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...
Wednesday, April 11, 2007
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.
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