Is Microsoft on the Decline?

Just as the competition winds down, news about a very famous company and its stock is released. Yesterday there was an interesting article regarding Microsoft. Despite the company seeing a growth in earnings (actually about a 31 percent increase in earnings, exceeding analyst estimates), Microsoft shares still fell. It seems as if the "boom days" (as the article mentions) are dwindling for this software giant. The main reason for this, according to the article, is that revenues in the division that includes Microsoft's foundation, the Windows operating system, declined from the same time last year for the second-straight quarter. This is due to the fact that people are buying fewer PCs which run the software. In addition, a main rival, Apple, has had great success with its iPad. On the other hand, Microsoft has been slower and less successful in the tablet market (which currently depends on rival operating systems made by Apple and Google). Even their partnership with Yahoo has not produced desirable results. Microsoft's technology is producing less revenue per search than expected. This trouble forced Microsoft into paying Yahoo extra money during the quarter and may have contributed to a slightly larger operating loss in the online operations than the same time last year. Overall, Microsoft is struggling more now than it often has in the past. Is this a reason to be concerned? It might be. However, Microsoft is not finished. Anyone holding their stock should take a holistic approach when examining if it is time to sell. Remember that if the original reasons that you used to purchase the stock (if based on a solid strategy that takes the long run into account) still apply, then it is wise to hold on to the stock. Think carefully and avoid seller's remorse.


http://news.yahoo.com/s/ap/20110429/ap_on_hi_te/us_earns_microsoft

Value Stock ... Or Not?

When Nike was at $87.50 on December 22^nd, 2011, I thought I had bought a value stock. It had dropped a few percent (5.8), and I thought it was a good time to buy before the spring season starts. With my love for the brand, I bought it immediately without taking much consideration. Looking back, I had not made the right decision.

I started to realize, just because a stock goes down heavily, it does not mean it will find its way back up.

I should have looked at previous performance, Nike was actually coming down from its peak earlier in December. It was almost twenty dollars higher (per stock) than it was in June (all-time high).

Then I realized Nike did not have much potential in the coming months. Nothing exceptional was due out that can stimulate the stock up.

If a stock crashes, it might happen again.

So after all that, I had decided to sell, but that quickly changed. On March 18^th, just went we’re hinting at the top three of the competition, Nike took over a 9% fall. With over 15% of our equity invested in it, it brought our whole portfolio down. We did not know what to do, as we dropped to 8^th place and were down almost $20,000 on one stock. Looking more in depth at this sudden fall, it was all due to cost of inputs for the 2012 fiscal year. They were worried about the margins of profit. Everything else was up including orders all over the world, sales in the quarter increased seven percent, and consumers were predicted to spend more money on sports apparel than last year.

The futures number “indicates a healthy business,” said analyst Sam Poser of Sterne Agee. “But margin pressures cast a shadow.”

With much more thought this time around, we decided it was safe to say, that we further invest in Nike. We were correct this time, or at least until today. We cut the twenty thousand dollar hole in half, and are thinking about selling before another major crash. Moral of the story, do not buy a stock once it declines. Look into why, and its past trends.

Saagar Gupta, Yo Investments

– (Source: http://bit.ly/gPyhQI)

Cautious Optimism?

Amid all the negativity, there seems to be reason for some optimism. Companies have increased their dividends by a record amount in the first quarter. According to the article, 117 companies in the S&P 500 index said they would raise or start paying dividends. The value of the new and raised annual dividends announced by these companies adds up to a record $16.6 billion. Only 78 companies raised their dividends in the same period a year ago. This is a good sign for the economy. Many companies have avoided or reduced dividends in the past few years. Now they have renewed confidence in their shareholders and are rewarding them with dividends.Companies who have never issued dividends, like CISCO, Kohl's,and WellPoint, will now do so. In addition, some companies have increased their dividends(for more info check the article). However, this news should still be taken with caution. Even with the increases, quarterly dividends by companies in the S&P 500 are 13 percent lower than their peak in 2008. A few companies that increased dividends don't pay as much as before the recession. Dividend yields are also down for companies, especially those in the financials sector.

Overall, the news seems uplifting-especially when considering all that the market, the economy, and the world has endured in the last two years (and even last two weeks)-yet we should still be cautious. Many stocks are still facing rough periods and the economy is still very fragile. But the increase in dividends does bring in another option for investing: choosing companies based on dividend and dividend yield. Any opinions on this or any alterations in your portfolios?


http://finance.yahoo.com/news/Dividends-come-roaring-back-apf-1317489474.html?x=0

What's Next for World's Largest Auto Maker?

As we all know, last week Japan was rocked with a devastating Earthquake. Putting the Japanese people and the world economy in a state of emergency. Everyone who has been affected by this natural disaster will be in my prayers. I have confidence that the people of Japan will recover from this tragedy, but how about the well being of the world’s largest auto maker?

