Thursday, July 27, 2017

Winner, Winner, Mexican Dinner.

OK, so you can have your Amazon, Facebook, Netflix, and Google (FANG) and we all have them, if you own an S&P 500 Index fund (which you should), they represent the top holdings and most of the gain you have had over the past 5 years.  That's great, and it's right in your face - or on your computer - whatever.  They're easy to spot.  The virtual low-hanging fruit.  Buy them, don't buy them - the market moves on them, and it's probably just best that we own an index fund and let it run on its own momentum - of which there is plenty.

The fun, and to me, the interesting part comes in finding the high-hanging fruit.  The companies that require a little effort and sometimes patience.  One of them is yesterday's Limelight Networks, which is up again today off of yesterday's great quarter.  Another is Mexican casual "fast-food" chain DelTaco Restaurants (TACO) which reported earnings today.  I waited with clenched teeth and sweaty palms, because the casual dining segment has been a mess. Some have prospered and others have failed.  The view here was that DelTaco is a growth story, and its growth continues.  The big "if" was the profits and earnings.  I'm happy to report...


That's a beautiful thing, coming from the restaurant group.  Eight-percent growth, meeting or exceeding earnings, and raising guidance.  The guidance is the key.  If they didn't raise guidance, the stock may have suffered, as investors were probably looking for an excuse to sell it and move on.  As it is, there is no reason to sell this, and there may even be a reason to buy more.  After hours today, the stock is up 29 cents to $13.10, which is basically where it has traded at the high end over the past month or three.   Let's see if Wall Street expresses confidence in them by driving the price up into the 14 to 15-dollar range.  That would show me something.  As for now, I'm a happy long, and I'll look forward to 2017 and 2018.  Maybe I'll get to eat at one of their restaurants?

As for the rest of the goings-on, Starbucks deserves a look if you have a long-range time horizon.  The stock is down after reporting a quarter that didn't give anybody a stiffy.  For those of you with longer term horizins, there may be a buying opportunity.  Just like their coffee, let it cool off a bit before you start sipping.  And, you should sip, not gulp.


Wednesday, July 26, 2017

One Down, Several to Go.

When the CEO of a company you are invested in says something like this (below) I couldn't think of a better reason to (a) have tremendous confidence in the company and (b) encourage me to buy more.  Regardless of whether it's a huge conglomerate like Ford or Boeing, or a tiny microcap like Limelight Networks (LLNW) I am thrilled to be in this, and looking forward to watching them grow in 2017 and beyond.


As for the numbers:

Limelight Networks, Inc. (LLNW) (Limelight), a global leader in digital content delivery, today reported revenue of $45.4 million for the second quarter of 2017, up four percent compared to $43.6 million in the second quarter of 2016, and up one percent compared to $44.7 million in the first quarter of 2017. Currency headwinds negatively impacted year-over-year comparison by $0.3 million, or one percent.

Gross margin was 47.1% in the second quarter of 2017, an increase of 390 basis points from 43.2% in the second quarter of 2016.  On a GAAP basis, Limelight reported a net loss of $1.6 million, or $0.01 per basic share, for the second quarter of 2017, compared to a net loss of $57.9 million, or $0.56 per basic share, in the second quarter of 2016. The second quarter of 2016 net loss included a $54 million provision for litigation related to the settlement of the Akamai lawsuit.  Non-GAAP net income was $2.9 million, or $0.03 per basic share, for the second quarter of 2017, compared to non-GAAP net income of $0.6 million, or $0.01 per basic share, in the second quarter of 2016.

And thus goes the first report of my earnings season.  Tomorrow, we hear from DelTaco (TACO) after the market close.  I'm still contemplating adding more, but it might be prudent to wait and see what they have to say.  Chipolte had a nice quarter, as did McDonald's. But Buffalo Wild Wings stunk it up, and the stock was halted.  Ended the day down about 9% after saying that the price of chicken wings was a headwind.  Gee, when your business is serving chicken wings, I'd think that you should be better at managing that obstacle.  Having eaten there a time or two, I wouldn't buy the stock based on my experience.

