Section III: Leading companies
The following articles describe
some of the companies representing the sector. The best way to understand and
learn the recent updates on sectors is from subscriptions such as Value Line
and many web sites specialized in sectors.
Do not use the information to
trade stocks as the information should be obsolete by now. The logic is still
useful for selecting stocks in the future. I updated some articles on 1/2020.
When the leader of an industry
moves, normally all the related companies moves in the same direction. To
illustrate, when Apple moves, all its suppliers move in the same direction
usually. Many sectors such as Basic Material depends on China, so many
references on China are made in this section.
# Filler: My favorite store
The new name of the merged companies “Family Dollar” and
“Dollar Store” would be "General Family Dollar" or "Two Dollars
Now”.
#Filler: Irrefutable logic
Boston protesters learned from takeovers and this time on a
highway. They must be one or all of the following: 1. Welfare recipients (have
nothing better to do), 2. Students (either with loans or supported by their rich
parents) or 3. Mentally challenged (could be too many drugs or drinks from
their parents).
The arguments are quite stupid. They say the white (no Asians, no Hispanics and no blacks) are using the highway to go to work. If they do not go to work, how can they support you? Stupid folks do stupid things with stupid arguments.
The arguments are quite stupid. They say the white (no Asians, no Hispanics and no blacks) are using the highway to go to work. If they do not go to work, how can they support you? Stupid folks do stupid things with stupid arguments.
10 Airlines
How to become a
millionaire according to Buffett:
"First, become a billionaire and then invest all in airline
stocks!"
Source: Yahoo! Finance
AAL
He may be right in his time when
he made the statement. But, it is not true lately as evidenced by the following
chart. You can buy American Airlines (AAL) for less than $10 from 2008 to 2012
and today in 2014 it is 4 times as much. The pattern has been repeated by other
airline stocks.
I cannot find a decent ETF for
airlines, so I use AAL (the
stock I still own). From Yahoo!Finance, it is the maximum period allowed to
draw the above chart. AAL used to be
AMR.
It has a peak in Nov. 2006 and it has been down until 2012.
SMA-50 is the Simple Moving
Average for the last 50 sessions. It did not help you to avoid the plunge from
its peak in 2006, but it reduced your loss and recommended good reentry points.
Personally I prefer 200 sessions to reduce the number of trading.
Why I bought US Air
(LCC)
It had appeared in my performing
screens (the better performers in the previous six months) several times from
12/2012 to 4/2013. I bought them in 6/2013 two times. Due to the merger with
AAL, officially they were bought on 8/12/2013 and 8/13/2013. As of 11/2014, I
have a 163% gain.
The following is a summary of my evaluation.
|
LCC
|
Passing Grade
|
12/15/2012
|
4/24/2013
|
|
Score System #1
|
15
|
38
|
31
|
|
Score System #2
|
2
|
3
|
6
|
|
Price
|
|
12.78
|
16.30
|
It scored very high in the two dates I evaluated LCC. The
first score system includes grades from many investment services I subscribed.
The second one has been described
in my book Scoring Stocks using
fundamental metrics available free.
Opportunities come
and gone
If I have a time machine, I
should have sold it at $45 in June, 2014 and bought it back it at $31 in Oct.,
2014. As of Nov. 12, 2014, it is $43.
I used Turbo Tax to simulate how
much tax I have to pay in 2014 tax return without considering any change of the
tax laws. In June, 2014, I had over my limit in the long-term capital gain.
That was the reason I did not sell my AAL. Taxes should not be considered in
making an investment decision.
The threat of Ebola caused the
stock to plunge to $32 from $45. I did not take advantage by buying more shares
due to my (expensive!) vacation in October. I should have left some buy orders
at 10% less than the current price. The Ebola threat was only temporary and
shortly it went back to $43.
Analysis of airlines
Pros are:
1.
Many airline stocks look like bargains if
you look at its low expected P/E only. My Pow P/E taking consideration of cash
and debt could be a better metric.
2.
The outlook on the economy should be
improving.
3.
