Have Sports Teams Become too Large to Stay Private?

             Apparently hearing the words “All-time highs” has scared investors into dumping stock worldwide, and some stocks have been hit harder than others, WWE to name just one. But one person is clearly not crying over the Dow going through 2 triple digits losing days in a row, that person is billionaire, condemned racist and exiled former Los Angles Clipper’s owner Donald Sterling.

                The man worth nearly $1.5 billion has recently been fined $2.5 million by the NBA and forced to sell his Los Angeles Clippers after a recording of him saying racist comments about African Americans was leaked to the press. In response to the public’s outcry the NBA banned Sterling for life and forced him to sell the Los Angeles Clippers. The funny part is Donald Sterling stands to make windfall by selling the Clippers as a number of buyers have already appeared interested including Magic Johnson and Larry Ellison. Many expect the Clippers to sell for north of a billion, which means Sterling will profit nicely, considering he bought the NBA team for a mere $20 million in the mid 1980’s.

                Personally I am not very interested in sports but as a man interested in Finance and business I found the upcoming sale of the Clippers interesting because it threw the prices of NBA teams and sports teams in general into question.

                It has become apparent that over the last 30 years the value of Sports teams has gone up and up, reaching the point where now Sports teams have become large multi hundred million and billion dollar companies in their own right. Prices for teams have gotten so high that even the richest of the rich can no longer afford to singlehandedly pay for them.

                Mark Cuban, the billionaire, outspoken owner of the Dallas Mavericks (another NBA team) told CNN in an interview that he liked to invest in sports teams but prices have gotten so high that he could no longer afford to buy them outright. Cuban said that any offer to buy the Clipper’s or any other sports team for that matter would have to come from a joint bid by a number of large investors or Wall Street. When a man worth over $2 billion says he can no longer afford sports teams it calls into question whether sports teams have gotten too large to stay mostly in private hands.

                I find it strange that with all the money in sports there are very few sports team that are actually publically traded. Off course there are a few Sports related stocks out there, the Green Bay Packers an NFL football team are publicly traded so is Madison Square Garden. But those are only two, and there dozens of sports teams in the U.S alone.

                But I believe this might begin to change. With sports teams becoming large companies in their own right and requiring large amounts of capital to operate, the world of Sports might begin to drift closer and closer to Wall Street. This process has already started with a number of Private Equity firms taking positions in sports teams.

                Last year Joshua Harris and David Blitzer both business men who made their fortunes in the Private Equity field bought the New Jersey Devils, for an unreported sum. Both men announced that they will be managing the Hockey team like any other business, by putting profits ahead of anything else.

                As to the Clippers, the estimated price of the team is somewhere around $575 million, but with bids coming in the ultimate price paid will be considerably higher. But what interests me is why sell Donald Sterling’s share to any group of buyers at all? Why not sell those shares to the public through an IPO.

                The market for Sports is enormous and an NBA team going public would generate a lot of hype and this might translate into a successful public offering. So far I have not seen any news to support that the Clippers are going public but it is an interesting though none the less.

                In any case with the value of sports teams going up and up and up it is not crazy to think that in a few years many of them will begin to go public and when they do it will create a whole new industry for investors to look into.

                But obviously many of you are interested in how to invest in sports right now and not in a few years. If this is the case and you do not have hundreds of millions to buy directly into a team, you have a few options. First it is possible to invest in a private equity fund that specializes in sports, unfortunately these funds often require you to invest minimum amount of up to $100,000. If that is not for you there are number of sports stocks already out there.

                The most recognizable one is probably Madison Square Garden, which trades under the ticker symbol MSG. The stock has not performed very well in 2014 with shares down almost 13% this year, the company does trade at a premium to the rest of the market with a P/E ratio of 24.6X. When it comes to whether or not to invest in Madison Square Garden I might recommend against it considering the companies past performance. But for investors looking for a sports stock to add to their portfolios it is definitely an option.

                Regardless, as the value of sports teams goes up the chances that more and more will go public increases, and who knows soon I might be writing a blog on whether or not it is a good idea to invest in NHL, NBA, MLB, or NFL teams.

 

 

 

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Does Gogo Have a Chance of Survival?

