN frequenters, are now dismissing the trendy apparel as fadish. I do not believe, however, that this justifies why the stock is down 50% or so since its November 2005 high. I am planning on looking into this situation more carefully to determine if URBN is a bargain right now or if it is finally reasonably priced.

About this strategy. There is a classic book called One Up on Wall Street by the incredible Peter Lynch. In it, he discusses the benefits of buying what you know, and being sensitive to the trends going on around you, right in your neighborhood. It is an excellent strategy for novice investors to find opportunities, and it is something that even professional fundie-crunchers and technicians need to remember to do.

I have been busy developing a new business model for my company, not to mention looking for a new job. Nonetheless, I have fallen behind the already pathetic one-post-a-month mark, so I will make a little more effort to post more frequently. Au revoir.

Today's Buzzwords

2006-07-13T12:02:00.000-07:00

Geopolitical Issues
Clearly, we have had some very significant 'geopolitical' events occur recently:

North Korean Missiles
Lack of progress with Iran
Israeli and Lebanon
Bombings in India

and these events are purportedly impacting the global markets today. The emerging market strategist for Bear Sterns was just on CNBC and he said that if you think such events are going to continue, it might be time to sell positions in emerging markets. On the other hand, the respective markets in the countries involved in these events were not dramatically affected by them: the Bombay SENSEX is up 1.9% since the Tuesday bombings, and the Tel Aviv 25 index is down 4.2% today, which is not bad considering its volatility. In the meantime, the US markets are getting rocked. The real reason GP events are affecting us:

Oil
Unrest in the middle east scares the hell out of US investors because of the oil issue. The numbers prove it: new highs today for crude oil! $76.50/bbl!!! At this point, I don't think traders will have any trouble driving the prices up to $80/bbl. As a result, transports are down some 2.7% and the broader market is taking quite a hit... I believe the Dow is down about 175 points right now. Investors are getting scared, and so many are initiating a new strategy:

Flight to Quality
This has been the word lately, since most analysts are weary about the upcoming earnings season and the geopolitical events and whatnot. The movement is evident by the dramatic relative decline of technology and/or small cap stocks in recent weeks. Today, however, judging by volume, the degree of "quality" that investors appear to be flying to has increased to beyond that of large-cap blue chips -- investors are going to fixed-income and cash investments, which makes sense. There was an article in the Financial Times yesterday about central bank warnings about low risk-discounts on risky assets. I agree with the assertion that risky stocks are overvalued these days. Risk-free and government-issue rates have been increasing rapidly for some time, yet a correction in the markets did not take place until May.

If we see disappointing earnings, I think that these other factors will convene to cause another significant correction in the market. Thus, this is one of those rare instances that I am BEARISH.

I am all in cash, but still earning 5%.

Wow

2006-06-15T13:41:00.000-07:00

Put your rallycap on.
Congratulations if you picked the bottom: after several weeks of losses, and an 8.5% correction to the DJIA since May 10, the market posted its biggest two-day gain since April 2003. Today alone the dow climbed 198 points, putting it back above 11,000 and into positive territory for 2006. So, why?

I don't know. Economic data has been mixed: Business inventories for April were down, and capacity utilization undercut analyst estimates. Treasury bond yields are inverted on the 2-5 year horizon, and other recent signs of weakness in the market and economy have raised postulations about the end of rate-hiking. On the other hand, financial firms such as Bear Stearns and Goldman Sachs posted strong earnings, Core CPI for May was higher than expected at 0.3% (hence a lot of talk at the Fed about inflation), and initial claims were revised down.