The falling oil price makes the airlines
more profitable. It may not be immediate as many airlines hedge the fuel and
many long distance carriers have to buy from foreign countries with set prices.
4.
Air lines merger means fewer airlines and
less competition.
5.
Find ways to make profits such as charging
for luggage. The next frontier charge could be the use of the lavatory and that
is why they call themselves Frontier Airline. J
Cons are:
1. High debt (planes are expensive), a common and traditional
problem in this industry. If AAL cannot service its debts, it will bankrupt.
Its debts are more than three times its capital cap. Alarming!
2. High pension obligation, the same cause to bring down the old GM.
Most especially the newer ones switch to employee-funded pensions as in most
other industries.
3.
High wages demanded
by the unions.
4. Unable to raise the prices of the air ticket; they have not kept
up with inflation over the years until recently.
5. Deregulation has its problems. The government should regulate
some industries and airline is one of them. The government should do a better
job on what and how much to regulate this industry. I hope to regulate the
ticket prices as thy do on utilities.
6.
Besides competition
from other airlines, trains, high speed trains (little impact in the US), buses
and cars offer a lot of competition especially for short-distance trips.
Airports are usually located a long way from downtown.
The major airlines also face
competition from new, smaller with leaner operation, direct flights and newer
planes with better fuel mileage, not to mention the incentives to the foreign
airlines from their governments. Many attractive ones will be acquired.
7. Merger will have fewer airlines and reduce competition. However,
when two losers merge together, they become a bigger loser. The Virgin Air
could provide long-term synergy to the US airline, but it is too high a price
to the acquirer to me. Currently, most mergers of large airlines have been done
except Alaska, JetBlue and several smaller ones.
8. The hub concept is getting more impractical with rising fuel
prices (now falling) and the inconveniences to their customers. The future will be less stop overs with larger and newer jets
that are more fuel efficient. It could be an efficient way for some routes such
as filling international flights for smaller cities.
9. High cost of terrorism.
Most foreign airlines are subsidized by the government. Our government has bailed out other industries but not the airlines here. The only bright point is the airlines profit by jacking up the ticket prices, but you can’t do it excessively in this poor economy. Besides terrorism, events such as wars and Ebola could cause the airline stocks to fall.
Most foreign airlines are subsidized by the government. Our government has bailed out other industries but not the airlines here. The only bright point is the airlines profit by jacking up the ticket prices, but you can’t do it excessively in this poor economy. Besides terrorism, events such as wars and Ebola could cause the airline stocks to fall.
10.
Future shortage of
pilots.
Many retire and many find new jobs in Asia. It is not an exciting profession as in the previous generation. It is also due to the military reductions in the 1990s and the raise of minimum training hours coupled with the maximum hours for pilots. However, the larger planes would reduce the number of pilots. It has not been materialized yet except in smaller airlines. Union protests could bring the company to a halt.
Many retire and many find new jobs in Asia. It is not an exciting profession as in the previous generation. It is also due to the military reductions in the 1990s and the raise of minimum training hours coupled with the maximum hours for pilots. However, the larger planes would reduce the number of pilots. It has not been materialized yet except in smaller airlines. Union protests could bring the company to a halt.
In my
original article written several years ago, I recommended to evaluate the
impact of a bankrupted airline. The above con conditions could be reduced for a
bankrupted airline. In 2011, American Airline was under the go bankrupt
protection. Following this advice, you could have bought it for $10 and make a
good profit by now. Will the readers who took my advice please stand up?
China’s
impact
China has impact on almost all industries and airline is no exception.
The growth of the airline industry depends on Asia and China in particular. The
increase of Chinese travel is due to:
·
The fast growth of
the middle class. China becomes #1 in tourist spending. It is due to the high
tariffs of foreign goods
·
China’s growing
business requires a lot of traveling to and from foreign countries.
Be more
careful to invest in China’s smaller airlines in China. Their short-distance
travels are facing competition from high speed rail.