Over the lastly few months Toyota has seen rising stock prices and strong growth partially because the “U.S. government reported no defects in Toyota’s software and electronic-controlled accelerator systems”(Bloomberg) The company reached a 52 week high as of march 1^st, unfortunately Toyota has had the rug pulled out from under them. When news of the earthquake reached investors, the stock price dropped $10 almost instantaneously. With headquarters being located in Japan, investors fear slowed production, resulting in lower levels of profit. Toyota has evacuated a handful of factories located near the disaster area and suspended 28 manufacturing plants throughout Japan.

How low will the stock price fall? Currently Toyota claims that plants in North America won’t see a shortage in parts, but fears that productions in North America will slow down still lingers. With the power outages across the affected areas, it could be some time before the plants are able to reach maximum output levels of production. “Analysts say the auto industry's global supply chain is so integrated that the loss of even one key supplier could have a major impact on production.” Does anyone have any opinions? Personally, I don’t see immediate shortages occurring as I’m sure a few weeks of Toyota car parts are in reserve; however, until Toyota finally puts a time frame on their recovery, there could be a chance that productions will remain slowed for months to come. What effect would this have on Toyota’s competitors as well as industry stock prices?

-Grant Gaughrin, Yo Investments

Recent Unrest

With the recent unrest in Egypt, Libya, and some other nations, the market and the economy have made movements in both directions (positive and negative). Commodities, like silver (which hit a record for the past two decades), gold, and oil are rising. Meanwhile, many stocks, after enjoying some gains, have once more fallen because of various factors, including speculator frenzy.

On a similar note, an article in the Philadelphia Inquirer mentioned that "Higher oil prices also weigh on the U.S. economy by increasing the costs of moving goods and filling gas tanks. A sustained $10 increase in the price of oil translates into a 0.2 percent cut in economic growth over 12 months, according to a recent estimate by economists at Goldman Sachs." With the turmoil in the Middle East and Africa, it seems like oil prices are destined to continue their increase. According to the article, this would mean economic growth will continue to decrease. How will this affect stocks? In general, less economic growth would mean less jobs, less expansion, and less GDP. One would think that we are destined to see further declines in the market as a whole. What does everyone else think of all this? Do you see the need to adjust your strategy and possibly look into stocks that perform better when the market declines?



Source:
http://www.philly.com/philly/business/20110226_Markets_rise_but_still_end_the_week_off_about_2_pct_.html

Portfolio Turnover

My team and I have been discussing and considering portfolio turnover, and we were curious to hear what other teams had to say. In one training session, we were told that there is considerable variance, even among experts, when deciding how often a portfolio should turn over. We were curious if we could come to a consensus, or at least discuss the topic, as an EMC community.
Additionally, and more specifically to this competition, how quickly should we dump a stock which isn't performing well? We understand that much of the grading criteria are strategy-related, but 20% of the grade is performance. How have other teams been striking a balance between sticking to long-term strategy while also seeing good stock-growth?
With this post, we hope to inspire good EMC community discussion. We are interested to hear the thoughts of the professors, students, and our peers.

Report: NCR Corp.

Valiant Management agrees in large with the analysis of the NCR Corp. We think that because of its domination of the self-servicing machine industry and innovative strategies, NCR is a very strong company. Its machines are far more self sufficient, and require far less employee maintenance. Along with its smart cash reader technologies (now the machine can scan cash itself), selling points like these will allow NCR to continuously shut out its competition. As these machines have increased in demand, NCR will automatically gain profit and grow as a result. NCR is one of the only companies in the field to use newer innovations that differentiate themselves from the competition. We foresee not only a growth in America, but possibly an even larger growth in countries like China and India where the ratio of these machines to people is very low. For the most part we see NCR as a great company that will be both a value and growth stock. 

Now for the negatives in NCR. We agree with the analysis of the pension issues, NCR's Pension losses in 2008 have left the company with a pension debt of roughly $1 billion dollars. NCR has handled this debt badly in our opinions. Also the new strategy to change its pension funds from 40% fixed income, to 100% fixed income over the next three years. With bonds so high, we agree with the diagnosis that this is probably not the best strategy. Now where we disagree with the analysis, is in the assessment of NCR's move to try to control  the DVD rental self servicing machine. It is clear that the lifespan of DVD's is limited, and the more money put in, the more attached NCR is to this lifespan. This represents so little of their revenue (paling in comparison to the 70% of revenue that is their ATM business) and their competition has a strong foothold. Yes, NCR will most likely go positive in this area over the next two years, but what about after that? We don't think that DVDs will be used very often in ten, even five years. We understand why the deal with blockbuster makes profit off blockbuster's failure, but Blockbuster is still a dying company, and we think it could drag down NCR's profit with it. When the demand for DVDs ends,  NCR will have to suffer if it puts any more effort into this.

Overall NCR is a great company with strong focus. It is a strong, undervalued investment, especially when its forward P/E is compared with its competitors (see original paper pg. 6). Although, some of its negatives are very scary. It will grow in the coming few years, but after that we really aren't sure.