Sunday, November 3, 2013

Portfolio has Stagnated? Here's Some Tips!

                 I wake up in the morning to the tune of CNBC’s alarm clock telling me the current status of S&P 500 futures, and in an odd twist of irony I found that one of the common phrases the CNBC alarm clock uses to inform me about S&P 500 futures fits my opinion of the market perfectly.

                “Futures are flat and opportunity is in the air, come on, time to make some choices!” I could not have said it better myself.

                Although the DOW added another 85 points this week, the NASDAQ index declined slightly and many companies have seen their stock prices plateau. Personally I managed to squeeze out a very minor profit this week, this marks my second week in a row where my portfolio has remained more or less flat, and this aggravates me. So over the last few days I have searched for lucrative investment opportunities that could revitalize my portfolio and I believe I have found a few stocks that could just do the trick.

                But before I get to them I want to discuss some of this week’s notable events, one of the most important was the Federal Reserve’s decision not to end its $85 billion monthly stimulus program. This was expected, and I said as much in last week’s entry, yet the market did not seem overly excited about the news since it only boosted the general market up slightly (Although the Indian stock market rallied on the news, however much that may affect you).

                Apple announced earnings Monday afternoon, and the market reacted to them exactly the way I said it would react, shares fell more than 3% on Tuesday, and if you took my advice and bought Apple stock after the earnings report, you saw a small profit at the end of the week. Now of course Apple’s earnings were nothing to impressive, although the company mostly met expectations it saw its profit margins decline. I would not worry too much about Apple’s margins, what I would worry about is Apple’s next product line.

                I know I am not the first to say that Apple needs a new product line to revitalize itself, but unfortunately it’s true. No matter how much I love Apple’s iPhones and iPad’s I cannot ignore the fact that Apple is rapidly losing market share to Samsung, and Google. The company needs a new edge; personally I believe that will come in the form of a smart T.V. I believe this for one reason, the smart T.V space needs improvement, I own a Samsung (so called) smart T.V and the smart option on it randomly shut off on me a few months ago. Since then I have, ironically, been using an Apple T.V to watch Netflix and Hulu Plus. If Apple can create a smart T.V at a reasonable price, I have no doubt that the company would gain control of the market quickly. But this is all speculation; the only thing I am sure of about Apple is that it makes solid, reliable, and popular products, and that the company stock is currently undervalued. With this said even if you failed to take advantage of the opportunity to buy Apple stock on Tuesday after its Earnings report you could still make money on Apple by buying now.

                Another company that reported earnings this week was Facebook, which blew past earnings expectations and saw its stock climb over 17% in pre-market trading on Wednesday, the stock then settled down after the social media giant announced that the amount of teens logging on daily has dropped. Facebook ended the week down 3.4%, but I have voiced my distaste of Facebook as a company many times before, what interests me about Facebook’s earnings and its market performance is that it might show a helpful insight into the potential market reaction of Twitters IPO.

                Twitter is supposed to go public this week, around $18-20 a share, this gives Twitter an evaluation of $11 billion. In my opinion Twitter represents the next wave of the internet bubble that has appeared to have swept the stock market. Facebook, Netflix, Amazon, LinkedIn, Groupon and now Twitter, all of these internet based companies have seen their stocks blown out of proportion to resemble the internet stocks of the late 1990’s.

                All of the above companies have earnings that do not support their market evaluations at all, and Twitter is no different. In the company’s first financial report it announced revenue of $254 million in the first six months of 2013, ended June 30. That's more than double the $122 million the company generated in the first half of 2012. The company also reported a net loss of $69 million in the first half of this year, which compares with a net loss of $48 million in the same period a year earlier.

                These numbers do not add up, but with this said it the IPO market has been red hot this year, and shares of social media companies such as Facebook have rallied. What I suggest for Twitter is to buy stock in the company and sell quickly, because the company’s fundamentals are terrible, and the high evaluation will eventually backfire. (This trade is highly risky, and if you cannot afford to take a large hit I would not suggest investing into Twitter when it goes IPO)

                As for investment opportunities, I found three companies that could both potentially bring in enormous profits, MGM Resorts, Melco Crown Entertainment, and Capital One Financial corp.