Analysis of Airline Stocks (11/12/2014)
|
|
Passing grade
|
AAL
|
DAL
|
LUV
|
|
Score System
#1
|
>=15
|
20
|
15
|
22
|
|
Score System #2
|
>=2
|
7
|
4
|
3
|
|
|
|
|
|
|
|
Expected Earning Yield
|
>5 & <35
|
17%
|
9%
|
6%
|
|
Debt / Equity
|
<1.5
|
3.5
|
.82
|
.31
|
|
Analyst Rating
|
>7
|
8.0
|
9.6
|
9.6
|
|
|
|
|
|
|
|
EB/EBIT
|
>5
|
3
|
11
|
13
|
|
F-Score
|
>7
|
6
|
5
|
7
|
|
ROE
|
>=15%
|
15%
|
83%
|
6%
|
|
|
|
|
|
|
|
SMA-200%
|
>0%
|
16%
|
20%
|
43%
|
|
RSI(14)
|
<60
|
71
|
71
|
75
|
|
|
|
|
|
|
|
Price
|
|
43.43
|
43.40
|
39.37
|
|
|
|
|
|
|
|
|
15%
|
83%
|
6%
|
|
|
|
|
|
|
|
|
|
|
|
I selected
three major airlines to represent the industry. I also selected the metrics and
scores that are meaningful to this industry. It seems to be a good buy even
after a good gain in 2014.
All three
airlines pass both my score systems.
AAL and DAL
are similar except that DAL has its own refinery and AAL has a huge
Debt/Equity. LUV dominates in numbers of passengers within the USA and it is
expanding to foreign countries close to the US.
All three
airlines are overbought. The trend (SMA-200) looks good for all of them.
However, the trend could be reversed very fast as we experienced it in mid Oct.
Explanation
Ø Scoring systems have been explained.
Ø Expected EY, Debt/Equity, ROE, SMA-200% and RSI(14) are obtained
from Finviz.com.
Ø Analyst Rating is from Fidelity. If Fidelity is not your broker,
use Recommendation from Finviz.com.
Ø EB/EBIT and F-Score are from GurruFocus.com.
The above is the Fundamental Analysis.
It should be followed by the following:
Intangible Analysis includes the
percentage of union employees, how much they hedge fuel price and the median
age of the fleet from the following link
http://www.airsafe.com/events/airlines/fleetage.htm
Qualitative Analysis includes articles
for the company you’re interested. First, start looking for articles in Seeking
Alpha.
Technical
Analysis times the trend and overbought condition. Many investors do not buy a
stock that is in its downward trend (i.e. he price is below its SMA-200).
Conclusion
As of
11/2014, I can see airlines are bargains judging from the high earning
yields. I am cautious on the high debts (AAL in particular). I predict the stock
prices will still rise at least to Feb., 2015. Now, it is the window dressing
time for fund managers and they will buy winners like most of the airlines.
However, their stock prices could change very fast. I recommend buying them and
protect your investment using stops. It belongs to the strategy "Buy high
and sell higher". In addition, follow how the institutional investors and
insiders trade.
·
11 Bank of America
Some dividend investors still praised how great BAC (Bank of
America) is. This stock did come back great for the year of 2012. BAC could make another big price surge in the
second half of 2013. When you have fewer banks, you have better market share
and better opportunities to make money. In addition, the toxic loans should be
reduced by now.
For the last five years starting from 2007, BAC has been falling from about $50 to about $8. The total dividends added will not offset the big loss. In Dec. 2007, BAC paid about 5% dividend at a price around $45. It would be loved by dividend investors back then, but not anymore after they found out how much their stock had depreciated immensely.
Their argument is the total dividends from the IPO day and even today’s depressed stock price could have doubled their initial investment. This argument has too many flaws including the following:
For the last five years starting from 2007, BAC has been falling from about $50 to about $8. The total dividends added will not offset the big loss. In Dec. 2007, BAC paid about 5% dividend at a price around $45. It would be loved by dividend investors back then, but not anymore after they found out how much their stock had depreciated immensely.
Their argument is the total dividends from the IPO day and even today’s depressed stock price could have doubled their initial investment. This argument has too many flaws including the following:
1. The
performance should be adjusted to inflation.
2. If
I bought Apple at its IPO, I could be thousands times richer than owning BAC.