The casual dining area is difficult, and if DelTaco can impress with a strong quarter and put out a nice forecast for the remainder of the year, it would present an attractive buying opportunity for long-term investors.


Monday, July 24, 2017

Earnings Season! Rabbit Season! Duck Season! Earnings Season!

You know the drill.  It's been three months since they last reported, and God forbid we go more than twelve weeks without having our opinions changed about companies that we liked at one point - or hated - whatever.  Twelve weeks isn't long enough to age wine, let alone figure out what's going on in the high-end world of finances, but it's here, so we deal with it.

Alphabet (nee Google) reported after the close tonight.  The numbers looked pretty good to me.  They beat on the top and bottom line, increased hits and decreased the costs - but Mister Market saw fit to drop the hammer on them after hours.  That tells me that you might get a bargain if you're a buyer.  Wait for the legendary three-day period before jumping in.  It takes a long time to unload a $900 a share stock.  Let it settle-in.

Otherwise, yes I eat my own cooking. Last week, I picked-up shares of Square (SQ) at $26.  I suspect it hasn't run its course yet, and there is still a lot of settling to be done in the payment space.
I sold shares of Micron (MU) to finance it, so I'm counting on the semiconductor companies to be through with their run and make this a good trade.

As for another favorite, Rocket Fuel (FUEL) they have been purchased by a private equity firm, and the transaction was a net loss for me.  Proving that not all takeovers are positive for shareholders.  Nevertheless, I sadly sold my shares for $2.65 and will be using the money to make an attempt to gain back that loss - which is usually a sucker's bet - but I'm a sucker, so I'll go with it.

Limelight Networks reports earnings on Wednesday.  The stock has been gradually climbing out of the $3 range, and is at $3.18 as I write.  I'm planning on buying more before they report.  I am confident that their market in India is strong, and will provide the company with strong growth and earnings into 2018.  We'll know more after their call, but that's the game we play.

The rest will go into a stock that I like, but as Karen Finerman would say, "I'm long and sad."  DelTaco has been trading downward for a month or so.  Several analysts have put a price target on it significantly higher than the current $12.08 price, so this believer is still buying.  Currently, I own over 300 shares.  I'll either look like a giant nitwit or a genius - but that's the game we play.  There is too much growth in this company to be ignored.  An earnings call should come next week.

I'm standing pat on the rest of the calls. Cisco, Pfizer, Extreme Networks, and Square all report in the next couple of weeks.  I'm more confident in EXTR and SQ than PFE and CSCO, but I have been surprised before.  Sometimes, low expectations can work in our favor.

Face east and get on your knees.




Saturday, July 15, 2017

OK, so What Now?

If you believe that the market is fairly or over-valued, it presents a challenge to find companies whose stock prices are not inflated beyond the measurements that the stock market places on them:  Price-to-earnings (P/E) and all of those rational multiples that stock prices are supposed to be based on. Ask a Tesla (TSLA) investor which rational measurements he is investing in, and he won't have an answer for you.  The stock is overvalued on every aspect.  You invest because you believe, and sometimes, you have to throw value out of the window.

I sold Micron (MU) at $29.50 because I had some profits and didn't trust the semiconductor industry.
(By the way, I lose faith in companies the same way I lose faith in old cars.  Once I lose confidence, they have to go, regardless.  And, as Jim Cramer says, "Nobody ever lost money taking a profit.")

Oh, and for the record (if there is one) I sold Snap (SNAP) at my buy price.  Once it ran up into the high 20s, word was that it was unsustainable.  My regret is that I didn't sell it then, but at least I didn't lose anything in the process.  In the mirror.

So, that leaves me with (as they say) money on the table.  There are several options, and I took them all.
Option 1:  Buy more of what I already own.  Going over the portfolio, I have the greatest confidence in Pfizer (PFE) going into 2018, so I increased my stake in them.
I also still like DelTaco (TACO) and have bought more over the past two weeks.  They report earnings next week, and I am still confident that their outlook will be bright enough that investors will see the value, and the $13 share price of today will get closer to the general target of $17.

