Call it what you want: Clean-tech or renewable energy or alternative energy but despite historical trends of surging hype followed by sharp decline in public interest, clean-tech is here to stay this time. The only possible obstacles standing in the way of the growing industry is a third presidential term for Bush and relationships with Venezuela, Iran and other OPEC nations making a 180 degree turn. Democrats in Congress are pushing for a Clean Energy bill that will increase the fuel economy standards of the auto industry and increase use of renewable energy for electric utilities.
Winter weather forecasts by Accuweather and the National Oceanic and Atmospheric Administration have predicted warmer than normal winter temperatures in the Northeast and Midwestern Regions. This is a brief but sweet respite for mounting price pressures on crude oil supply.
Depleting crude oil inventories, the weak dollar value through the summer, refinery bottlenecks, and political tension in the Middle East have all lent a hand in the crude oil price index increasing more than $30 or 54% for the year. The favorable weather prediction will thus be sweet music to the ears of consumers. The double-pronged price surge of crude oil and natural gas will force some consumers to go from 5th Ave to Walmart Ave for their holiday shopping escapades.
Natural gas index on the other hand has slipped down to $7.70/BTU since the start of ‘07, partly due to unexpectedly warm winter temperatures last winter. The warm winter prediction this year has given little support to an imminent rise in natural gas prices. Oil prices will probably fall from their latest record highs but it should not divert the pressing long-term vision of moving to a less oil-reliant economy.
A high-growth trading market has been developed in the alternative energy (or clean-tech) industry including fuel cells, biofuels, wind power and solar. Capital Venture deals and IPOs in clean-tech are generating a multi-billion dollar market. The 3 largest public solar companies listed in the US have a combined market cap of $25 billion. Thats from a nascent industry where most companies IPO'ed only in the last 2 years and where most companies have not started or are just starting to generate operating profit.
Clean Edge Inc., a research and strategy consultant, predicted in 2004 that the TOTAL clean-energy market will grow to $92 billion by 2013. It has since adjusted that outlook to $226.5b by 2016 based on calculated '06 market size of $55.4b. From '04-'06, market size grew more than 4 times, and thats when crude oil prices were averaging under $60/barrel. At this rate, it will reach the targeted $226.5b by '09. Crude oil prices have since surged to an average of $70-$75/barrel from '06-'07. With the direct proportionality of clean-energy markets and crude oil prices, '07 market size calculation will surely prompt a further upward adjustment in projected market growth.
Morgan Stanley is one of the major banks bullish on clean-tech. They are projecting a $1 trillion market, with solar solutions producing 11.2% of the nation's electricity by reducing their cost from $8/GW to $1.60/GW by 2030. Wind power and biofuels would claim about 9.8% and 21% of electricity generation respectively. Deutsche Bank is pumping $8.5b into its climate change funds that invest in clean-tech companies.
The fledging clean-energy market is a volatile one as it requires the support of government tax credits to keep it viable. Political trade-offs have to be made when it comes to growing this market as a total concession to clean energy companies would be unthinkable for politicians who are allies of oil and gas companies and utilities and auto workers union. Nevertheless, the political revolution has started taking root in California and 18 other states which are driving up clean grid electricity generation and fuel economy standards in cars sold in their states.
Saturday, October 20, 2007
Sunday, October 14, 2007
Energy Futures: Solar or Wind
With all the hohum about renewable energy especially about ethanol, solar and wind power are basking in the reflected limelight. For decades, we have known solar and wind energy to be highly expensive sources of energy as compared to fossil fuels even with government subsidies, thus the renewable concept was never widely harnessed. However, current projections from energy industry analysts have solar and wind energy to play an increasingly competitive role in the energy market by 2011.
Soaring utility bills as a result of $70 plus/barrel crude oil prices is starting to make large up-front investments to install solar panels more consumer viable. More abundant silicon supply and cheaper thin film semiconductor solar panels has allowed cheaper installation of solar panels to homes and appliances. Solar panel roof installations on residential property average about $30k-40k after consumer rebates and credits. A consumer takes typically 8-10 years to realize the cost savings from paying traditional electrical bills which in a lifetime, can amount to $140,000.
Wind farms are starting to sprout up all over Texas, California and the Northeast. Wind energy production costs have decreased to 4.5 cents per kilowatt hour from 6.1 per KWH in 1999. European wind farm operators and manufacturers of turbines and blades have orders backlog of 3-5 years and many new US wind farm operators are fighting to get their orders fulfilled elsewhere. The nascent US wind energy market is experiencing a growth in foreign investments which sees wind power as a largely untapped resource in the US.