You just cannot draw a conclusion on a strategy from a specific stock and using
a period favorable to your argument.
When
we evaluate a stock, we should skip
some sectors or not using our conventional way to score a stock such
as the banking sector. The quality of the mortgage requires more expertise than
using the common fundamental metrics.
In
addition, we should avoid our biases such as loving blindly a strategy
(dividend strategy in this case). Most strategies will fall eventually when the
strategy is over-used. Do you remember buying internet stocks before 2000?
12 Caterpillar
You may need to hold CAT longer like two years (after 2014)
when the economy would start to recover. Even with the present metrics, it
looks great. As of 5/12, the mining and construction businesses are slowing
down but they will come back eventually.
On 5/7/12, it scored at 24 from my scoring system which indicates a buy for any score over 15. However, the short-term outlook of the market does not look good.
Value Line indicates annualized 16% return after 3 years (8% is good for me). Fidelity has 9.5 out of 10 from a summary of analysts. 17% of its stock price is cash. It is 98% cheaper compared to its 5-year average P/E. In a word, it is priced below its value.
The only negative point besides the global economy is its high debt / market capital though it is quite normal in its industry. It wrote off a Chinese company it acquired due to fraudulent financial data. The management has to bear some of the blame. Well, if a big company with its immense resources cannot detect the fraud, how can we, the retail investors, detect such frauds?
On that day of the analysis, the stock price was 97.19 and today it is 79.14. I bought it two times in between these prices. Is it a gem or will it fall further? Only time will tell.
On 5/7/12, it scored at 24 from my scoring system which indicates a buy for any score over 15. However, the short-term outlook of the market does not look good.
Value Line indicates annualized 16% return after 3 years (8% is good for me). Fidelity has 9.5 out of 10 from a summary of analysts. 17% of its stock price is cash. It is 98% cheaper compared to its 5-year average P/E. In a word, it is priced below its value.
The only negative point besides the global economy is its high debt / market capital though it is quite normal in its industry. It wrote off a Chinese company it acquired due to fraudulent financial data. The management has to bear some of the blame. Well, if a big company with its immense resources cannot detect the fraud, how can we, the retail investors, detect such frauds?
On that day of the analysis, the stock price was 97.19 and today it is 79.14. I bought it two times in between these prices. Is it a gem or will it fall further? Only time will tell.
Afterthoughts
·
As of 9/2012, CAT has appreciated by 10% from
7/2012. Together with Cisco, they’re supposed to be ‘Buy (bargains) and Forget
(until the economy returns)’ stocks. The good news on China’s stimulus plan
makes the stock rise. I will forget this stock until 3 years later. In the
meantime, the immediate prospect is not good for CAT with the decreasing of
most global infrastructure projects and mining projects.
·
Buy CAT for the dividend according to this SA article.
13 Apple
Contrarian
I have been contrarian
several times and most times I made good money. We need to have good arguments
to be contrary. Otherwise, we’re committing financial suicide.
Many investors commit
the same error: Invest in a company because they love the company’s products.
We need to check out the fundamentals of the company and its prospect. I have
nothing against Apple. Actually I recommended Apple before based on its great
fundamentals while everyone was dumping it. Where were today’s enthusiastic
analysts?
Scoring Apple
When I was writing the
book Scoring
Stocks, first I used IBM but its low score would not be a good
example. Then I switched to Apple (AAPL). It scored almost the highest. I
recommended AAPL at $55.72 (split adjusted) on April 19, 2013, the date the
book was published. It is another example that fundamentals work. However, when
we’re swimming against the tide, we need to be patient. At that time, the media
and institutional investors ignored fundamentals. The best argument of not
buying Apple was “Apple has turned from a growth stock to a value stock”. They
think they cannot get fired by thinking the same as the herd. Just garbage talk
from the smartest folks!