               It appears as investors are beginning to feel less fearful since all major indexes ended the week with healthy gains. But not everybody fared as well last week, the shareholders of Gogo Inc. are probably still crying. The company has seen its stock plunge almost 46% year to date including a 25% drop on Monday. The question is why is Gogo bleeding as much as it is and will the company be able to stop it before it’s too late?

                Before I dissect Gogo’s problems it is important to understand what the company does. Gogo Inc. is a mid-sized company focused on providing 3G wireless connectivity to airline passengers while they are flying at 35,000 feet. The idea is ingenious and is meant to allow customers to use their mobile devices on the plane.

                Sounds good right, it’s actually every airline passenger’s dream, to be able to access their tablets and smartphones on the plane, freeing them from the boredom of travel and liberating them from the curse of paper books. Gogo currently is partnered up with Aero México, American Airlines, AirTran Airways, Alaska Airlines, Delta Airlines, Japan Airlines, United Airlines and Virgin America to deliver wireless 3G connectivity to their passengers.

                Gogo’s most recent partner is Air Canada which signed on as a client on April 8^th. Also besides the airlines Gogo has 6,300 business aircraft equipped with communications services. So why is Gogo’s stock floundering?

                The answer is because Gogo’s 3G service is expensive, unreliable, slow and not really good for anything besides sending an email. But that is besides the point the quality of the service could and will be improved in time and Gogo appears to have the time as long as the company remains the sole player in this field. Unfortunately Gogo faces an enormous problem in the form of one of America’s largest telecom giants, AT&T. The $184.9 billion company announced just this Monday that it was planning on building a high speed 4G LTE based, inflight connectivity service in direct competition with Gogo.                 

                The second AT&T announced this news shares of Gogo plunged as investors begin to smell the scent of death on the company, and they may be right. Gogo is easily dwarfed and outmatched by AT&T in every way;

Gogo Inc.

-          Market Cap- $1.1 billion

-          2013 Revenue- $328.1 million

-          2013 Profit/Loss- ($145.9 million)  

-          Cash on Hand- $266 million

AT&T

-          Market Cap- $184.9 billion

-          2013 Revenue- $128.8 billion

-          2013 Profit/Loss- $18.5 billion

-          Cash on Hand- $3.339 billion

These numbers show a very bleak picture for Gogo Inc. even more so that AT&T is offering a superior network; 4G compared to Gogo’s 3G. To anybody this would seem to be the end of Gogo, the once strong growing startup that most recently posted earnings increases of up to 40% appears to have a stake put through it.

But investors should not write Gogo off, AT&T also announced that its own in-flight connectivity service will not be ready until 2015, this gives Gogo about a year to entrench itself and upgrade its network to get ready to compete. Gogo does have some advantages over AT&T one of which is that Gogo already has a client base which includes many of the major airlines. Also Gogo has over a quarter of a billion dollars of cash on hand which could go to helping upgrade its network and improve upon it.

Investors also have to consider that Gogo might be a good acquisition target for another large player entering this field. So far in 2014 large corporations especially in the technology and telecommunications industries have been buying up smaller competitors and startups to grow profits and gain footholds in new fields. With AT&T moving into the inflight network industry other giants might be interested to and if a rival of AT&T, such as Verizon with the cash and resources to compete with AT&T decides to enter the fray it might view Gogo with its network of clients as a perfect buy to gain the upper hand over AT&T.

Unfortunately this is only my opinion of a possible scenario and might not happen. It is far more likely that once AT&T builds its network and opens it for business Gogo will be forced into bankruptcy within a matter of months.

My advice to Gogo shareholders is to hold the stock for the time being and see what else develops such as possibility of a buyout.  Whatever the case Gogo is certainly not the first company to go through this and will not be the last now all the management of the company could do is prepare, prepare for either annihilation or survival.  

 

 

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A New Market in Electronic Cigarettes

              It’s been a rocky week as earnings continue to flow in, all major indexes ended the week in the red as the Dow shed over 140 points on Friday. It appears as though investors have begun to take notice of several notable earnings misses and more importantly the continuing escalation in Ukraine. Personally I feel that the sell-off on Friday sets up a good opportunity to buy stocks at slightly cheaper prices, especially of companies that announced good earnings like Apple for example.