2 of the biggest names in US Solar power are Suntech Power (STP) and Sun Power (SPWR). Each company develops its own silicon photovolataic cells and sells them to distributors all over the world. First Solar (FSLR) is a major developer of the less efficient but cheaper thin-film solar cell and generates cost savings for customers through mass production capacity. Shares of FSLR and SPWR, both US-based firms, are up 350% and 90% YTD. STP shares are biting their dust at a relatively laggard 22%.
Major oil companies performed slightly better than STP, yielding an average of 25-30% for '07 locking in another high-performing year. Meanwhile, electrical and gas bills are rising at an alarming rate. An average household spends $400/month on utilities, and this winter's bills are expected to double that amount. There seems to be no end to the sky-rocketing oil and gas prices in sight, and none is expected by industy players.
Many newly developed homes are being outfitted with solar panels and homeowners are taking the plunge by investing heavily in solar panels for their homes. Solar power seems to provide a microeconomic solution to the hefty electrical bills. On a macroeconomic level, wind power can soon contribute as much as 25% to the electrical grid capacity at little or no incremental cost other than the fixed starting investment.
Soaring utility bills as a result of $70 plus/barrel crude oil prices is starting to make large up-front investments to install solar panels more consumer viable. More abundant silicon supply and cheaper thin film semiconductor solar panels has allowed cheaper installation of solar panels to homes and appliances. Solar panel roof installations on residential property average about $30k-40k after consumer rebates and credits. A consumer takes typically 8-10 years to realize the cost savings from paying traditional electrical bills which in a lifetime, can amount to $140,000.
Wind farms are starting to sprout up all over Texas, California and the Northeast. Wind energy production costs have decreased to 4.5 cents per kilowatt hour from 6.1 per KWH in 1999. European wind farm operators and manufacturers of turbines and blades have orders backlog of 3-5 years and many new US wind farm operators are fighting to get their orders fulfilled elsewhere. The nascent US wind energy market is experiencing a growth in foreign investments which sees wind power as a largely untapped resource in the US.
2 of the biggest names in US Solar power are Suntech Power (STP) and Sun Power (SPWR). Each company develops its own silicon photovolataic cells and sells them to distributors all over the world. First Solar (FSLR) is a major developer of the less efficient but cheaper thin-film solar cell and generates cost savings for customers through mass production capacity. Shares of FSLR and SPWR, both US-based firms, are up 350% and 90% YTD. STP shares are biting their dust at a relatively laggard 22%.
Major oil companies performed slightly better than STP, yielding an average of 25-30% for '07 locking in another high-performing year. Meanwhile, electrical and gas bills are rising at an alarming rate. An average household spends $400/month on utilities, and this winter's bills are expected to double that amount. There seems to be no end to the sky-rocketing oil and gas prices in sight, and none is expected by industy players.
Many newly developed homes are being outfitted with solar panels and homeowners are taking the plunge by investing heavily in solar panels for their homes. Solar power seems to provide a microeconomic solution to the hefty electrical bills. On a macroeconomic level, wind power can soon contribute as much as 25% to the electrical grid capacity at little or no incremental cost other than the fixed starting investment.
Monday, September 3, 2007
The Walmart Economic Index (WEI)
Walmart's latest advetisement campaign preaches to low and middle-class consumers the obvious benefits of shopping at its stores as a way to offset rising gas prices. In cities and the suburbs surrounding them, shoppers are often unwilling to commute the extra few miles to get to the closest walmart stores but instead patronize their neighborhood chain grocer.
So Walmart is hoping these consumers would listen by pressing on the hot button issue of high gas prices, which is stretching the consuming power of these consumers in other aspects of their lives. A "one-stop shop" so the consumers do not have to make multiple trips to different stores is what Walmart is pushing.
So going with the whole theme of Walmart capitalizing on the poorer economic climate, can we use Walmart's sales numbers as a "downturn" indicator? Walmart reported that it evaluates the spending power of its consumers by comparing the sales numbers of its Great Value brand to brand name labels. Great Value brand targets the lowest price-tier, which typically cost 25-30% less than the brand names.
When households undergo cost-cuttings, you logically start by trimming out luxury items like trips to the restaurants, movies, and most high-end retail shopping including groceries. Instead of premium imported cheese, you buy GV brand cheese, which cost a large fraction cheaper and taste nastier by the same margin.
The individual cost-savings are for all to see. But who really benefits? Walmart's profit margin on its private-label sales are on the average 10-15% higher than sales on nationally branded goods. And Walmart would specifically create its own competing product to an existing brand where it thinks it can undercut in price but still generate a large enough profit margin for earnings growth.
Where does this leave us? Walmart's existence in this world has vast macro and micro economic implications. Its imports from its manufacturing outposts in China and other parts of the world contribute vastly to the deepening US trade deficit and its continual drive to lower cost on already low-margin products forces it to seek new sources of revenue stream.