Option 2:  Keep it in cash until the market corrects.  Feh.  I don't see a huge correction going on.  Plus, if we're buying value, then a correction will likely leave me with a break-even situation, which isn't a big problem to have.

Option 3:  Find the so-called 'next big thing.'  There's the problem.  What is it?  
Banks?  Eh.  We keep waiting for interest rate increases to drive earnings, but the numbers won't support it. Citibank (C) is the biggest value to tangible book value in the group, and I'd flinch at buying it now. Your best revenge would be to try to gain back some of the 22% interest they're charging on your credit card accounts.  And that's not the problem.  The problem is that they aren't adding new investor accounts.  Go figure.
Energy?  Maybe, but for the near future, oil prices are stagnating or going down, so it looks like energy companies will continue to struggle for space and commodity price.
Retail? If you want to gamble, go to Las Vegas.  Whether or not you believe that Amazon is killing everything doesn't matter.  Amazon is killing everything.  Buy TJ Maxx, Target, or Walmart if you want.  In fact, I'd recommend it.  It's just not what I'm looking for now.

After mulling-over the possibilities, I settled on the mobile pay thing.  ApplePay has their niche, and PayPal dominates the web with Ebay.  More and more, people are using their cell phones (are they really phones?) for paying at restaurants and retailers.  There is one company that is on the periphery that is making money doing it, and they may be worth the gamble.

For one thing, the space is so crowded, it's ripe for takeovers and mergers.  Don't buy a stock based on that, but having it in your back pocket is a nice option.  The company:  Square (SQ)
While the stock is up from $16 to $26.33 over the past three months, and has doubled its IPO price of $12 in 2015, there is still room to run.  This is based on negative earnings, and when they report on August 2, it's possible (probable?) that they could report a profit of as much as eight cents a share.
Their system is tied into Visa and MasterCard, and sellers can get analytics through the company's web site of sales data. There is also a SquareCash option that allows cash transfers, like PayPal and Venmo.
From a M&A standpoint, it puts Square in the crosshairs of Visa, MasterCard, PayPal, Apple, and a host of other financial institutions who may be willing to expand their scope.  The risk (of course) is that they will pay more than the present $26 share price.  That's where the profits and expected earnings come in.

If potential investors (merger candidates) see Square as a profitable threat to their own business (PayPal, Apple) or a legitimate add-on to their company (Visa and MasterCard) then you have the potential of a deal.  If Square flounders and doesn't build a client base, then those merger candidates will be content to allow Square to die on its own. I'm willing to bet that it won't happen, and Square will be successful.

Facebook, Amazon, Netflix, and Google (FANG) have had their run. Their businesses are known, and the risks are evident.  Tesla (TSLA) is a company I love but a stock that scares me.
You can buy General Electric (GE) at a huge bargain, collect the dividend and wait, if that's your game.  I wouldn't say no to that.
General Motors (GM) is a nice bet here, based on their huge value (six times earnings) because God knows, it's hard to turn down a bargain.
The drug stocks (Pfizer, as I said) are good here, and I'm still long Pfizer and loving the 3.8% dividend.  I like Johnson & Johnson (JNJ) too.
Technology keeps motoring along, and I'm counting on selling Micron wasn't a huge mistake.  But, there's always something else, isn't there?

I'm looking for something exciting, innovative, and new.  It's risky, but then, everything new is risky. I think that the industry is still new enough that it hasn't been shaken-out yet.  I'd bet on PayPal and Apple to be survivors.  That's not a big risk.  I want to be bold and stick my neck out.  It's stuck out with Square, Limelight Networks (LLNW), Extreme Networks (EXTR), Rocket Fuel (FUEL), and DelTaco (TACO). I think I've written about those before.
Hey - the world is a big place.  There's plenty of room for growth amidst the value.