                But once again it is not might style to predict the short term future of the overall stock market, instead I want to fulfill my promise from last week, which was to shed light on the alternative tobacco market specifically the electronic cigarette market.

                In last week’s article I wrote about the current state of the tobacco market, and analyzed earnings from Philip Morris International. I came to the conclusion that although geopolitical tensions and stagnation and collapse in the emerging markets might have negatively affected cigarette sales the future of the tobacco industry is far from bright.

                With that said, however, I also stated there is a bright side for tobacco companies and that is the fast growing market for alternative tobacco products like Electronic cigarettes. So far this market is worth about $2 billion, which is tiny when you think about it considering that the entire world tobacco market is worth over $700 billion. Now it is highly unlikely that electronic cigarettes will ever prove to be as profitable as regular cigarettes but it is very possible that E-Cigs could grow to become a $10-30 billion industry in the next 3-5 years.

                The E-Cig industry has also gotten a huge boost last Thursday as the Food and Drug Administration (FDA) has finally announced its new regulations over the sale of electronic cigarettes. And as far as regulation go the FDA’s new rules over the sale of E-Cigs were tame to say the least. The new regulations will not hamper the efforts of big Tobacco companies from entering the electronic cigarette market but they will force any company that plans on marketing an E-Cig to get FDA approval first (current E-Cig companies will have 2 years to submit their products for FDA approval).

                Other rules created by the FDA regulations are pretty standard, the regulations ban the sale of electronic cigarettes to minors, and they also prohibit free samples. The good news is that the regulations say nothing about prohibition of advertising, and flavoring. Basically the new regulations help protect current Electronic cigarette companies from competition.   

                The new FDA regulations might prove instrumental in helping solidify the electronic cigarette industry and gives it some creditability. The question now becomes which companies are in the best position to set themselves up in this new and fast growing industry.

                  Currently the largest Electronic cigarette brand is Blu which is owned by Lorillard, which is already a large player in the tobacco industry, with a market cap of $19.6 billion. The company owns the Newport brand of cigarette which on its own is a huge moneymaker, throw in Blu, which Lorillard owns through its LOEC subsidiary and you get a company that is a huge rival to any tobacco company. The company also clearly see’s that its survival depends on its exploitation of the Electronic cigarette market, which so far the company has done well as it purchased another E-cig maker during the 3^rd Quarter of 2013, the British company SKYCIG.

                Lorillard has performed well in the last year with shares increasing over 27% and the stock has not performed badly this year when compared to the rest of the stock market, shares are up 6.79% year to date. Lorillard is definitely a huge player in the E-Cig field but as the top dog some may feel that the company has nowhere to go but down, I personally disagree since Lorillard’s Blu E-Cig currently controls 50% of the market which still leaves plenty of room to grow, at least in my view.

                Lorillard is not the only large tobacco company that has embraced electronic cigarettes, its competitors Altria, and Reynolds American have both recently released a line of their own Electronic cigarettes, but with that said all these companies are huge multi-billion dollar corporations and electronic cigarettes compose a very small percentage of their profits.   

                So these giants might not be the right fit for investors looking to profit from the E-Cig market, these investors might be better off looking at companies that strictly focus on Electronic cigarettes, companies like Victory Electronic Cigarette Corp and Vapor Corp.

                When compared to other Tobacco companies these companies are small time, Victory Electronic Cigarette Corp (ECIG) has a market cap of $670 million, while Vapor Corp has a market cap of just over $105 million. Now compare this to the multibillion dollar tobacco giants and it might paint a picture of doom for these small companies. But apparently investors did not mind the heavy competition and last year both ECIG and Vapor Corp saw their stocks fly through the roof (Vapor Corp is up 218% in the last year and ECIG is up a remarkable 2036%!).

                Now though with the volatility on the market and competition from large tobacco companies posing more of a threat investors have sought to punish these upstart electronic cigarette companies ECIG is down 30% in the last month and Vapor shares have also fallen 29% year to date.