So Walmart is hoping these consumers would listen by pressing on the hot button issue of high gas prices, which is stretching the consuming power of these consumers in other aspects of their lives. A "one-stop shop" so the consumers do not have to make multiple trips to different stores is what Walmart is pushing.
So going with the whole theme of Walmart capitalizing on the poorer economic climate, can we use Walmart's sales numbers as a "downturn" indicator? Walmart reported that it evaluates the spending power of its consumers by comparing the sales numbers of its Great Value brand to brand name labels. Great Value brand targets the lowest price-tier, which typically cost 25-30% less than the brand names.
When households undergo cost-cuttings, you logically start by trimming out luxury items like trips to the restaurants, movies, and most high-end retail shopping including groceries. Instead of premium imported cheese, you buy GV brand cheese, which cost a large fraction cheaper and taste nastier by the same margin.
The individual cost-savings are for all to see. But who really benefits? Walmart's profit margin on its private-label sales are on the average 10-15% higher than sales on nationally branded goods. And Walmart would specifically create its own competing product to an existing brand where it thinks it can undercut in price but still generate a large enough profit margin for earnings growth.
Where does this leave us? Walmart's existence in this world has vast macro and micro economic implications. Its imports from its manufacturing outposts in China and other parts of the world contribute vastly to the deepening US trade deficit and its continual drive to lower cost on already low-margin products forces it to seek new sources of revenue stream.
Wednesday, April 11, 2007
Housing slump: What does it mean for DIY retailers, contractors, builders...?
Reasons behind Housing Slump
Amidst the strong US economy and DOW industrial sectors, the housing slump persist, at times looking to derail the economic freight train.
Falling home sales, declining existing home prices with the glut of unsold housing developments, creeping subprime mortgage default rates, combine to form the perfect storm in real-estate terms. The housing bubble of '03-'05 popped as predicted towards early '06, though more with the grace of a feather than a half-ton rock.
The National Association of Realtors has predicted that home sales will fall by 2.2% for '07. As sub-prime mortgage default rates climb at the same alarming rate that is causing mortgage lenders and resellers to offload their mortgage bonds faster than they could lower their lending standards at the height of the housing boom.
So how are construction stocks doing? Major homebuilders like KBHome has seen their mkt caps reduce by half since the peak in '05 and mirroring that fall is the overall Dow Jones Home Construction index.
Has this 2 year slide lost slippery ground? Has housing hit bottom? Is it time for bargain hunters to join the queue for construction stocks? We will take a closer look at the mortgage sector, construction sector and home retail sector in the coming weeks...
Amidst the strong US economy and DOW industrial sectors, the housing slump persist, at times looking to derail the economic freight train.
Falling home sales, declining existing home prices with the glut of unsold housing developments, creeping subprime mortgage default rates, combine to form the perfect storm in real-estate terms. The housing bubble of '03-'05 popped as predicted towards early '06, though more with the grace of a feather than a half-ton rock.
The National Association of Realtors has predicted that home sales will fall by 2.2% for '07. As sub-prime mortgage default rates climb at the same alarming rate that is causing mortgage lenders and resellers to offload their mortgage bonds faster than they could lower their lending standards at the height of the housing boom.
So how are construction stocks doing? Major homebuilders like KBHome has seen their mkt caps reduce by half since the peak in '05 and mirroring that fall is the overall Dow Jones Home Construction index.
Has this 2 year slide lost slippery ground? Has housing hit bottom? Is it time for bargain hunters to join the queue for construction stocks? We will take a closer look at the mortgage sector, construction sector and home retail sector in the coming weeks...
Sunday, April 8, 2007
Stock Market Manipulation
Market manipulation by large hedge fund companies and private equity firms is dangerous for average investors who invest with their hard earned income. Those big boys don't play by the rules. They make their own rules and can drive a stock price up or down. No wonder they're riding 'dirty' with their 7 series and enjoying their million dollar homes These companies are money making machines. Don't be the subject of such manipulation. You have to know what really goes on behind these companies and act accordingly based on your own research.
Market manipulation is when companies attempt to manipulate the stock prices in their favor. They do this because they have tons of money at their disposal. Some of their actions are in the gray area, but since there aren't any SEC regulations against it, there isn't anything that can be done about it. For example, hedge fund companies can 'mislead' the public by positoning themselves correctly in their own best interest. Let's say they want to short a stock. They'll call up various trading desks like Morgan, Merill, etc.. and buy puts. They hit up each of these popular brokerage houses and make big put orders creating an illusion that something is going on next week. Those brokerage houses will see these orders being placed. This information will soon leak out to the press and soon the public. Everyone will start selling the stock driving the price lower. In the end, those hedge fund companies will be able to buy the stock at a lower discounted price. They have knocked down the price of the stock in their favor.