Fundamental analysis as of 02/23/2015
|
Passing grade
|
AAPL
|
Industry
|
||
|
Score System
#1
|
>=15
|
16
|
||
|
Score System
#2
|
>=2
|
2
|
||
|
Pow EY
|
>=5
|
6%
|
||
|
Expected Earning Yield
|
>5
& <35
|
7%
|
5%
|
|
|
Debt / Equity
|
<.5
|
.30
|
.29
|
|
|
Analyst Rating
|
>7
|
9
|
||
|
EB/EBIT
|
>5
|
13
|
||
|
F-Score
|
>7
|
6
|
||
|
ROE
|
>=15%
|
37%
|
27%
|
|
|
SMA-200%
|
>0%
|
29%
|
||
|
RSI(14)
|
<60
|
78
|
||
|
Price
|
$132.06
|
Explanation
·
The first scoring
system incorporates many vendors’ grades. The second scoring system is from my
book Scoring Stocks using metrics available free from many web sites.
·
Expected EY,
Debt/Equity, ROE, SMA-200% and RSI(14) are obtained from Finviz.com.
·
Analyst Rating (now
it is Equity Summary Score) is from Fidelity. If Fidelity is not your broker,
use Recommendation from Finviz.com.
·
EB/EBIT and F-Score are
from GuruFocus.com.
How Apple scores
It scores fine but not
spectacular. The score from my book in April, 2013 is 5 and now it is 2.
Fundamentally it is not as good as before.
P/B and P/S are usually not
useful for high tech companies. However, Apple’s P/B at 6 is exceedingly
expensive as compared to Google’s 3. When most analysts like the stock, usually
it will rise in the short-term. RSI(14) shows it is overbought. To conclude,
its fundamental score passes but not in flying colors.
The
brief Fundamental Analysis should be followed by the following:
Qualitative
Analysis includes articles for Apple. First, start looking for articles in
Seeking Alpha. Large companies like Apple are hard to manipulate, so most
articles are not ‘pump and dump’.
Technical
Analysis detects the trend and overbought condition. Many investors do not buy
a stock that is in its downward trend. SMA-200 is a good trend indicator. Its
price should be above the SMA-200 (same as SMA-200% is positive).
Qualitative Analysis includes articles
for Apple. First, start looking for articles in Seeking Alpha. Large companies
like Apple are hard to manipulate, so most articles are not ‘pump and dump’.
Technical
Analysis detects the trend and overbought condition. Many investors do not buy
a stock that is in its downward trend. SMA-200 is a good trend indicator. Its
price should be above the SMA-200 (same as SMA-200% is positive).
Intangible Analysis
Apple has lost a visionary leader
Steve Jobs. I hope he was not replaced by similar managers at Microsoft, who
are responsible for Microsoft's lost decade with few innovative products. Apple
has a lot of cash to finance new projects. High tech business is tough as they
need to build a better mouse trap continuously. When the mouse trap becomes a
commodity, it will not have a good profit margin. That’s one reason that
Buffett does not invest in Apple. If he read my book, he would buy Apple
instead of IBM. If he read my book in May, 2013, he would buy Apple instead of
IBM saving his company millions minus $10 for my book.
There are bright and bad spots for Apple:
1. Apple
Text Book. Imagine all students carry iPads instead of text books. Several
educational apps have been created for iPads.
2. Apple
TV.
It is a loser so far with a lot of risk and potential
competitors. However, the potential is great. It could give all cable companies
a run for the money. Wider internet channels would make it more feasible. Will
the cable companies provide these speeds to allow Apple TV and similar products
to step into their turfs? Does Apple or Google have secret projects to by-pass
cables’ internet?
3. While
the iPad and iPhone are peaking in the hardware, iTunes, software and contents
for these devices to access have no limit. We have witnessed how iPad helps the
folks with autism and iPhones for the blind. I can envision many other similar
applications.
4. Apple
moves to Kindle's market. iPad is too big to be used to read books during
commute. You need to hold an iPad with both hands. The mini iPad, even making
fewer profit margins, will be Apple’s answer to Kindle and a good addition to
cover the lower end of its product lines.
5. All
the mobile phone technology is originated by the first generation (if not
counting Motorola) that Apple has a lot of patents. Its lawyers will milk money
from Samsung and prevent cheap mobile phones from coming to the USA.
6. Apple
Pay.