                Personally I feel like these companies will not survive very long in an electronic cigarette market soon to be home to all the major tobacco players, but with that said they do provide far more upside potential then there larger competitors. Either way if you are hoping to get in on an up and coming market electronic cigarettes are definitely an option.

 

 

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Are Tobacco Companies Still Viable?

              Earnings are upon us and so far investors seem to be pleased, since markets had their best week in nearly a year, with all major indexes rising over 2.5%, despite some notable earnings misses from IBM, J.P Morgan Chase, and Google. Investors have apparently shaken off these misses but personally I feel like this rally will not last into next week, but that’s just one person’s opinion.

                The earnings report that really caught my eye, though, this Friday was the 1^st Quarter earnings report from Philip Morris International. Yes, I know you are probably upset that you are not going to get an interesting analysis of a brand new industry like Space Travel or 3D Printing but the earnings report from Philip Morris made me feel like I had to shed some more light on one of the oldest, and most controversial Industries in the U.S, the Tobacco industry. 

                It is no secret that the Tobacco industry is dying, new regulations and taxes have put a stake through Cigarette sales in the U. S, but what about the rest of the world? Outside the U.S and especially in the Far East cigarette sales and sales of other Tobacco products are booming, or are they?

                Philip Morris International (PM) focuses on promoting its Marlboro brand and other Tobacco products in international markets (Altria (MO) is the company focusing on selling Marlboro Cigarettes and various Tobacco products in the U.S, the two companies were split in 2008). Philip Morris is also one of the largest Tobacco companies in the world and its Quarterly report is a good thing of which to measure the strength of the Tobacco Market around the world.

                Fortunately for health enthusiasts and Cancer Societies around the world but unfortunately for shareholders and Executives of Tobacco companies, Philip Morris announced that 1^st Quarter earnings were down 12% from the same time last year. Now I don’t have to tell anyone that that is a dismal performance but Philip Morris’s numbers might not actually show as bleak of a picture for Tobacco stocks.

                At first glance though you cannot tell this at all, Philip Morris earned nearly $1.88 billion which is roughly $1.18 a share during the 1^st Quarter of 2014(Although Wall Street was expecting a profit of $1.16 a share). This is way below last year’s numbers which were $2.13 billion in profit and $1.28 a share. Total revenue came in at $6.9 billion which was below expectations; most analysts were expecting revenue to be upwards of $7 billion.

                This decline in revenue and sales was due to Cigarette shipments falling 4% to 196 billion (which is still a hell of a lot). The bad news doesn’t end there the tobacco giant reported that shipments fell nearly 7% in Eastern Europe, the Middle East, and Africa. Shipments also fell 5% in Latin America and Canada, 3% in the European Union and 2.5% in Asia (which is particularly bad because that is the largest Cigarette and Tobacco market in the world.)

                Yet even as Revenues and cigarette volumes decline the Board of Philip Morris tried to put a positive spin on its earnings by saying that its market share increased in several key markets including Argentina, Canada, France, Germany, Poland, Russia, Spain and the United Kingdom. Increased market share in these regions is good but certainly not good enough to diminish falling cigarette volumes in every market around the world.

                Of course it’s unfair to blame Philip Morris’s disappointing earnings solely on lower Cigarette volumes, the $132.1 billion company does all of its business in international markets, so its sales are directly affected by international events such as currency fluctuations and geopolitical tension. And if you have watched the news any time in the last 3 ½ months you know things have not been rosy on the international scene. The collapse of several emerging markets, the U.S dollar rising, a slowdown in China, the crisis in Ukraine and the tensions with Russia all cut into Philip Morris’s sales.  

                So it is difficult to judge the health of the international tobacco industry by Philip Morris’s 1^st quarter earnings. But one thing is for sure if you are looking for some stability and a haven in the current volatile market Tobacco companies are the perfect place to look.

                Tobacco companies like Philip Morris International, Altria, Reynolds American, Lorillard, and the Vector Group are all solid blue chips with high dividends insuring that they remain immune to the volatility affecting high flying momentum stocks.