It's all a game, especially if you have 20 million dollars of cash to manipulate the market in your favor. Any information that you read or hear on the news should be taken at face value. They are not an indication for you to place a buy or sell on a stock. The information you receive should be a basis for further research and investigation. This way, you won't be subject to the stock being manipulated...
Note : Please use this information at your own risk. The information was obtained from a public source.
Market manipulation is when companies attempt to manipulate the stock prices in their favor. They do this because they have tons of money at their disposal. Some of their actions are in the gray area, but since there aren't any SEC regulations against it, there isn't anything that can be done about it. For example, hedge fund companies can 'mislead' the public by positoning themselves correctly in their own best interest. Let's say they want to short a stock. They'll call up various trading desks like Morgan, Merill, etc.. and buy puts. They hit up each of these popular brokerage houses and make big put orders creating an illusion that something is going on next week. Those brokerage houses will see these orders being placed. This information will soon leak out to the press and soon the public. Everyone will start selling the stock driving the price lower. In the end, those hedge fund companies will be able to buy the stock at a lower discounted price. They have knocked down the price of the stock in their favor.
It's all a game, especially if you have 20 million dollars of cash to manipulate the market in your favor. Any information that you read or hear on the news should be taken at face value. They are not an indication for you to place a buy or sell on a stock. The information you receive should be a basis for further research and investigation. This way, you won't be subject to the stock being manipulated...
Note : Please use this information at your own risk. The information was obtained from a public source.
Thursday, April 5, 2007
DivX: After the IPO
DivX, the company that distributes and licenses its video encoding technology through various media channels, IPO'ed September of 2006 at around $16/share. It is currently floating at around $20, half a year after its IPO, peaking at around $31.89 late Dec of '06.
If anything is to be said about IPOs, it is that the first few months of a stock's birth should always be avoided by long-term growth investors. The hype of a tech IPO plus the preferential treatment of institutional investors getting first dibs on initial stock issuance almost always results in individual investors picking up the new stock at a price premium outweighing the underlying company's actual earnings potential.
DivX is no different, but it seems that the transient is gradually dying out. As seen below, its 1-month moving average (middle trend line) is bottoming out after taking a downward dive since peaking in Dec '06. This seems to be corroborated by the narrowing of the Bollinger bands, signaling lesser volatility.
If anything is to be said about IPOs, it is that the first few months of a stock's birth should always be avoided by long-term growth investors. The hype of a tech IPO plus the preferential treatment of institutional investors getting first dibs on initial stock issuance almost always results in individual investors picking up the new stock at a price premium outweighing the underlying company's actual earnings potential.
DivX is no different, but it seems that the transient is gradually dying out. As seen below, its 1-month moving average (middle trend line) is bottoming out after taking a downward dive since peaking in Dec '06. This seems to be corroborated by the narrowing of the Bollinger bands, signaling lesser volatility.
Does this minima signal an entry point opportunity for those patient investors? Lets dig deeper...
Fundamentals
The bulk of its business lies in licensing of its codec technology to other video apps and consumer electronic makers (80% of its revenue) and the rest coming from media distribution services of its player, advertising on its website and community portals.
Profit margins look strong at around 33% and its remaining $61m in cash flow from the IPO will probably be used to acquire new technology and personnel, as has been reported that it plans to increase its workforce by 30%.
Spending on Product Development has been steadily increasing by 40-50% each year, while revenue has kept up with the pace over the last 4 years.
Long-Term Growth prospects
DivX recently hired 2 veterans from consumer electronics giant, Sony and digital document company, Adobe Systems, to strengthen their customer focus, further increasing investor confidence that DivX is investing for long-term growth and competitiveness.
This recruitment drive reflects DivX's need to reorgnize its development teams to be more consumer focused and thus innovate for future customer expectations, a factor in long-term growth of a public company. These are early steps in the right direction after getting past the hype of an IPO.
One of the first uses of the $108m in IPO funds was to buy Corporate Green, an online community platform to furnish the nascent online DivX community with more tools. This further solidifies DivX resolve to establish a strong community of tech followers, in very much the same way the mp3 format has been built up to be accepted as an industry standard.
As an online video sharing platform, it lags behind frontrunners like myspace, and youtube. However, being a younger company, its vision is to provide its growing community with fast and high quality video downloads to differentiate itself from its competition which would work if the online community is willing to download the DivX encoding software for their video uploads.
Thus its future growth hinges on the mass insertion of the DivX codec into new digital media hardware where consumer hardware makers will pay licensing fees to DivX and also DivX's new Stage6 online video portal, a potential source of advertising revenue. Is this a viable strategy given its competition?