Whether or not this is a buying opportunity, therefore, is unclear. I think an 8.5% correction in 30 days is a bit extreme, so today's rally is healthy. At the same time, 310 points in two days is a pretty drastic move as well. I tried to find some specific stocks to buy on Monday if I like the action tomorrow... you know, companies I like with an MACD crossover south of the centerline. But, this isn't one of those situations that I want to be 100% long. In fact, I think the only thing that we can count on in this market is the volatility. Since the market corrected downward, and is now moving upward, I am expecting a bit of a penant pattern and decreasing volatility as this thing gets some footing. Therefore, a good strategy would be to sell option spreads. :-)

Anyway, the market is certainly interesting enough to bring me back into it. I'm ready again, Skeedaddy...

bulls and bears or birds and badgers?

2006-05-16T14:19:00.000-07:00

Someone asked me the other day where the terms "Bull" and "Bear" came from. Good question! This is something that we take for granted, like a bull market... and we all know what happens when the general population takes a bull market for granted. Therefore, it couldn't hurt to remind ourselves:

Definitions
If you don't already know, a 'bull' is a person that is optimistic about the stock market, and therefore a buyer. A 'bear' is a person that is pessimistic and a seller. These terms are also commonly used to refer to the dominant trend in a market: a bull market is one that is going up, and a bear market is one that is headed south.

Unclear origins
Interestingly, the origin of these terms and their relationship is not clear. The most common notion of their genesis pertains to the selling of bear-skins. In 1721 the South Sea Bubble was popping and England's economy looked bleak. Clever jobbers (bear-skin brokers in London) tried to profit by selling bear-skins without owning them in anticipation of falling prices. This risky practice of short-selling tends to be a self-fulfilling prophesy, putting downward pressure on prices. Thus, the connection was drawn between a falling market and the bear. This is consistent with the French proverb, ne vendez pas la peau de l'ours avant de l’avoir tué.

This explanation, first elucidated by Brewer in 1870, is most widely accepted. However, it does not explain how the bull became the bear's counterpart. All we know about the bull is that its first recorded explanation in conjunction with the bear was in 1785, in the book Every Man His Own Broker, or, A Guide to Exchange Alley, by Thomas Mortimer (according to financial writer Don Luskin, who owns a copy of this 10th edition book).

Other Explanations
There have been other attempts at decoding the financial etymology of 'bull' and 'bear,' perhaps because of the lack of understanding about where the bull comes from. Although they make some good connections and are rational, they are not considered as credible as the South Sea Bubble origin theory.

One theory draws the connection that both bulls and bears were used in bloodsport in 17th and 18th century England. Bull- and bear-baiting were popular forms of entertainment, but there is no clear relationship to the financial markets. Some believe that this relationship is in the way these two animals attack. Bulls thrust upwardly with their horns, whereas bears generally stand on their hind legs and swipe downwardly.

Another false explanation is that the terms relate to how the animals move -- bulls charge quickly and strongly, whereas bears move cautiously and more slowly. This connection is at odds with the expression 'the bull goes up the stairs but the bear jumps out the window,' which refers to the slow time that it takes for a bull market to develop in contrast to the rapidity of a bear market's drop.

Conclusions
The origin of these two stock market terms is surprisingly nebulous considering how widely they are used. I'd like to open this post to comments... if anyone knows any other theories or the truth about the bull please let me know!

update

2006-04-19T12:33:00.000-07:00

On CNBC they were just talking about how strange the market strength has been the last two days despite all of the negative things going on. The guest made a make-shift justification, stating that it could be that investors are getting adjusted to new trading ranges for metals and fixed-income and that they are finally becoming accustomed to the fact that there are uncertainties in the world and in Iraq yet that companies will continue to make products and produce earnings.

Another explanation for the increasing prices in metals and more secure investments could relate to the baby boomers' changes in investing habits. See below (?).

Jimmy Cramer
PH Parker Hannifin could go to par, meaning $100/sh. This is almost a 20% increase, so Cramer recommends watching out for a pullback and then making the most of it. Check out their press release from yesterday.

earnings and babyboomers

2006-04-19T11:54:00.000-07:00

Earnings make sense, but what's all of this talk about baby boomers lately?