                But maybe you are not content with just dividends and safety, maybe you feel that with cigarette sales declining that tobacco companies are doomed to go out. Well to pacify those fears I am going to say that although cigarette sales are declining there is a new market emerging as a sub segment of the broader tobacco market and that is the market for alternative tobacco products such as electronic cigarettes and hookah pens. Also demand for more traditional tobacco products such as cigars is also growing. (If you interested in how to invest in these companies that do have a high opportunity to grow I am afraid you are going to have to wait until next week’s article.)

                So to back track a little Philip Morris’s earnings for the 1^st quarter certainly do not give much hope for the future of the cigarette market but neither does it spell its doom. Earnings from other tobacco companies due to be released soon, and these will shed light on the state of the tobacco industry in the U.S (just to issue a pre-mature warning, they will most likely be poor). If you are truly interested in judging how solid the tobacco industry is I would ignore this quarter’s earnings and instead focus on earnings from the 2^nd quarter. This will be more accurate in determining the state of tobacco in international markets free of geopolitical tensions and trouble in the emerging markets.

                If you are interested in investing or researching tobacco stocks I would focus on companies that are focused on promoting their cigarettes internationally and that are promoting alternative tobacco products in the U.S. I will release an article dealing with these specific companies next week.

 

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Amazon Enters the Fray

               It appears as though the Stock Market Gods have decided to throw investor a curve ball this week, after large triple digit drops last Friday and Monday the markets briefly rebounded on Tuesday and Wednesday before selling off again on Thursday and Friday.

                All three major indexes are in the red this year, but according to the esteemed analysts the bull market is not yet over. How much I would trust these opinions though is a different story.

                Out of the three major indexes the one that clearly takes the prize as the biggest loser is the Nasdaq which briefly fell below 4,000 in afternoon trading on Friday. The index that is mostly composed of Tech stocks is currently down over 2.7% for the year as investors wisely begin to rotate out of high flying tech stocks and instead begin to focus on undervalued companies with good fundamentals.

                With that said as investors begin to make my predictions of late last year come true, large Tech companies like Google and Facebook continue to wage war over who will control the future of the Tech industry. Now another Technology player opens up another front in the 2^nd Tech War, (the first one in my opinion occurred during the late 90’s) Amazon has declared war on Apple, and Samsung over who will control the smart console controlling your T.V and the ultra-competitive smart phone market.

                Facebook and Google have headlines in recent months by making a number of high profile acquisitions that according to the management of those companies will give the two companies control over several important sub segments of the tech market, such as virtual reality or the smart home. (if you are interested in these acquisitions check out another one of my articles called Facebook and Google are going Head to Head over the Future of Tech)

                But now Amazon has decided to enter the war, the online retailer has recently announced the new Amazon Fire T.V, a streaming device similar to that of the Apple T.V and the Roku 3. Yes Amazon the giant online retailer that already dominates your online shopping experience plans on controlling your T.V experience as well.

When you think about it the Fire T.V makes perfect sense for Amazon, the company already has a streaming service similar to that of Netflix called Amazon Prime. And although I am not a great fan of it myself it is still a perfect idea for Netflix to release a streaming device. Amazon now will provide content through a streaming service and the way to deliver it.

The tech war has just recently shifted to the TV as the major players try to supplement cable as the predominant form of delivering original entertainment. The race to replace the clunky cable box has led to Netflix becoming a major power in the Tech world and has led to tech companies creating small $100 streaming devices that connect to your TV and hence forth connecting consumers to a number of streaming services including Netflix, Hulu Plus, and HBO Go.

Every major tech company has built a streaming device whether it’s Apples , Apple TV, Roku’s smart box, Microsoft’s Xbox 1, or Samsung’s “Not So Smart TV”  (I have one and I always have constant problems with it but that’s a topic for another time). Now Amazon joins the game, I personally have not got the chance to see how well it works but what I have read about makes me interested, perhaps Amazon might steal a significant share of the market from its rivals to make a difference.

Apparently though it does not seem that Amazon founder and C.E.O Jeff Bezos is content with being the online king of retail, emperor of Electronic books and the up and coming Prince of TV, he set his sights on the Samsung and Apple dominated field of smart phones.