Its technology does place it at the forefront of video encoding techniques. And whether its belief that it can generate greater exposure to its technology through online communities is grounded can be evaluated by the $1.6b Google paid for youtube and the $580m News corp paid for myspace.
Anti-DivX Sentiment
The main sources of DivX revenue in 2006 lies in the packaging of its media player to the Google Toolbar and in the licensing of its encoding techniques to DVDs and compatible players. This revenue stream comprises of only a couple of major players most notably Google. This stream can dry up if Google decides not to bundle the DivX player with its toolbar once the license agreement expires.
To work with DivX video, the user has to download a codec software or buy players with special hardware that decodes DivX-formatted media.
DivX has set its sights as being recognized as the industry standard in video compression and thus, hope to increase licensing revenue by achieving mass market acceptance. However, its competition are mostly owned by larger media or tech companies that can synergize their video sharing sites with other product offerings.
MySpace owned by News Corp is able to freely present its media content produced by its Fox movie and TV business and form community groups hosted on MySpace for various Fox programs. YouTube owned by Google could be packaged with other Google web applications to create a powerful all-in-one online portal. These possible factors are be leveraged to isolate DivX's Stage6 video sharing/community space.
Outlook
DivX though starting out slow, is making steady. Its earnings growth has increased by 500% in 06 from 05 and from negative earnings the year before. These numbers are startling in their own right, but lags behind big tech movers like Akamai. Overall, with sound and experienced management cultured for many years in the internet media industry, DivX is a sound long-term growth investment.
Sunday, March 4, 2007
Tech Talk
Why the fuss?
With many analyst gearing up for a tech turnaround in 2007, it leads us to wonder whether such optimism has any basis. The tech industry, largely driven by new innovative products, has reason to be excited about the new products that came out towards the end of 2006 could result in increased sales that will propel revenue for FY07.
Google leads the charge to the promised land of web-centric applications, acquiring web-application companies to package together a web-based Office/business-tools product, capable of challenging Microsoft Office. As mentioned in an earlier post, Microsoft has its new line of OS and Office products that could allow all PC-related stocks to ride on its coattails.
To fuel this hype, industry consensus is that the tech sector is expected to grow more than 19% this year, from just 9.3% in 2006. Valueline has rated tech stocks #1 in performance for 2007 based on its earnings growth projetions of 16.5% for the sector as a whole.
However, projections no matter how thorough the models are, are merely extrapolations based on historical trends and the number of shares these analysts hold for the company that they are hyping about. In reality, projections are almost as accurate as predicting the total rainfall for next year today. As always, lets take a look at past year returns.
With many analyst gearing up for a tech turnaround in 2007, it leads us to wonder whether such optimism has any basis. The tech industry, largely driven by new innovative products, has reason to be excited about the new products that came out towards the end of 2006 could result in increased sales that will propel revenue for FY07.
Google leads the charge to the promised land of web-centric applications, acquiring web-application companies to package together a web-based Office/business-tools product, capable of challenging Microsoft Office. As mentioned in an earlier post, Microsoft has its new line of OS and Office products that could allow all PC-related stocks to ride on its coattails.
To fuel this hype, industry consensus is that the tech sector is expected to grow more than 19% this year, from just 9.3% in 2006. Valueline has rated tech stocks #1 in performance for 2007 based on its earnings growth projetions of 16.5% for the sector as a whole.
However, projections no matter how thorough the models are, are merely extrapolations based on historical trends and the number of shares these analysts hold for the company that they are hyping about. In reality, projections are almost as accurate as predicting the total rainfall for next year today. As always, lets take a look at past year returns.
The 2 bolded lines in hot pink and navy blue are the software and hardware sectors resp. Hardware bigwigs include Cisco, IBM, Intel, HP etc, and Software giants include Microsoft, Oracle, SAP etc.
Lets not consider the 5 year returns for tech (hardware + software) just to remove the grinding recovery of the 2001-2002 tech depression from the equation. Even then, its still characterized by growth not much faster than an old man in a Caddy down Florida's turnpike.
Looking into the individual charts
Monday, February 26, 2007
Google Returns aint Got Nothing On These Internet Stocks...
If you think the hottest Internet stock floating in the market is GOOG, think again...
Akamai Technologies Inc (AKAM) has returned 165% (incl. price changes and reinvestments from any dividends ie. conpounded annual total returns) in the past one year. Thats a whoooooping 55 times the return of google in terms of compounded returns. This Boston-based tech firm provides internet business solutions to business customers by helping them manage their online content and application delivery.
Like a lot of Boston-based tech firms, its founding roots can be traced to a MIT Math professor who still currently serves as chief scientist and has built up a management team comprised of former Forbes 500 managers.