                                MGM Resorts International (MGM)

-          I am a great fan of investing in Casino’s I think the casino market will continue to recover, with this in mind I bought large amounts of MGM stock which I’ve held for the last 4 months. I bought the stock at $16.50 a share, and saw it rise to well above $20. I had planned on cashing out on Thursday after the company announced its 3rd Quarter earnings, which I was convinced were going to be good. What a mistake! Shares fell more than 6% on Thursday after the company announced that although there losses narrowed their profit margins declined. This sell off of MGM stock, really stung since MGM stock forms nearly 1/6th of my total portfolio. But where there is loss there is a potential opportunity, besides MGM’s profit margins shrinking somewhat, earnings were not too bad considering revenues increased. I bought additional MGM stock on Friday (at 18.99 a share) and saw shares rally somewhat. I have full confidence that MGM stock will regain ground and continue their march higher. My recommendation is to take advantage of the opportunity presented by the sell off and buy into MGM.   

Melco Crown Entertainment (MPEL)

-          Another Casino company where I see a potential opportunity to cash in is Melco Crown. Unlike MGM, which has the majority of its business in Las Vegas, Melco Crown is an Asian based Casino company with its core business located on the Coati strip, in Macau. Melco Crown has seen its stock stagnate along with much of the market, and shares were down 2.27% this week. But Melco Crown announces earnings on Tuesday, and I have confidence that if the company’s earnings are good the stock will go up. Needless to say this strategy is extremely risky, last time I gambled on a good earnings report MGM stock sank more than 6%. My confidence in Melco Crown’s earnings comes from Las Vegas Sands earnings report, which showed that the company’s business in Macau improved. With Melco Crown’s earnings relying heavily on the progress of the Macau market I put the two and two together and decided that Melco Crown is a good investment. Now Melco Crown stock might just be boosted by a good earning s report but do not get me wrong this is a very short investment, I’m planning on selling off my stock as soon as Tuesday or by the latest Wednesday. I don’t think Melco Crown would make a good long term investment for one reason; the company’s stock is overvalued.  Melco Crown trades at 51 times earnings; this is way past the industry average of 30 and above the S&P 500 average of 15. My recommendation for Melco Crown is to buy on Monday, to take advantage of the stock rising on Tuesday and then get out.

Capital One Financial Corp (COF)

-          The stock of this credit card company is an odd choice for someone looking to get out of the doldrums the stock market has settled in. For one thing Capital One shares are up just 13% this year, lagging far behind the market which is up about 20% this year. Capital One’s earnings are also nothing to boast about, revenues were at $5.65 billion in the 3rd Quarter of 2013, slightly less than the $5.7 billion made last year, this quarter’s profit of $1.1 billion is also slightly lower than last year. But Capital One has one thing going for it, the stock is dramatically undervalued!  Valued at only 10 times earnings Capital One seems to have plenty of room to grow, plus another upside to Capital One is that the company is stable, so there is little risk of taking any huge loss. So my recommendation is to take advantage of Capital One’s underappreciated stock and take home profits in the future.  


-          I had originally intended to increase my investment into the airline industry, seeing that along with casino’s it is my largest and most profitable. But this week the government will announce whether or not it will permit American Airlines and U.S Airways to merge into the largest Airline in the world. American Airlines stock has been very hot recently, and with good reason, the stock is undervalued trading at just 6 times earnings, plus the company will be getting out of bankruptcy with the merger. My opinion on the merger is that it is great for the airline industry as a whole but terrible for the consumer. If American and U.S Airways merge the price of airfare in this country will be decided by three major companies Delta, American, and United. I do not want to buy any additional stock in airlines right now because if the government decides that the American-U.S merger is too monopolistic, airlines stock will tank, this will provide endless opportunity to buy. It is ironic that with me holding so much airline stock I am actually hoping the merger does not go through, since it will provide an opportunity to buy into American Airlines (which will see its stock tank the most) American Airlines truth be told doesn’t need the merger to come out of bankruptcy, earnings have been improving recently and if the merger is shot down the company will remerge from bankruptcy organized like a low fare airline. This in my opinion will make American more able to compete with larger more capitalized airlines like United. So my recommendation for airlines is to buy if you are convinced the merger will go through or hold off on buying if you think it will not, and take advantage of the lower prices.





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I will be posting an article every weekend and looking back at the political and economic events of that week, both personally impacting events and suggestions about my opinions on the future of the market.