Obviously, baby boomers are having a significant impact on our economy... perhaps the greatest impact. As they reach retirement age, the rest of us are exposed to repercussions from stresses on Social Security, Health Care costs, and other demand trends. Their investing habits are going to change as well -- many IRAs will become mature and money will shift out of stocks and into fixed-income type investments. In preparation for retirement, a lot of boomers have bought second homes and this trend continues to affect the real estate market.

How can we benefit? I think a generally cautious outlook on the market is prudent over the next 10 years, despite the "Bubble Boom" effect described by Harry S. Dent (which already appears bunk). Excepting certain sectors where demand may increase as boomers age may be a wise choice for equities. Healthcare, drugs, biotech, etc. are areas that will continue to be hot as new technology will extend the life expectancy of boomers and improve the life conditions of the next generation.

Also, watch CNBC and Mad Money because they can't seem to stop talking about boomers.

2006-04-18T09:08:00.000-07:00

Stocks rallying on Fed President's comments. San Francisco Fed President Yellen today released comments suggesting a possible slowdown in funds tightening. The dovish idea of a neutral Fed sent the markets into a small frenzy, rallying the SPX to a high of 1300.28.

Oil and other energy out of control again: Oil to $80? As expected, demand for oil is increasing with the Summer demand upon us. Yesterday is broke $70/bbl, but with prices already hitting $72 today in London trading, how far away are we from $80? President Bush said he was concerned and will look after the working families with investigations of price guaging.

Metals up: Gold going to $700? In a similar vein, metals are rallying

Homebuilders down on slow numbers. And I am tempted to say, "I told you so." The real estate market isn't really as tricky as the stock market, and I think that stock investors sometimes lack the oversight to see where this trend is going. Won't homebuilders and suppliers suffer?

The overall market outlook
Today was definitely a rally day, a neutral Fed is attractive, and there are sure to be some playable announcements during the earnings season. Despite these things, I am still weary about buying too much... I certainly wouldn't go more than 75% net long. I'm going to try to hedge some things and look for opportunities on the short side, even though there aren't any major ones coming into play.

I think some stocks that were hot not too long ago are starting to fall out of favor. FLIR, IVGN, CMED, and INFY had unusual volume to the downside today. I'm not entirely up-to-date on the news, but there may be some opportunities here. (TRLG might be another one, with the management changes).

On the upside, high-flyer TZOO tops the winner's list. It is up almost 50% on tremendous volume. I don't know much about this stock and I have learned to keep story stocks at arms-length, but there are some other big winners today that I will buy for my portfolio. I've liked EWBC for a long time, for example. I have also owned PPDI.

Cheers to good trading.

On my list

2006-04-07T12:25:00.000-07:00

cool technologies to long
ethanol
stretchable silicon
corn fuel

short
home builders

strategy hereforth

2005-12-28T19:45:00.000-08:00

Long time, no blog... I know, I know. In fact, I don't expect any of my regular readers to even see this post. Don't give up on me guys. I'm still in the market, and I've still got some ideas. Here's one:

Go short. The Dow is flat on the year and the Nazz is up, which means people could be down on the year and are already starting to sell and that people with gains are waiting until the 1st to sell off and defer those capital gains until next year. This is what happened last year and caused the dramatic sell-off in January 05.

To me though, there is stronger evidence for why it is best to be on the short side right now: charts. I always browse through leading stocks, especially those I find in IBD, and I try to get a gut feeling for which direction the bulk of them seem to be heading. Leading stocks apparently make decent leading indicators because, like a fast stochastic, they move more quickly than the broader measures. Lately, most leading stocks look extended or just plain boring to me, which from my experience indicates a near-term correction.

I'm short three positions and I'm looking to take on more through mid-January.

Welcome back, Skeedaddy.

AEOS

2005-10-24T11:20:00.000-07:00

Is it just me, or does this company appear way undervalued?