Akamai Technologies Inc (AKAM) has returned 165% (incl. price changes and reinvestments from any dividends ie. conpounded annual total returns) in the past one year. Thats a whoooooping 55 times the return of google in terms of compounded returns. This Boston-based tech firm provides internet business solutions to business customers by helping them manage their online content and application delivery.
Like a lot of Boston-based tech firms, its founding roots can be traced to a MIT Math professor who still currently serves as chief scientist and has built up a management team comprised of former Forbes 500 managers.
Another hot potato is Digital River, e-commerce provider of a myriad of online solutions including management and maintenance of transactions, security, traffic flow, marketing and optimization of online stores for business customers. Its 1-year return of 87.6% outpaces that of GOOG.
More on their fundamentals later...this is just a teaser.
Monday, February 19, 2007
When the chips are down...
In keeping up with our week long tradition of prying into companies in the news, lets shift our focus on the endless saga between Intel and AMD that reads like 2 over-the-hill pensioners trying to out-wheelie each other in their wheelchairs.
First, a look at the charts...
First, a look at the charts...
Semiconductor sector performance for the past year has been underwhelming. A victim of competitive profit-gouging price wars, AMD has appeared to be most affected by the declining profit margin in its microprocessor business, dropping profits on per-chip sale to 36% from 56% a year earlier. Even the introduction Microsoft's Vista OS in Jan '07, the supposed elixir to the ailing semiconductor firms, failed to boost revenue. With the PC market lagging, the strong positive correlation between the PC market and semiconductor business is dragging down all computer hardware stocks.
Intel, the larger company (mkt cap 122.3b vs 8b AMD), is more equipped to ride through the price cuts through cheaper and more efficient manufacturing processes. Intel has invested heavily in the skilled and cheaper labor in Asia when it expanded its manufacturing operations to Malaysia, Vietnam and China. Intel's manufacturing export, tied with its more efficient manufacturing technology, allows it to outlast AMD in a prolonged price war.
Both Intel and AMD in collaboration with IBM officially announced "the most exciting breakthrough" in transistor technology since 1960. Using different techniques, Intel and AMD are introducing faster microprocessors with transistors at the 45nm level that will bump up cycle rates 50% or more. The well-timed news will spark off a race between the 2 rivals to realize their respective new transistor technology in chips used in consumer products.
Focus on Intel..., a company with one of the strongest fundamentals among large US companies (8b in cash in '06 vs 1.8b in long term debt), has seen its stock price decline more than 30% in the last 3 years from a high of ~$34 in 2003-2004. Most crucial to this fall is the declining profit margin, down to 15% end of FY'06 from a 5-year average of 18%, largely contributed by the fall in operating margin by 9% from the 5-year average.
The chart above shows the declining EPS for the TTM. From an EPS of 1.4 to 0.87, thats a drop of nearly 40%! Definitely not a stock for value investors looking for steady earnings growth without sharp earnings fluctuation. This earnings fall is the steepest single-year fall since the tech industry downturn of 2001-2002 where earnings dropped about 67%. Though management has been steadily increasing dividend income (div up 38.97% from '02), this could be a signal that management is trying to compensate their investors for lack of future stock price growth.
There are few positives that can be taken from Intel's fundamentals. The short-term trading prospects of this stock is not surprisingly, just as ominous. Looking at some of the technical data...
The 1st chart shows the MACD line dipping under the signal line with increasing divergence from the signal and the ROC indicator shows a downward stock price momentum building up.
The long term future of this stock may simply lie is its fundamentals, the management's ability to push to market the new 45nm microprocessors and the general climate of the consumer PC market. Efficiency may increase due to increased manufacturing throughput of the smaller microprocessors, which will lead to improved operating margins. However, its earnings have such a strong correlation with the sales of its main customers like Dell and HP and the desktop software providers like Microsoft that to accurately judge the direction of the stock price, we have to take a large cross-section of the PC tech sector to evaluate Intel's chances for a turnaround.
Saturday, February 17, 2007
Google - Where is the stock going?
Introduction
In recent weeks, Google has lost close to 10% of it’s’ per share value. It has plummeted from $500 to $460 within a span of a few weeks. Most people speculate that Google is an over-valued stock and it is destined for a bearish future. Others believe that Google will grow at a constant pace as it continually redefines the entire Internet marketing and searching experience. What is StockRocks take on this growing company who has captured the attention of its’ shareholders since it went public?
Fundamental Analysis
Google reported excellent earnings for 4Q ending 2006. Their earnings came in at $1.03 Billion, or $3.29 per share for the last three months. Compare this to only $372.2 Million, or $1.22 per share in 4Q in 2005. In 2007, analysts estimate that Google is expected to earn an average EPS estimate of $12.69 for the year or an average of $3.17 per quarter. These figures are stunning and indicate a very bullish year for Google.