Yes you read correctly Amazon is coming out with a smart phone, which is due to come out sometime in the 2^nd half of the year. Amazon already has a line of tablets in its Kindle Fire, which has found success in the market place against strong rivals like Apple. This is probably because of Amazon targeting the lower end consumer, which has seemed to work out considering Amazon’s Kindle fires have been a he success.

Maybe this strategy of targeting the lower end consumer that has helped Amazon crack into the tablet market will help it succeed in the smart phone market as well? This strategy actually might work considering that aside from some 3^rd rate competitors there is no real smartphone for the lower end market, aside from maybe the iPhone 5c which in my opinion is too expensive for the lower end market anyway.

If Amazon prices its new smart phones correctly it might seize a large size of the smart phone market, it might even cut into Samsung’s and Apples share of the market. From a business standpoint Amazon will probably not try to make money from the sale of the devices themselves but probably from the sale of content on them. This strategy has worked out well with the Kindle and Amazon is probably gaming on the fact that it will work out with Smart phones as well.

Unfortunately for Amazon the smartphone field has been littered with failures as smaller competitors try to take on the might of Apple and Samsung. For example Blackberry, once a strong rival was nearly put into Bankruptcy late last year, and Motorola was sold off to Google as sales plunged (Google has since sold Motorola for a substantial loss). If Amazon does not play its cards right its venture into the smart phone market may go the way of Blackberry and Motorola.

But regardless of the past history of former smartphone makers, Amazon’s focus on the low end consumer might let the company avoid the fate of these companies. In terms of whether or not to buy Amazon stock, now that’s a different story.

Amazon stock by any means is not cheap, the stock trades at a triple digit P/E ratio of 529x and although a fly higher in 2013 if anything has been proven in the first 3 ½ months of this year is that 2014 is not 2013.

Stocks of internet companies have recently taken a beating as the Nasdaq goes through a bit of a correction during the past few weeks. Amazon stock its self is down over 20% so far this year. So if you plan on investing into Amazon you will have to beware of the volatility and personally I feel that Amazon stock, similar to that of Netflix is simply to expensive to invest into at this moment, especially with the current volatility in the market.

          With that said however even as tech stocks sell off the large players of Silicon Valley will continue to wage war buying up start-ups and competitors with Facebook, Google, Apple, and now Amazon all vying to win and take control of the future of tech.   



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A New Space Race is Starting! Which Company is going To Win?

            After a strong week of gains for markets stock fell heavily on Friday to make sure that the Nasdaq closed down for the week and that the Dow and S&P 500 erase most of the gains they made. Yet Friday’s 160 point loss should have been expected, in fact I was prepping for it since Wednesday, and I am sure that the selloff provides nothing but opportunity.  With that said Corporate earnings will be in focus this week and unfortunately they are expected to be poor.

                Off course I am not willing to analyze the already over analyzed market, what I am going to do is shed some light on a new industry that is behind the future of space travel, the rocket industry.

                Ok, that makes it sound like corporations are building ICBM’s (to confirm the fears of conspiracy theorists) but in the last few years as Congress begins to cut down ,at least a little, on its spending the National Aeronautic Space Administration (NASA) has been receiving cuts in funding. Basically this means no body will be going to the moon any time soon and NASA will not be building rockets to send various satellites into space.

                For all those young kids who want to become astronauts do not despair, instead of paying billions to build and launch rockets and satellites into space NASA has instead opted to spend only hundreds of millions on hiring private companies to execute the launches themselves. This creates a whole new industry that has yet to be completely realized.

With that said, however, I do think that this industry will be receiving a lot more scrutiny by Wall Street in the next few months. Especially after an article published by the Wall Street Journal titled SpaceX to Compete With Boeing-Lockheed Venture or Satellite Launch.  This article written by Doug Cameron raises new hopes and new life for the Space industry.

I say that because the Pentagon has recently announced its intention to start accepting bids from U.S companies to develop a cheaper American made rocket to replace the, ironically, Russian made rocket currently employed by the United Launch Alliance (ULA) that has until now held a virtual monopoly of the space launch industry.