I saw a similar
ad from a credit card company a while ago and not recently. Apple has a proven
history of picking up some failed products and turning them into gold. It is a
big test for Tim Cook who is no Steve Jobs. Hong Kong had a similar application
many years ago. The advantage of that application is you do not have to carry
changes. To me, this product could be the next innovative and most profitable
for Apple. Apple Pay will not make a splash in the bottom line initially, but
it is an important product.
7. Apple
Wear/Apple
Watch.
There will be cheap Chinese products flooded in our market.
However, the selling point is the prestige of Apple and its integration to
other Apple products. For a similar reason, my $50 Casio has no respect even it
is more accurate and more functional than an Omega costing many times more. It
will be successful, but will not make a big dent on Apple’s total revenue /
profit. The major problem of Apple Watch is the short battery life. If you have
to charge it one or even two times a day, it will not be too useful. Only
social climbers would buy the $4,000 that does not function as a $10 watch. The
other problem is how secured the data is. With the reduced urge of upgrade and
competition on Apple phones, Apple Watch is a bright product for Apple.
8. The
major worry is whether they can maintain the urge of upgrade. If the new
enhancements would not give me reason to upgrade, I would not be the one
waiting in long line in bitter cold weather to upgrade my iPhone just to
satisfy my dumb ego. It accounts the majority of Apple’s profit.
9. Apple
has a lot of cash. Dividends usually boost the stock price and the option
values granted to the management. However, it is important to plow back to
development and acquiring technologies. They may have paid too much for Beats.
10. U.S.
stops Huawei and Xiaomi from coming to the U.S. Apple is not the
state-of-the-art phones.
#Filler: iGeneration
Almost everyone has an iPhone. Folks including myself in the
lower class of the society carry imitators and/or those 'outdated' iPhones that
are several months old.
My grandchild of just over one year old had a good time in playing with the iPad and it usually kept her busy for hours. Before she could say Mom, she said “I” for iPad. During my family gatherings, my cousins communicate with each other via their smart phones even when they sit next to each other. When they do not text messages, they play games with their smart phones.
Even with one pair of eyes and one pair of ears, they can play iPad, listen to iPod and text using iPhone at the same time. Thanks Apple for demonstrating what multi-tasking really is. I prefer to do one task correctly than several tasks incorrectly. Chinese and Indian students are leaving us further behind by spending more time in study. Do you believe those children spending extra 2 hours every day in games would accomplish the same later in life?
My grandchild of just over one year old had a good time in playing with the iPad and it usually kept her busy for hours. Before she could say Mom, she said “I” for iPad. During my family gatherings, my cousins communicate with each other via their smart phones even when they sit next to each other. When they do not text messages, they play games with their smart phones.
Even with one pair of eyes and one pair of ears, they can play iPad, listen to iPod and text using iPhone at the same time. Thanks Apple for demonstrating what multi-tasking really is. I prefer to do one task correctly than several tasks incorrectly. Chinese and Indian students are leaving us further behind by spending more time in study. Do you believe those children spending extra 2 hours every day in games would accomplish the same later in life?
Some parents have a hard time to explain to their children
that their existence was due to the blackout of the iPad and iPhone caused by
the hurricanes.
#Filler: Bad management and good research
Apple and Microsoft copied a lot
from Xerox's PARC including Window, mouse... without paying any royalties.
Xerox should be split into two parts: bad management and good research.
#Filler: Metric
system
The USA
never wants to adopt the metric system. It is mainly due to our love of the
football game which uses yards. 0.9 meter does not sound right, right?
At one
time, when two identical missiles were fired between here and Russia, the
Russian missile would arrive here earlier due to no extra calculation to
convert to metric values. It is not true now as the CPU is super fast today.
14 Cisco and Huawei
Do they pass information to the Chinese government on sensitive data from their routers? They're all unfounded accusations to fight competition.
If the
secrets can be stolen that easily, we have to blame Cisco for not protecting
their secrets and we would have many companies like Huawei. Cisco is using this
to protect its bidding from Huawei unfairly. This tactic works successfully in
the U.S., but not outside the U.S. It is a case of its sales force in the U.S.
does not care about the sales force in China.