In recent weeks, Google has lost close to 10% of it’s’ per share value. It has plummeted from $500 to $460 within a span of a few weeks. Most people speculate that Google is an over-valued stock and it is destined for a bearish future. Others believe that Google will grow at a constant pace as it continually redefines the entire Internet marketing and searching experience. What is StockRocks take on this growing company who has captured the attention of its’ shareholders since it went public?
Fundamental Analysis
Google reported excellent earnings for 4Q ending 2006. Their earnings came in at $1.03 Billion, or $3.29 per share for the last three months. Compare this to only $372.2 Million, or $1.22 per share in 4Q in 2005. In 2007, analysts estimate that Google is expected to earn an average EPS estimate of $12.69 for the year or an average of $3.17 per quarter. These figures are stunning and indicate a very bullish year for Google.
With the recent purchase of YouTube.com for $1.65 billion, a popular video viewing website receiving millions of hits each month, Google has expanded its horizons in capturing the media market. In addition, recent news indicates that the company is getting ready to purchase Adscape, an in-game advertising company. One thing for sure, Google is definitely growing and they are purchasing various sectors of the Internet market.
Google is definitely taking market share away from one of their largest competitor, Yahoo. Google’s market capitalization at $143 Billion is more than triple Yahoo’s at $43 Billion. Even though Yahoo’s management is repositioning itself and revamping its strategic marketing, it will be some time before Yahoo regains pace with Google.
Let’s take a look at the stock price of Google. The market has set a price of $469.94/share at the end of Friday’s trading day. As I mentioned earlier, Google’s stock price has been down close to 10% and that’s okay. With profit taking and news about the economy slowing down, the market can be very volatile. Ignore it! Let’s take a look at 2008’s forward P/E of $37. Combine this figure with the 2008 EPS estimate of $17 and Google’s future per share value is $629. Applying a discount factor of 10% to match the S & P 500’s yearly returns will give you a present value of around ~$520. The intrinsic value of the stock at $520 compared to what the market sets at $469 has a margin of safety of 10%. Our stock valuation indicates that Google’s stock is attractive.
Technical Analysis
Let’s observe some technical indicators.
MACD (Moving Average Convergence Divergence) : The MACD line is slowly creeping up towards the signal line. The MACD line has been floating below the signal line in the past few weeks, as exhibited by the stock falling. If the MACD crosses the signal line, it is a good entry point.
ROC (Rate of Change) : The ROC indicator had a negative slope and appears to be flattening at the bottom and should pick up and shift upwards.
Bollinger Bands : The graph indicates that the recent price of the stock has been bouncing
off the lower standard deviation of the Bollinger bands. This behavior is more likely a result
of the stock being oversold. I would expect the stock price to bounce off the lower Bollinger band a second time to confirm an upward shift in momemtum.
Summary
Google has a positive future outlook. The company will grow at a fairly constant rate, putting more money in shareholder’s pockets. Again, this is based on my own research and due diligence. I am not providing a recommendation on the stock. Please use this information at your own risk.
off the lower standard deviation of the Bollinger bands. This behavior is more likely a result
of the stock being oversold. I would expect the stock price to bounce off the lower Bollinger band a second time to confirm an upward shift in momemtum.
Summary
Google has a positive future outlook. The company will grow at a fairly constant rate, putting more money in shareholder’s pockets. Again, this is based on my own research and due diligence. I am not providing a recommendation on the stock. Please use this information at your own risk.
Note : All images are courtesy of MSN.com and StockCharts.com
Tuesday, February 13, 2007
Whats wrong with Microsoft?
Pressure on New Products
Microsoft's share price took a beating in the stock market this week ending 02/16 on CEO Ballmer's seemingly self-decapitating claim that the current consensus on expected Vista sales were "overestimated". Sales for the consumer-version of Vista OS and Office 07, released in January, have fallen "below estimates", though it is a typical trend for the sale of previous releases of MS OS to start slow and gradually pick up steam.
Their main revenue-driving product aside, CFO Liddell stated end of Jan that original sales estimates of the Xbox360 were too high, and has cut sales projections for FY'07 by 3m units to 12m. However, Xbox360's first-to-market strategy has seen them outsell Sony's PS3 and Nintendo's Wii and their pricing value is advantageous. Priced about $150-$300 lower than a PS3 and a wee bit higher than a Wii, but loaded with alot more features than the Wii, it is suitably placed to attract neutral gamers.
MS's market entering product into consumer electronics, Zune, despite a promising launch, has significantly lost ground on its sales target of 1 million sales by June 07. However, it may still meet the original market estimate of 500,000 units sold. Realistically, any predictions on MS's ability to chisel off Apple's market share of portable media players are premature as the ipod sold 250,000 units in its first year of launch. If MS is serious about the Zune, it will be as focused in design, feature and technology improvements as it was in launching the Xbox to compete with Sony's PS3, the gaming equivalent of the ipod.