The ULA is a 50-50 partnership between Lockheed-Martin and Boeing, the company until recently controlled the majority of the contracts from NASA, the Department of Defense and the Air force. The companies Delta and Atlas rockets have been the mainstays of the space industry for the last 50 years, there relatively cheap launches and disposability led them to replace the space shuttle and the rockets can probably be described as the AK-47’s of rockets, there is just one problem, they are built around Russian made engines.

Yes you heard me, in essence the Russians make our rockets, it’s disgraceful I know. With the recent tension with Russia over Ukraine apparently the Pentagon feels we need our own rocket, it’s about time too!

In a strange way by taking over the small Ukrainian Peninsula that until a few months ago few heard of or gave a damn about, otherwise known as Crimea, Russian President/Tsar Vladimir Putin has helped launch a new Space Race.

But this Space Race will not be a repeat of the Cold War, this time the competition to go to space will not be between the U.S and the Soviet Union competing over who gets there respected place in history. Instead the competition will be between American corporation competing for something considerably more valuable…..government contracts, the very things that can make or break companies.

It’s time to meet the players in this new race to the heavens-

                The company that arguably receives the greatest opportunity in the Pentagon’s call for a new rocket is unfortunately a private one. Space Explorations Technologies better known as SpaceX has decided that it wants to be the company to lead the U.S into space.

                SpaceX is another one of entrepreneur Elon Musk’s futuristic like companies focused on building the future. And although still privately held SpaceX already had several successful launches of its own and currently hold almost $5 billion in government contracts. Besides already having credibility launching small and medium payloads into space SpaceX claims to bring to the table a cheaper launch vehicle that according to Elon Musk can send large payloads into space for a third of the cost ULA is doing it for, just $100 million compared to $300-330 million.

                Clearly the United Launch Alliance is facing a problem, the joint venture between two of the biggest government contractors, Lockheed-Martin and Boeing is under siege by Elon Musk’s SpaceX. SpaceX has already sent an army of lobbyists to Washington hoping to open up 34 ULA launch contracts to bidding (although this is unlikely to happen since the government officials have stated that opening these contracts to open bidding would result in higher expenditures and cost overruns) .

                Even so, ULA faces a severe problem, its Russian made RD-180 engines that are so critical to power there Evolved Expendable Launch Vehicle (EELV) that power the Lockheed made Atlas V and the Boeing mad Delta IV, are in short supply and there are few spares. Officials from both companies have tried to reassure the Pentagon that there are enough engines left for 2 ½ years, but a government report is due at the end of the month to determine if this is true.

                As for the Space race SpaceX has been trying to open all 14 launches planned for the next two years to bidding. Unfortunately for SpaceX this number this number might be dropped to 7-8 launches because of current satellites staying in operation longer. In any case the lobbying war between SpaceX and ULA will probably continue for the foreseeable future with the space race heating up over that time period.

                As for investors hoping to come along for the ride, it is highly unfortunate that SpaceX is not yet public although rumors of a potential IPO have been swirling around for years. But shares of both Boeing and Lockheed-Martin, the owners of ULA are publically traded. Also worth looking at if you are interested in investing in the space race are shares of Orbital Sciences (ORB).

                Orbital Sciences is the only pure play space company out there, and its Cygnus space capsule which was first shot into orbit in June 2013 is unmanned and has the ability to carry 20,000 kilograms of supplies. So far Orbital Sciences appears to be in the perfect position to become the leader in supplying the International Space Station. The down side to the stock is that the company does not have a manned capsule under development which is the one thing that will woo investors and send the stock through the roof. With that said however Orbital Sciences is a good stock to invest in if you are willing to invest into the new Space Race.

                Another company that might be a player in the new race to space is Alliant (ATK) this company is developing its Liberty Space Capsule due to launch in 2014. The company has had a history with NASA, it developed the Rocket boosters for the Space Shuttles. Unfortunately the company does not hold contract to develop the Liberty Capsule yet which means if the contract is not awarded to Alliant the stock might be a victim to a strong sell-off.

                In any case whether you are investing in Lockheed, Boeing, Orbital Sciences, Alliant or anticipating the IPO of SpaceX the truth is a new space race is starting and the victor will not only become rich but control the future of the space industry.  