Let's revisit this in 6 months and see if I was right.





Thursday, June 22, 2017

My Beautiful Boy

"I'll see you soon. You be good."

That's what I said to Thor every day when I left the flat to go to work.  I would, and he would.  We kept our promises.  That's how friendships work.

I have written about him here before.  (you could look it up) Our relationship was forged from the first day we saw each other.  He in a cage at the PetsMart and me looking for a new companion.  Every other cat had a placard with an explanation of how they wound up there:  My owner was allergic.  I moved to a place that doesn't allow cats. He doesn't get along with my children. Etcetera.

Thor.  Just the placard with his name and age, "Between 1 and 2 years."  "How did he get here?" I asked.  Nobody at the store knew.  Somehow, he appeared - as if to wait for me?  When I took him out of the cage, he placed a paw on my cheek. The shelter women were aghast.  "He never does that with anybody!"
"OK then, I guess this is my cat," I said.
And the rest, as they say, is history.

I saw him through the loss of almost all of his teeth, pancreatitis, weight issues, and kidney disease - which would ultimately be his demise.  But, not without a fight.  I found solace in the fact that, if it weren't for me, he would not have lived the life he did.  He beat all of them, except the kidneys.  Logic tells us that four out of five cats succumb to it.  My heart tells me that he should have been the fifth.  

--------------------------------------------------

My home is empty now.  When I call, "Hey buddy, I'm home!" nobody comes to the door. He won't, except in my heart.  I'll always come home to his nose poking out of my door, waiting for his dinner.  You could sit on the deck and watch the birds, chew the grass in my flower pots, or just sun yourself in the warmth of its glow.  It made me happy to make you happy.

We humans don't get many chances to help. People can help themselves.  Machines run and fail.  Grass grows, and flowers bloom without our help.  With dogs and cats, we can pick them out of the darkness of their shelter cage and let them roam around our home and find their peace.  It's what makes life worthwhile for some of us.  

He returned the favor.  He gave me unconditional love. When my life stunk and I wanted to give up, I couldn't, because he depended on me, and I was grateful to be in his service.  It gave my life purpose to make him happy.

When he got sick, and needed fluid injections, pills, and special food to keep him going - it was a financial burden, but I took it on because I got a huge return on my investment - his love.

Eventually, as with all things, they come to an end.  If you want a pet that out-lives you, get a tortoise or a parrot.  Otherwise, you're doomed to relinquish their mortality on your emotional need.  That's just the way it is.

In Thor's case (and this is about him) I felt like I should have been able to do more - but there was no more I could do.  I couldn't force him to eat when he was so sick that food had no appeal. I couldn't make him sleep with me when all he wanted to do was be off on his own, under my desk.  He's a noble beast, and doesn't want me to see him at anything other than at his best, even though he was suffering.  It was his battle, not mine.  I wanted to make it mine, but he would have none of it.

Finally, the illness claimed him.  His tenacity and willpower would give-in to his pain, and he couldn't take it anymore.  I came home and found him on the bathroom floor - prone and listless. It was painful for me to see, and I selfishly hoped that he would pick himself up and make another run at his food, but no.  In fact, he had soiled himself, and when I got the carrier out to take him for his final vet visit, he climbed in as if to tell me, "It's time." He was crying, 'Uncle.'

The thought occurs:  When I came home tonight, I couldn't find him. Eventually, I found him prone in the bathroom - where he never was before - prone and listless. Perhaps he was there because he wanted me to find him, and knew that it would be the first place I looked? It's extraordinary, but it makes sense to think that he would have wanted help in his final hours, and knew that he had to be in the one place that was open.  They are smarter than us.

He fought a brave fight.  Daily fluid injections, four medications, and countless attempts at finding something that he would eat.  All for naught.  In the end, he was better than me.  He made the effort when I wanted to give up.  He wouldn't let me give up because he wasn't worth giving up on.

Until the end, when it was just too much for either of us to endure.  Finally, I had to say, "Goodbye."