Future Growth Analysis
Microsoft is a company in an experimental expansion phase. It is gambling future growth on a few business areas that already has incredibly strong majority players. In the next few years, and as soon as 3rd quarter of FY07, Microsoft plans to allocate more of its operating budget to R&D of the Zune family of products and to its lagging internet service and advertising business. Earnings growth in those 2 areas are not promising as iPod and Google have a commanding 75% and 42.3% market share respectively. MS is forecasting the Xbox business to start recording a profit by FY08 so that makes all their emerging products relatively poor indicators.
Technical Analysis
Microsoft's share price took a beating in the stock market this week ending 02/16 on CEO Ballmer's seemingly self-decapitating claim that the current consensus on expected Vista sales were "overestimated". Sales for the consumer-version of Vista OS and Office 07, released in January, have fallen "below estimates", though it is a typical trend for the sale of previous releases of MS OS to start slow and gradually pick up steam.
Their main revenue-driving product aside, CFO Liddell stated end of Jan that original sales estimates of the Xbox360 were too high, and has cut sales projections for FY'07 by 3m units to 12m. However, Xbox360's first-to-market strategy has seen them outsell Sony's PS3 and Nintendo's Wii and their pricing value is advantageous. Priced about $150-$300 lower than a PS3 and a wee bit higher than a Wii, but loaded with alot more features than the Wii, it is suitably placed to attract neutral gamers.
MS's market entering product into consumer electronics, Zune, despite a promising launch, has significantly lost ground on its sales target of 1 million sales by June 07. However, it may still meet the original market estimate of 500,000 units sold. Realistically, any predictions on MS's ability to chisel off Apple's market share of portable media players are premature as the ipod sold 250,000 units in its first year of launch. If MS is serious about the Zune, it will be as focused in design, feature and technology improvements as it was in launching the Xbox to compete with Sony's PS3, the gaming equivalent of the ipod.
Future Growth Analysis
Microsoft is a company in an experimental expansion phase. It is gambling future growth on a few business areas that already has incredibly strong majority players. In the next few years, and as soon as 3rd quarter of FY07, Microsoft plans to allocate more of its operating budget to R&D of the Zune family of products and to its lagging internet service and advertising business. Earnings growth in those 2 areas are not promising as iPod and Google have a commanding 75% and 42.3% market share respectively. MS is forecasting the Xbox business to start recording a profit by FY08 so that makes all their emerging products relatively poor indicators.
Technical Analysis
From the MACD chart (2nd graph), the blue line (darker line) shows how the MACD fell sharply during the late Jan-Feb period, possibly indicating overactive selling as a knee-jerk reaction of Vista's poor opening sales. At the same time, corresponding stochastic readings in the bottom chart shows strong indication that the new 2-month price lows being reached, may bottom out. This trend is corroborated by the narrowing of the divergence (black histogram) in the MACD but not the widening of the Bollinger bands (1st chart) where std dev size measures volatility. The smaller the divergence of the MACD the more stabilized the stock price is, which may indicate the stock bottoming out. However, with the actual stock price still reaching 2007 lows, entry positions into the stock should be held back to allow the downward trend to lose momentum.
The StocRockin' Point of all this?
My opinion is that MS stock will continue with its downtrend for just a little bit longer, until the consumer market buys into the Vista and Office 07, core products that can compensate for lack of growth in other MS business units.
Saturday, February 10, 2007
Trading style and beliefs
Stockrocks believes in a blend of growth and value investing with special interest in the finance, energy, technology, retail, automotive, defense and aerospace sectors. We do not aim to provide stock picks or recommendations, but to provide sound fundamental and technical analysis that may aid in a small individual investor's decision making.
Quantitative analysis is our strength. We will provide charts and numbers to support any valuation we make of a stock. Stockrocks has no corporate or political affiliation. Our amateur site is purely for informational purposes and meant to solicit feedback from readers in order to further hone our analysis skills.
We hope as time goes by, the analysis we post will gradually mature and be of more help to the general investor public. Every month, we will be posting stock analysis from a new sector of our choosing and this month, we shall start with the sector that is gradually recovering it lost glory from the late 90's -- Tech!
Quantitative analysis is our strength. We will provide charts and numbers to support any valuation we make of a stock. Stockrocks has no corporate or political affiliation. Our amateur site is purely for informational purposes and meant to solicit feedback from readers in order to further hone our analysis skills.
We hope as time goes by, the analysis we post will gradually mature and be of more help to the general investor public. Every month, we will be posting stock analysis from a new sector of our choosing and this month, we shall start with the sector that is gradually recovering it lost glory from the late 90's -- Tech!
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