The fact is there is no trap door to steal data from the network. If there is one, a good percentage (about 20%) of the global traffic has been routed via the Chinese equipment already.
It is a fact
that companies spy against each other (same as countries), no matter it is a
Chinese company or an American company. If you believe CIA (same for NSA)
is just gathering information, you believe in fairy tales or your dumb
nationalism covers your eyes. It would backslash on Cisco when China stops
Cisco from selling its products to China for the same reason.
Cisco does not have the technology in 4G
LTE as the top three companies (ALU, Ericsson and Huawei) do. The stealer has
better products than the stealee! Cisco has missed the opportunity to buy ALU
when ALU was $1 per share. I hope they’re working on this important technology.
It could be too little and too late.
Cisco and its rival Huawei are riding on the economy. Many devices will be connected to the web. Cisco, Huawei and companies in this sector will all benefit. Singapore today provides a glimpse to the future. Every street has surveillance cameras which are connected to the internet via routers.
Cisco and its rival Huawei are riding on the economy. Many devices will be connected to the web. Cisco, Huawei and companies in this sector will all benefit. Singapore today provides a glimpse to the future. Every street has surveillance cameras which are connected to the internet via routers.
I expect
Cisco's stock price will fluctuate with today's range (as of 5-2013) and it
will take off after two or three years hopefully when the global economy
recovers. Huawei will be in better position in the long term as their research
and manufacturing costs are far lower than the U.S. and it doubles the size of Cisco. Huawei's products are very competitive and already
have captured good market share outside the U.S. The margin of the industry
will still be favorable.
15 Tesla
Is TSLA a good investment?
From the fundamental metrics, it
is not. The expected P/E is 150 and ROE is -360%. I seldom invest on stocks
with P/E over 40. However, the outlook of the company is very rosy and the
rising stock price indicates it could revolutionize the auto industry. It is
possible, but do you want to bet on it?
My preference is “Buy low and
sell high” as opposed to the current stock holders’ “Buy high and sell higher”.
Common mistakes of retail investors:
1. Investing
in a company is different from investing in a company’s products. Many Tesla
owners own the company’s stock.
2. Potential
appreciation of a stock has nothing to do with its past performance. Will have
another 300% return? Most likely, not. If the chance to decrease by $100 the
same chance to increase by $50, I do not buy.
3. When
the trend (all three simple moving averages in Finviz.com indicates the trend
is up), selling short is against you even if you have good argument. Do not
swim against the tide especially in short term trade.
4. Your
profession (or expertise) could bring you bias in making investment decisions
in a company related to your expertise. I had many high tech friends betting on
internet stocks as they ‘knew’ better.
It is similar to your origin of nationality. When you were
born in China, it does not mean you’re an expert in Chinese stocks.
The Business Model
Building super charge stations
for the current owners to use free after a small initiation fee is a reversed
business model of giving razors free but making money on the blade. The latter
proves it works, but there are not too many beneficial precedents for the
former model.
Tesla, the car
Tesla is an electric car. The
current model is about $80,000 (not a typo) and the new model will be about
half that. It still has similar problems as the Volt except with one simple
drive train. The problems are:
1. The
service stations are built for free charging after an initial fee. Are they
really free? It will be great for the
owners if the company will not be bankrupted from its shaky financial state.
Same for sending mechanics to your house to fix your car. I hope they will
prosper as I cheer them from my cheap seat.
2. The
charging range for the average owner is far worse than the range under ideal
conditions and it will never be close to the range of cars using gas. Is the
extra cost for larger battery worth it to an average driver?
3. The
other problem is some states do not (or will not) allow selling a car there
without a dealership. It is costly to build a dealership network.
4. My
estimate is $10,000 rebate per car sold by Tesla from the government. Will the
government subsidize them forever? It is not a big deal now as the number of
cars they are selling is still small.
5. It
will appeal to folks driving a lot of miles in a year and/or when the gas price
surges. I drive about 8,000 miles a year and it will never pay back for the
extra cost ($80,000 vs. $23,000 for my Honda CR-V). Hope the $40,000 Tesla
would make a big difference.