I know, I know, there have been some negative things surrounding American Eagle Outfitters' business:

Management gave cautious outlook for Q3
Innovo Group said AEOS was cancelling jean orders
Lots and lots and lots of downgrades
Oil, hurricanes, and war (and the other usual suspects)
Dramatic declines throughout retail sector

I think most of these charges have mitigating factors. First of all, the last two points are interrelated as weak retail forecasts are predicated (or more accurately, blamed) on high oil prices and bad weather. Secondly, the downgrades were primarily based on the first two points, so let's focus our analysis on those. I think the number one concern is the comment from Innovo Group that AEOS was cancelling jean orders. Without referring to the actual release, I recall that Innovo said that retailers were having trouble moving their merchandise and would have to discount items even further. They did specifically mention AEOS. I don't remember hearing any specifics about the exact numbers, so I'm thinking that, unfortunately, AEOS and the other 'retailers' mentioned by Innovo are, to some extent, scapegoats for Innovo's own earnings shortfall. On the other hand, jeans are the hot item and therefore jean orders make a decent leading indicator of how well a teen retailer is doing... Wall Street analysts were probably justified in being concerned, but did they overreact? Not clear. Especially in the midst of management's dreary outlook, which to me really didn't seem that bad. Management forecasted Q3 earnings to come in at a range with a low end only ONE CENT below Wall Street consensus. Regardless, some healthy selling was probably good for the market valuation. I mean, it is supposed to be efficient, right?

Apparently not. Here's what has happened since:

New store Martin + Osa announced
Q2 profit nearly doubled
Record sales in July
Record sales in August
Rebound in other clothing retail stocks

Despite the good news and the general recovery of its peers, AEOS is still in what I would refer to as the 'cheap zone.' Really, I think it is undervalued, and here's why:

It trades at the lowest P/E of its comparables
It trades at the lowest P/E of its comps, except maybe PacSun, who isn't opening a new store
It has the highest gross and operating margins of its peers
It has the highest q/q earnings increase among its peers

I understand why the market has neglected this stock in recent months. However, I think it is one of those rare occassions when the market has overreacted and it is actually quite clear. I don't think that the bottom can fall out from under this company too easily in the near term. Now I generally don't like to pick bottoms, but I did call the one in September and I'm sticking with it. Their business is not going away, they will likely do well staying on top of trends (especially with a new store concept), and from what I've seen, malls are still packed.

My prediction: Q3 (announced November 15) will meet or exceed estimates. Q4 will be strong. Stock price will recover by the end of the year. I've got my money on it.

Cool new products

2005-09-23T11:47:00.000-07:00

Apple iPod Nano
This thing is a hit, without a doubt. By far the coolest MP3 player to date, it incorporates all of the best features from previous iterations of Apple's flagship product: small size, color screen, simple touch wheel functionality, ability to hold pictures, etc. I had the pleasure of actually holding one yesterday and it was even smaller than I expected! And from what I've read online, the thing is practically indestructable.

I think it will be a number-one seller this holiday season as it has finally convinced Techie-Come-Latelies like me to finally want one, as well as causing current iPod users to trade up or buy a second iPod.

Gillette Fusion Razor
Millions of dollars of research taught us that 3 blades on a razor were better than one. Then in 2004 Schick shocked everybody by unleashing the 4-blade fury of the Quattro razor. Personally, I fainted when I heard the news.

But now they have gone too far... or have they? Gillette recently announced that they would be doing the unthinkable: adding yet another blade. The technology is frankly out of control... although they announced it just a few days ago, the Fusion razor won't hit shelves until Q1 2006. Apparently it takes a lot of engineering to get that fifth blade on there.

I remember when the Mach 3 razor came out and Mad TV did a spoof with a 15-blade razor. The animation was hilarious: "The first blade lifts the skin, and then the second cuts the hair in half. The third blade gives you the closest shave ever... but the Mach-15 doesn't stop there. It then takes off several layers of skin, fat, and eventually bone to ensure that you'll never have to shave again!"

