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.

Stock Report: Walmart

We generally agree with the analysis; however, we think that the authors left out an important detail in their evaluation. It is true that Walmart has dominated among their competitors, that its market capital is significantly larger than its competitors, and that this is an incredibly successful business. However, over the past few months, it has lagged far behind the market averages, whereas Costco and Target have stayed relatively on-par with those averages. This suggests that growth is not the direction Walmart is headed toward, and that it would not make a good growth stock. It would, however make a good value stock because of its overall strength financially and large representation of its market. It also has higher earnings per share than its competitors. Walmart is being run efficiently by buying fewer and/or less expensive goods to sell and through efficient supply chain management. Industry projections expect Walmart to increase in value in the nearby future and that it is currently undervalued. It is a growing company, as shown through historical data and through its recent purchase of UK’s ASDA. This buy suggests that it will be expanding the functionality of its website, and it will be competing with such companies as Amazon.

Twitter-based Investment Decisions

http://www.businessinsider.com/new-hedge-fund-uses-twitter-to-pick-stocks-2010-12

Summary: A new hedge fund will be using 'sentiment analysis' of Twitter, a real-time social networking communication tool, to predict changes in the stock market. By using software that they have developed, they say that they have already been able to successfully predict profitable trades.

It's very interesting that someone is finally using Twitter to make financial decisions. As technologies like Twitter allow for faster and faster communication, they become more useful in financial decision-making. This is because changes in public mood are made public (to those with the ability to analyze it) faster than the effect of those changes on the market.

I'd like to know how long changes in twitter-temperament take to become reflected in market prices, as well as if these predictions have only been valuable for specific sectors of the market (I would predict consumer technology as the most accurately predicted sector, as a result of the type of people who I think use Twitter). It would also be cool to see what other chartable data the Twitter-mood can be correlated to.

Transocean (RIG)

Transocean LTD (RIG) is a Switzerland based oil drilling company. They owned the oil rig that exploded in the Gulf of Mexico under the control of British Petroleum (BP). Unfortunately for Transocean, the explosion caused a plague of bad publicity and hefty legal fees. These costs have been present on the company’s financial statements causing total profit margin to decrease severally. With a cease in offshore oil drilling in the Gulf of Mexico, a few of Transocean’s rigs were no longer in operation. This essentially affected total revenue. Taking a further look into the company, one can see, despite the disaster, they are still an industry leader. Pre-explosion, Transocean was steadily valued at $90/per stock range, after news of the oil spill, stocks plunged to $41.88 in June. Since the company hit rock bottom, stock prices have risen steadily towards the pre-disaster stock price. I believe the trend will continue and even possibly surpass the company’s previous price highs. Several factors that will lead to the continued growth of this company are as follows; as legal matters with the BP disaster wind down, the company can focus more on business operations with fewer distractions. This has already begun to occur; the company has purchased new rigs that boast technological advancements in safety and ease of drilling. The Rig cost $195 million and is scheduled to finish construction in one year. With future expectations of greater total revenue, increased oil drilling demand, and increased profit margin, this company is quite attractive for our team, Yo Investments. Although there can be a further hit on the stock in the short-run, I believe that the company can hit towards same price (pre-explosion) in the long-run. The graph above illustrates this company is on the right track.

Dell negoiating

http://www.marketwatch.com/story/dell-negotiating-possible-compellent-deal-2010-12-09

In this article it talks about how Dell is trying the emerge with Compellent. But they are negotiating a deal so in a way they can make a profit. This is because Dell is making money but in different departments of dell. So in my opinion i think dell should emerge because for the pass couple of months dell has been in a decline phase but since compellent is a big company they will make a big profit. As well, Wells Fargo is trying to emerge with them too.

China surplus

http://www.marketwatch.com/story/china-november-trade-surplus-narrows-to-229-bln-2010-12-09

I found this article very interesting. This is because we all know that china is one of the biggest country that is very wealth and is advanced in many ways. The monthly trade surplus stood at $22.9 billion, shrinking from $27.1 billion in October, although it was higher than the $22.3 billion surplus expected by Dow Jones Newswires survey of economists. So China surplus has been shrink very much.