6. Even
if the company is making easy money in selling the carbon credit, it
will still have big losses in the coming years.
The link is http://en.wikipedia.org/wiki/Carbon_credit.
Musk
Musk is very brilliant in pumping
up the stock. He will sell it without the restrictions in the loan after he
paid it back to DOE. The last owners of this stock could be the biggest losers
if it heads south. I could be wrong in the timing but not wrong in the
fundamentals of the company.
16 Solar industry
I have a lot of doubts in this
industry. Here are my negatives on this industry:
1.
They cannot compete with
Chinese companies if the protectionism is lifted. Some companies in Europe produce better products.
Hence, they depend on local sales and tax rebates.
2.
Solar is still
expensive if oil is below $100 in most regions of the USA.
3. Shale oil and gas could make solar impractical in most areas in
the USA. The time frame for shale energy is 5 years from now (as of 3-2013) if
they can solve the environmental problem and set up the pipelines.
4. How many previous losers (there is a lot) on this stock will
return? More importantly, how many investors find its potential appreciation
attractive?
5. Many companies in this sector are losing money now and some have
been bankrupted.
17 Holes in retailing
Many retailers have more holes in
their operations than Swiss cheese. I wonder who the CEOs are. Common sense
must not be taught in Ivy League colleges and presentation is the only
criterion for their selection. Here are some holes.
·
The bankrupt Circuit City ‘pioneered’ returning
merchandise with no question asked. Buy the most expensive TV before the Super
Bowl and return it after. You will always have the top-of-the-line TV for big
games to impress your friends. You can buy them back at a discount. Normally
they are available in the same store on the day you return.
·
When an item is on sales, you cannot get the
credit of the difference of the price you paid and the current sales price
within a specific number of days. However, you can return it for a full refund
and buy the same item at the sale price.
·
Sears once
was the biggest retailer. At one time, I made over 50% in less than a few
months on Sears, sold it and never looked back. The Canadian operation still
looks great and I bet it may have been spun off already.
Eventually they can only sell lawn
mowers, appliances... There are so many wrong decisions that I do not know
where to begin. Selling clothes of Salvation Army quality at bargain prices in
expensive malls is the same as committing suicide slowly plus ruining the image
of the company.
At one time, Sears split itself
into multiple stores such as one for eye glasses and one for tax returns within
the same location. It had been proven it did not work. The most amazing thing
is the x-president of JC Penny followed the same idea. It is the same of
stepping on the trap that has an obvious sign. A blind following a blind
is silly; a blind following something that has been proven not working is ultra
stupid.
·
If you enjoy books, try out the free 30-day
trial of Kindle Unlimited and $10 per month afterwards.
You can help me to make some money (I promise to give the extra to the poor) by borrowing 10 of my books and returning them with or without reading them and borrowing another 10 again. Repeat the process until I'm a millionaire! Do it now before they close the hole.
You can help me to make some money (I promise to give the extra to the poor) by borrowing 10 of my books and returning them with or without reading them and borrowing another 10 again. Repeat the process until I'm a millionaire! Do it now before they close the hole.
·
Apple does not allow the retailers to sell at
discounted prices. However, they can get away by using general discounts.
American
corporations must be run by guys looking like a movie star but with a retarded
brain!
Related
Filler:
The retail industry is going thru
the third wave if not already. The first one is Walmart and the second one is
Amazon. After I visited one clothing store this Sunday, I realized a third wave
is going on as Peter Lynch preached (i.e. learn from the mall).
The new retail store is formed by
the exporter(s) in China who has strong ties to the manufacturers. They cut
down the middle man (themselves). Judging from the customers hauling their
over-loaded carts of merchandises with smiling faces, I know the wave has
started if not already. There are several retail chains already all over the
world even in small Ireland I visited recently. If you have stocks on low-end
retail chains, watch out.
18 Tough restaurant business
They may be one or two out of 10
restaurants that are doing fine. Try to avoid buying stocks in this business.
Retail and Restaurant are just
tough businesses. Red Lobster
did not do well.
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