 

 

 

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Facebook and Google are going Head to Head Over the Future of Tech

                As the 1^st Quarter draws to close two things have become very apparent. First of which is that 2014 is not shaping up to be another 2013, where the Dow Jones shot up a miraculous 22% including an over 1,030 point rise in the 1^st quarter (comparatively speaking the Dow is down some 181 points or 1.1% in the first quarter of 2014).

Another thing that has become apparent is that the technology giants of Silicon Valley are playing a vast game of Monopoly in which the victor gains control of the future of the technology industry. That sounds very dramatic but when you think about it, but the truth is large technology companies are going on a shopping spree, buying up start-ups that might be the key to diversification and continued dominance in the future.

The two main players in this so called “monopoly” game are Google and Facebook; both companies in recent months have made many highly publicized and in many cases expensive buys such as Facebook’s $19 billion deal to buy Whatsapp.

But while Facebook and Google wage war over who controls the future of technology other companies such as Twitter and Apple are being left behind in the dust.

(Below there is an analysis of various large tech companies and their strategies heading into th3 future.)

Facebook-

                I have never been a fan of investing in Facebook, the social media giant always seemed overvalued and one dimensional to me. With a P/E of over 100 and with only advertisements bringing in revenue I saw Facebook as the next big fad that was doomed to go the way of MySpace and Friendster.

                Yet despite what I think Facebook has had a stellar year, with its stock up 135%. And Facebook C.E.O Mark Zuckerberg has over the last few months sought to reassure skeptics (like myself) that Facebook is here to stay. I have to admit Facebook’s new strategy has led me to reconsider my stance on the company.

                The strategy of buying tech startups in order to diversify and expand is nothing new, but Facebook has certainly captured Wall Street’s eye by making a number of purchases that have been amazing in their size and scale.

                A few weeks ago Facebook purchased the messaging company Whatsapp for $19 billion. That’s an amazing sum considering that Whatsapp is not even monetized yet. Personally I feel that Facebook overpaid but that is merely my opinion that facts are that by buying Whatsapp Facebook is betting huge on the future of social messaging.

                This is probably not a bad idea considering that social media and messaging are replacing email as the prime choice for communicating information. With that said Whatsapp is still not making any money and it will take years until Facebook see’s any return on investment.

                Another high profile tech purchase recently made by Facebook, is its $2 billion buy of virtual reality headset maker Oculus Rift. The headset has not hit the mainstream market yet but its applications for gaming are obvious.

                Whether these particular investments work out or not is yet to be seen but one thing is clear Facebook is not done. I believe Facebook will continue buying up startups and continue gaining footholds in various tech related industries solidifying Facebook as a tech giant and a significant rival to the likes of Google.

                As for Facebook stock, it has enjoyed a good run in 2014 so far but as the last few week’s has shown it is highly prone to market volatility (something that is not in short supply now a days). I believe Facebook stock still has some room to go up but do not invest unless you are ready to experience times of extreme volatility.

Google-

                Rest assured Google, the undisputed king of technology, has not stayed silent as its up and coming rival, Facebook, continues buying up hot new startups. Google has made some high profile purchases of its own.

                One of which was the buying of smart house appliance maker, Nest, for $3.2 billion. By buying Nest Google is entering into the next market to be revolutionized by advances in technology, the home. The investments in Nest will definitely payoff for Google in the near future but Google has not always made wise investments. The $8 billion buyout of Motorola clearly did not payoff. Only a few months after the buyout Google sold Motorola’s hand set division for a mere $2 billion.

                Yet Google shareholders should not despair, Google has a market cap of over $376 billion, giving it a distinct advantage over Facebook’s 153 billion. So in terms of investing in Google I would think it would be a good idea. Since as long as Google remains innovative its stock should continue to go up and up.

 

IN THE NEXT FEW MONTHS I WILL BE MAKING A WEBSITE FOR INVESTMENT WEEKLY WHICH WILL INCLUDE WEEKLY STOCK TIPS AND POTENTIAL OPPURTUNITIES IN THE MARKET AS WELL AS WEEKLY ARTICLES ABOUT MARKET EVENTS AND ANALYSIS OF VARIOUS INDUSTRIES

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