You be good.  I'll see you soon.

Friday, June 16, 2017

CLEAN-UP IN AISLE FIVE

Unless you've been asleep in a cave, you heard that Amazon (AMZN) bought Whole Foods Markets (WFM) in a deal valued at $42 a share to Whole Foods shareholders, and $13.7 billion to Amazon.  It sent waves of concern through the stock market today, as investors of retailers everywhere started looking under their skirts for a sign that something might be creeping up on them.


All of those names you see above had their stocks hammered or at the very least, bitten into over this deal.  So, what's going on?  Are we headed toward a one-retailer world, or is this just yet another over-reaction to a short-term stimulus?  Or both?

One strange thing that happened is that Amazon's stock went up after the deal was announced, to a degree that equated to almost getting the Whole Foods property for free.  That's odd, especially since the deal was funded from debt.  Somehow, Amazon shareholders didn't care about that.  So, we'll wait for that other shoe to drop.
The other strange thing is that the stock of Whole Foods traded above the $42 offer price for most of the day, and closed at nearly $43.  That tells me one thing:  Somebody influential is expecting another offer to come to the table.  Will that happen?


CNBC analyst Karen Finerman thought that perhaps Walmart could step-in and make a counter-offer for more than the Amazon offer.  There's a low chance of that happening, but apparently, traders thought that there was enough of a shot that it was worth an extra dollar of share price in exchange for the risk.  Let's see what Whole Foods' shareholders have to say about this deal.  A 9% stakeholder, Jana Partners, has been putting pressure on Whole Foods to sell or do something to increase its market share.  They were tired of the moniker Whole Paycheck, which was my impression the few times I shopped there more than 20 years ago.

Now, to the nuts and bolts.  For those of you who think that the Internet rules retail, consider that 92% of all sales is off-line (which includes gasoline - and let's see Amazon get into that) and only 20% of 25-to-34-year old's buy their groceries online.  Those are two big trends, and it's up to Amazon to buck them with this purchase, which one presumes they aim to do.
As far as grocery sales are concerned, Amazon does about $5 billion a year in that "Amazon Fresh" thing that they sell to Prime members.  Whole Foods does $16 billion - so perhaps there is future earnings here?

Are you willing to allow someone else to pick-out your fruit and vegetables and deliver them to your home?  Perhaps I'm old-school, but I enjoy shopping. I like the idea of picking out my own things and taking them home myself.  Is that what Amazon is banking on by buying Whole Foods?  OR ...
Are they planning to make another purchase - such as Lyft or Uber - to enhance the home delivery segment?  Already, Walmart is paying employees to take products to customers on their way home.  This is just one step behind the Uber concept.  Something tells me that Amazon isn't done.

And, what about other businesses?  Would you be willing to buy your prescriptions online and have Amazon deliver them?  Look out, CVS, Walgreen's, and Rite Aid.  Buying a car? Let us deliver it to you.  Carmax, look in your rear-view mirror.
The Universe of possible acquisitions is almost unlimited.

Meanwhile, Amazon has gone from "asset light" (online only) to "asset heavy" (brick and mortar) and one wonders what Jeff Bezos' long range idea is here.  Are they building a network of distribution centers?  It's no coincidence that most of Whole Foods' stores are close to Amazon distribution centers.
Grocery stores are traditionally low-margin businesses, and that's why the sector struggles.  Great companies like Kroger, Costco, Sprouts, and others (see above) are struggling financially while still giving great service and wonderful shopping experiences to consumers.  It's more than the great experience, and the problem is that it's difficult to do both.  That's where Target struggles, and why they will either have to rebuild themselves or give-up selling food altogether.
The latter will be a great concession, since it was a commitment that they made (albeit half-heartedly) to compete with the likes of Walmart.