When Gillette announced the Fusion, Conan O'Brien had a few comments on the late show:

"Gillette has a new razor out -- the Fusion, they call it. Five blades, that's right, FIVE. The first one lifts the skin, and the other four KILL YOU."

Lots of tops, deals in retail

2005-09-21T12:36:00.000-07:00

As I go through the most actives, unusual volumes, and IBD stocks, I am seeing a lot of things that are either breaking down or look overextended. I see this as a weak sign for the short-term market; I was even net short for a few moments but I had to liquidate my account to change brokers. But I would be net short. Between the FED raising rates and Hurricane Rita and gas prices, investors just aren't in a real buying mood.

On the other hand, I think some stocks have overcorrected to attracting buying levels. Some of the teen retailers (particularly URBN and AEOS) have fallen significantly as a result of the above and some warnings that September sales will be weaker than expected. I don't care about September sales, I care about November and December, and I think these are going to be good. My call: the stocks are a deal down here.

Also notable are some of the few companies that are holding up amidst the negativity. Surprisingly, insurance stocks seem to be doing pretty well. Unrelatedly, my favorite long right now is GOOG. The technical pattern looks great, and demand for the stock has remained strong following the secondary offering.

As usual, please do not construe any of the above as investment advice. I am not a registered advisor, broker, or anything of the sort. This site is for educational and entertainment purposes only.

Hot and Not

2005-09-19T10:59:00.000-07:00

One tool I find very useful for staying abreast of the market is the Unusual Volume list at nasdaq.com. It helps me catch stocks that are breaking out or breaking down before other momentum investors read about them in tomorrow's Investor's Business Daily. Given it only lists stocks that are on the NASDAQ exchange, but these are usually more volatile and make better trades than stocks on the AMEX or NYSE.

The other good thing about the Unusual Volume list is that browsing it tends to give you a good feel for which sectors are hot and which are not. As I look through this today, I see that:

The following sectors are HOT

Energy - particularly oil stocks, because oil is once again rallying on fears about the next wave of hurricanes
Gold - not sure why this is happening now, but gold just hit a 17-year high and is rallying on the technicals (and the fact that Cramer recommended gold stocks). Keep in mind that gold is usually a defensive play, and the fact that it is rallying may be an indication of bearish investor sentiment.
Wireless - wireless technology and antennae builders have been rallying recently. I'm not sure why... I don't think they should, since Google will probably build the best wireless network with the proceeds from their secondary offering (sarcasm - see previous post on topic)

And these sectors are NOT

Financials are not doing too well
Medical technology - a couple stocks that have done well in recent months appear to be rounding off at their tops. CUTR, DCAI, MDTL, IMGC, and BMET are on the list. Particularly notable are the vision technology companies, LCAV and ILSE. Not sure what the story is with these two, but I have a feeling if you Google News for Intralase, you'll find out.
Education - Education Management Corporation (EDMC) and Career Education Corporation (CECO) are on the loser list today.

So that's the story for this Monday, Skeedaddy. More later.

eBay and Skype

2005-09-16T18:50:00.000-07:00

http://www2.ebay.com/aw/core/200509120351572.html explains that eBay's Skype purchase was to facilitate transactions, making them 'faster and easier.' I find it a little ironic that Mrs. Whitman calls this a huge step forward when it actually seems like a step backward to me. Didn't we have classified ads and phones before we had the internet!?

How much did they pay for this again? Maybe they should have just bought AT&T.

iPod Nano

2005-09-16T13:46:00.000-07:00

This thing is really cool and will probably be the top seller this Christmas. Apparently it is really small too. My friend saw one and this was her reaction:

'It was so small I wanted to eat it.'

I thought it was funny enough to share.

