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.

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