So - what do we do here?  We watch Amazon for the next move forward and marvel at their preoccupation with world dominance.  If I was a WFM shareholder, I'd hang in, waiting for a counter-offer.  The possibility of some government interference is low, but there is still the possibility of another, higher offer.
What to buy? Well - groceries.  But stocks? My money is on Walmart.  I can't see them laying down and allowing Amazon to roll over them.  Besides, I'd suspect that there is almost no overlap between Whole Foods' customers and Walmart customers.  They are both entrenched in their habits.
And after all, there is room for more than one dominant retailer.

At least for now.



Saturday, June 10, 2017

Let us Review:

Over the past several months, I have diverted from the usual opinions of life in these United States and my own struggles with it into the areas of personal finance and our crazy stock market.  I'm hoping that you have been reading, and in some cases, I hope you have taken my advice to heart - or pocketbook - however you see fit.  So - let's see how some of my opinions have fared:

On December 31, 2016 I wrote that "precious metals are ripe through 2017," and backed the opinion up with some horrible ideas about President Trump and his goals.  The particular investment I am in is an ETF that is 65% gold, with the remainder in silver, palladium, and platinum.  Since January 1, the fund is up from $58.53 to $63.56; a gain of a little more than 8%.  I'll accept that as a win, considering the risk involved. If you want your investments to gain more than 9% in six months, maybe you should try betting on football.

On April 12, I reiterated my stance on gold, as well as hi-yield corporate bonds, emerging markets, and municipal bonds. 
The iShares hi-yield corporate bond ETF (LQD) was at 118.31 on April 12.  Today, it sits at 120.05.  OK, then.
The iShares Muni Bond ETF (MUB) was at 109.14 on April 12.  Today, it is 110.65.  Tax-free, mind you. (I have to find a positive in there someplace)
The iShares Emerging Markets ETF (EEM) was at 39.31 on April 12. Today, it is at 41.61.
Gold, we have discussed.
So, this particular idea package would have left you up in general, but you could have done better.  Suffice it to say that these things should be part of a larger portion of your investments.

On April 18,  I said that you should "stay on the sidelines" regarding shares of Goldman Sachs (GS). The stock was at 225.50.  Today, it trades at 222.44.  Sidelines would have been a good choice.
I said that Facebook (FB) appeared to be "fully valued."  It was at 140.96.  Today it is at 149.60. You win some, and you lose some.  I still say, wait on this.  You may get a better opportunity.
I said that The Home Depot (HD) was "a good choice" in the retail sector.  It was at 146.91.  Today, the stock is at 152.96.  Alright, then.
I mentioned CarMax (KMX) and McDonald's (MCD) as well. CarMax was at 57.17, and has come down off its springtime high near 65 to settle at 59.61.  McDonald's was a no-brainer, and is up to 151.48 from around 130 at the time I wrote about it.  I can't take credit for that, since a blind chimpanzee with a pencil in his butt could have picked that one.

The riskier picks I have made are still on the table. I wrote about Highpower (HPJ) and Limelight Networks (LLNW) on April 18.  Highpower had a little run, and it sitting at 4.75, which is near its price when I mentioned it.  Limelight is up about 15% (from 2.50 to 2.95) but is still a huge speculative play.  It could just as easily be back to 2.50 or up to 3.00.  I'm holding it, as if I don't need the money for another five years, which I do not.

The other was DelTaco Restaurants (TACO), which I said "hold it" on April 18.  The stock is volatile,  as is the casual dining industry. If you're inclined to follow me, wait until the stock trades below $13 to jump in.  It's at $13.50 now, and it's approaching my "Don't Buy" price.  (ask me what that is, and I'll tell you) Until then, I'm continuing to make my weekly investments.  With a new CEO and their growth plans still in place, I'm anxiously awaiting their earnings report in August.  Other stocks in the industry have made significant jumps in price, and I'm thinking that rotation out of those names into smaller companies like DelTaco might help get the shares back to the P/E levels of McDonald's and Domino's.  

Overall, I'd say it hasn't been a bad half-year.  I'll continue writing about this stuff if you agree to do your own research and take my ideas and opinions with the significant grain of salt that they deserve.

Godspeed.