A Chinese Goldmine for Investors

http://www.dailyfinance.com/story/investing/china-youku-ipo-stock-soars/19753829/

Youku is the Chinese "youtube" and recently decided to go public. Youku is probably the most popular video site in China, and still has huge prospects for growth. A more innovative site like Youku is predicted to rapidly grow, as China "catches up to the times". Because it has been public for just 2 days, specific figures are still hard to determine. Though from the specifics that can be determined, Youku is looking like a goldmine for investors. Revenues are high, clocking in at a whopping $35.1 Million in their last nine months, and are planning to reach 50 million for the year. They have reported, 203 million different monthly visitors to their site. Obviously as a company, this is impressive. This isn't a value stock, shares will be trading at over 70 times revenues, which is high, but it is a very impressive growth company. The IPO was originally $12.80, and quickly rose to $25.57 on its first day. After day one it was at just about $32 dollars, and now just hit $42.50. This growth is outrageous, almost never seen before.

So the more "macro" question is, was this growth due to the location of the company (china), and if so, will foreign companies grow at a faster rate then their American counterparts.

I personally love this site, and recommend it for watching tv shows, so when I heard it was going public I was interested. We saw it at the $26 and were going to invest, but as you may know, the trading site is down. (Which really stinks!) As was brought up in the seminar, when a stock has doubled, it is probably time to pull out. It would be rough to maintain such a steep growth, if any, so we will probably no longer invest.

GM Stock

This Thursday (11/18/2010) GM returns to the market. After emerging from a government-organized bankruptcy (16 months ago), trying to improve their finances, and venturing into new products (like electric cars) GM feels like it is ready to once again be on top. According to the article, GM execs are trying to play up their bright spots, including: "a better lineup of cars and trucks, potential for global growth and a new cost structure that enables the company to make money even when the economy dips." However, the company has not fully "healed." The government is still heavily involved. In fact, the stock offering will only reduce the government's stake in GM from 61 percent to 43 percent. It can take years before the government has completely left GM. As the article says, "For shareholders, that means GM may not always put investors first. Political priorities may trump their demands. Some worry GM will spend too much time and use too many resources working on small cars or electric cars and not enough on profitable vehicle lines like trucks and SUVs." Plus, GM has made it known that it does not have full control over its finances. Its accounting procedures aren't where they should be. For instance, GM has included $30.2 billion in goodwill as an asset. Goodwill is an intangible asset and is not something that could be sold. It is also larger than other GM assets, like property ($18.1 billion) and cash ($26.8 billion).

With all of these issues (plus some more if you read both articles), logically GM does not seem like a good buy. However, logic doesn't always win out when it comes to the market. Plus, foreign investors seem very interested in GM. Chinese automaker SAIC, GM's partner in China, is finalizing plans to buy about a 1 percent stake. Also, funds which manage the finances of royal families and some nations, could invest $1 billion in GM. Overall, there seems to be quite a bit of risk in investing, but who knows, this might be something everyone overlooks, and then it just explodes (it has happened before). So, what are your thoughts; is GM something to take a careful look at or stay away from?

Sources:

http://www.chicagotribune.com/news/local/wire/chi-ap-us-gmipo-redflags,0,6379264.story?page=1

http://www.google.com/hostednews/ap/article/ALeqM5h3slmxJfh-ehG_A3Nf2276IQ0zzw?docId=acefdb2929504ccea71b2f692baff461

Seasonal Trading

With Holiday season kicking in, my partners and I decided to diversify our holdings. It was pretty evident that a colder time period (fall/winter) will drive coffee sales up. Though the idea started off with a simple hot chocolate at Caribou Coffee, I bought Caribou/Starbucks stock almost immediately after. The idea turned out to be a good one. Caribou Coffee has been going nowhere but up, and we sold Starbucks after making a slight profit. We are now looking to diversify to sub sectors for the Holiday sales. I personally, am looking into investing into big retailers that generally have a big impact on sales and have a positive outlook for the 2010 winter.