Not So Sure About SPX

2005-09-15T11:23:00.000-07:00

The short-term rally is over and it looks like the SPX is overbought. I see a lot of leaders breaking down and passing below the 25day moving averages that have been keeping them afloat the past couple months. This means opportunity: some of them make good shorts right down to the 50dmas where you can buy them back. Some examples: MXWL, DBRN, PANL.

First Thing I Noticed Today

2005-09-15T08:21:00.000-07:00

HLEX is a stock that I've been tracking for a pull back, but it looks like it is completely breaking down without regard to support levels.

Also, I bought a one-third position in FDG yesterday with the expectation that it might go down. I wanted to make sure that I got in at the 25-day because I thought it may bounce from there and never come back any more. On the other hand, I wanted to be cautious because there was a pretty strong MACD sell signal on that day and the stock hadn't retreated to its 50-day for several months. Sure enough, stock is down significantly today. My stop-loss is at 36.50, and I am very comfortable with potentially losing that spread.

The news today was the negative jobless report and Delta and Northwest airlines filing for bankruptcy. The flat market is surprising to me... we'll see how it closes.

More Thoughts on Google

2005-09-15T02:51:00.000-07:00

As long as I'm on a roll talking about this stock, here are some more things that I find interesting about the company:

Internet or software? I remember when Yahoo! was the company that had everything you could want online and Google was 'just search.' In fact, I thought that was what people liked about it. Google's look was uncluttered and attractive in its simplicity. It's functionality and ease of use matched its aesthetics. However, very recently Google has expanded into the realms of email, shopping, maps, blogs, and now instant messaging, and, despite being the new kid on those blocks, has created products that easily surpass the offerings of its competitors.

There is clearly something special here... Google has that X-factor that lets them attract the very best minds in the industry and constantly create these technological breakthroughs.

That X-factor is reminiscent of every great technology company during its infancy... Microsoft comes to mind immediately. MSFT was once THE Mecca for programmers. It was so competitive that Microsoft adopted an incredibly demanding interview process that consisted of puzzles, multiple tacit 'tests', several stages, and other mind-games (you can read a little about Microsoft's interview process in the great book How Would You Move Mount Fuji?) Google now has a similar interview process, which is secretive but surely very competitive and innovative.

These two thoughts lead me to a third: Google is a lot like a software company... in fact, it is a software company! Things like Google Earth, Google Talk, and Google Desktop are the proof. So consider this: if Google can keep up its pace for a little while, and then age gracefully, then within 20 years it should at least be valued something like MSFT. GOOG current market cap: ~$85B. MSFT current market cap: $282B. In all liklihood, it will surpass that.

I think I'm going to take a nap now because I feel myself becoming incomprehensible.

Good for Google

2005-09-15T02:21:00.000-07:00

Google announced Wednesday evening (or this morning, depending on your time zone) that its stock will be offered at $295 per share. This means $4.18B more for the company's already hefty piggy bank. Part of Google's allure is that the company manages to keep the details of most of its developments pretty secret, and they don't put them out until it is good and ready. The same holds for the company's plans for its $7.1B in cash, and there has been a lot of speculation about what it will be used for. Here are a few good ones I've heard:

Acquisitions. The company will easily be able to acquire emerging competitors with proprietary technology to feed its think tank. Read (very) optimistically: I'm going to buy 1,000 shares of BIDU because Google is going to buy it out for $150/share. Not likely... BIDU's valuation is pretty ridiculous, and to buy the whole thing at that price tag would be a silly way to spend every cent of the secondary offering... unless it was the plan all along. Read pessimistically: Google knows that it cannot sustain organic growth at the rate that Wall Street expects and therefore must acquire companies to grow earnings. I think that this is a pretty realistic view because if you are growing at 100% a year, that 100% represents twice as much in monetary terms each time. However, I think the company still has plenty of organic growth left in it and will likely use the money for acquisition of some new technologies (Baidu technology is nothing new) and R&D.
Something big. Many have speculated that Google will get into the wireless business. I think it is a reasonable place to go for them. Convergence technology is nearing a tipping point, and if Google can make the best software and provide the best content for wireless, it can reach more people in more places in more times. So, perhaps the money will go to R&D in this area, acquisitions in this area, and/or a large capital project such as nationwide wireless network. This would be an optimistic view.
Getting rich. Others believe that Google is cashing in on its high share price while it still can. I think that this is a very pessimistic view because it implies that the company's management thinks that its own stock is overvalued! It doesn't get worse than that. Food for thought: if the company's only reason for a secondary offering was to 'cash out,' it would quickly become apparent to investors when they notice that the cash isn't going to work. I think the fall-out would ultimately hurt the company more than it would benefit from taking this action.

The most likely answer to the question of how Google will use its new money is: all of the above. Clearly it is a good time to sell stock, no matter what they will use it for. And of course they are going to put it to work. Knowing Google, there is likely something at least a little exciting up its sleeve. But we really won't know the whole truth for a while.

The BIDU Epic

2005-09-14T10:43:00.000-07:00

'Bye-bye Baidu'
-Jordan Kahn

I just received one of my favorite comments from an anonymous poster. To my previous post entitled 'Wrong Again,' this person said that I was right, just a little early. I suppose in this case, it worked out well. Go intuition.

The news on BIDU is that a Goldman Analyst said that the stock was worth $27-$45 and that the current price could not be justified. This is especially interesting for two reasons: one, because it is in the wake of Mary Meeker's positive comments on the stock (and the resulting $40 appreciation) and two, because Goldman underwrote the IPO.

The significance Goldman Sachs putting out such a negative comment is twofold. You may or may not be familiar with the term 'Chinese Wall' in an investment bank. The Chinese Wall refers to the separation of sell-side information and analysis with that of the firm's buy-side. This must occur in order to ensure objectivity on the buy-side. If a firm like Goldman owns a lot of a stock or is pursuing an investment banking relationship with a company, then they could release a positive report on the company that will be beneficial to themselves. The Chinese Wall prevents the temptation to intentionally misrepresent data.

So, Goldman's comments today on BIDU show us that the Chinese Wall is working. Goldman's comments are injurious to the firm because 1) they own a significant number of shares and options in BIDU and 2) because Baidu will be less inclined to do a secondary offering through Goldman if Goldman is saying 'bad things' about them.

I have always had a lot of faith in Goldman Sachs when it comes to its integrity. This example is particularly relevant because the investment banks have recently come under scrutiny in regard to this topic in the WSJ and on CNBC.

Anyway, to sum up: bye bye baidu, go Goldman.

Some Stocks I Like

2005-09-14T10:27:00.000-07:00

Don't ya'll go frontrunning me on these!

FDG. I have liked this stock for a while for four reasons:

High oil prices = demand for alternative energy sources (like coal)
High dividend yield
Good fundies (growth, ROE, strong cash flow)
Good technicals (this thing has been on fire, and is still only 15% owned by institutions)

The stock just split 3-for-1 which sometimes has a pointless but positive effect on a stock's price action. They will also be getting a new CFO soon, but it has already been announced and is probably irrelevant. I just need to do a little more sneaking around FDG's financial statements, and I am going to buy a half position around $40 a share (at its 25-day).

After that, I think another pullback is likely because this is the fourth time it has tested the 25sma and it hasn't touched its 50sma in months (thanks to Jordan Kahn for this bit of analysis).

GOOG. I've only been in bits and pieces of the huge gains that Google has brought its investors, and I'm getting ready to be in another one. The stock has come back from a recent PB, and has now formed a near-textbook cup-and-handle set up. I expect it to consolidate to $300 before taking off again. It may not come back that far, but that is what it will take for me to be confident enough in the technicals. The second offering is going to be priced soon, and considering the strength that the stock is experiencing going into it, we may not ever see $300 again. Worth a shot though.