One stock we have had trouble with was VF Corporation, or as we nicknamed it 'The North Face Stock'. It had been in a downward spiral since we bought, assuming it would go up as the cold approached.

Do you have any ideas for stocks that will generally do better in the winter? It could be coffee, winter clothing, toy manufacturer/sellers, etc.

Run Up in Gold vs. Run Up in Oil

The distinct uptrend in gold has gotten a significant amount of attention lately. When trying to analyze this movement, the surge in oil prices from a short while back seems to be a quite good point of comparison. I believe that the run up in gold has many of the same key drivers that the run up in oil did. I wrote these two pieces about two years back, during the surge in oil prices from about $30 a barrel to about $150/barrel:

http://enlightenedeconomist.blogspot.com/2008/05/real-cause-of-oil-pressure.html

http://enlightenedeconomist.blogspot.com/2008/06/real-cause-of-oil-pressure-pt-2.html

(Right click and open in new tab or window)

After reading these articles, do you think there is a valid comparison between the current uptrend in gold and the former uptrend in oil? Whether you agree or disagree, how does your conclusion affect your investment strategy?

(It may be helpful to discuss this with your teammates and post an answer as a team.)

10 Signs The U.S. Is Losing Its Influence In The Western Hemisphere

In this article Gus Lubin provides the stark reality behind why the US won't be the leader in the Western Hemisphere forever. Brazil is the first nation expected to pass the US. They produce over four times as much iron ore as the US, export twice as much beef as the US, are an important part of BRIC (Brazil, Russia, China, and India-all emerging markets with high potential), and are on good terms with Iran.

Besides Brazil, countries like Mexico, Chile, Canada, and Venezuela are also candidates to pass the US. The world's richest man is a Mexican. Chile produces 300% more copper than the US (which used to lead the world in this category). Canada and Venezuela are expected to pass the US in oil production in the coming decade. Finally, Canada, Mexico, and Brazil invest a greater share of their GDP in green energy.

Overall, this article paints a dreary picture of what is to come. The US, a world leader for many years, might soon relinquish its power even in the Western Hemisphere. Will this come to fruition? The facts are there. What does everyone else think?

High Frequency Trading

I am unclear about the recently publicized concept of high frequency trading, as to what it is, it's impact and what you may think of this method.

Stocks edge higher on expectations of Fed move

http://finance.yahoo.com/news/Dow-closes-above-11000-for-apf-3699233512.html?x=0

Business writer, Stephen Bernard talks about how the Dow Jones finished above 11,000. The Federal Reserve want the economy to get back on track. Since more people became unemployed, it gave the Fed "the window of opportunity to take action."


In this link, the Fed's want to get the economy back on track by:

"The Fed's goal, if it starts buying bonds again, would be to drive interest rates down further from their already low levels and spark borrowing and spending. Lower rates could also eventually drive investors into riskier assets like stocks or into currencies in countries with more attractive interest rates."


This goal of the Fed's seems to be realistic because if the interest rates keep on decreasing than the chances of starting the spending and borrowing will increase. There is potential in their goal because the Fed's motive could be appealing the the public. A problem that could occur is that if the investor actually does get stocks and has a huge risk that he could lose it all.


What does everyone think about the Fed's goal? Do you feel that it is the right thing to do?

A Cautious Generation Doesn't Want to Risk Investing

http://money.cnn.com/2010/09/07/markets/young_investors_risk_appetite/index.htm?eref=aol

In this article, CNN explores the new trend of younger investors. Now those in their 20 and 30s are unwilling to take risks in the stock market. Some have seen the stock market dive unpredictably and ruin people's invested money. So the question arises, as less and less people are willing to invest and take the risks in the stock market, how will that effect the market?

I think that younger investors totally have reasons to fear investing, and with the randomness of the economy, especially in our lifetime, there are obvious reasons to be skeptic. Personally, I am unsure if when I am old enough to spend some of my money on investments, if I won't just invest in safer mutual funds. 

I think that this will have a direct on the condition and growth of the current and future economy. I can see this causing the economy to stay low because of the lack of new investments. I can also see a more stable economy (for better or for worse) as a result.