Sunday, April 20, 2014

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 1st 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 1st 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 1st 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 1st 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 1st 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 2nd 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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Sunday, April 13, 2014

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 2nd 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 2nd 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 3rd 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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Sunday, April 6, 2014

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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Sunday, March 30, 2014

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


                As the 1st 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 1st 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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Sunday, March 23, 2014

Are 3D Priting Stock's now Cheap?


            After last week’s volatility markets seem to have regained their momentum with the Dow gaining 132 points this week. The situation in Ukraine that had investors so nervous two weeks ago seems to be subsiding, with Crimea voting to join Russia. Unfortunately with sanctions being thrown left and right the situation is still fragile. The good news is if the political war between Putin and the West does not escalate past this current position it seems that the bull market might continue for a while longer.  

                So far in 2014 the stock market has mostly been up and down, with markets falling in January, up and February and mixed in March. Some industries have so far fared well in the New Year, such as solar energy stocks that recently have seen amazing gains due to good forward guidance. Other industries though, have dramatically underperformed.

                One such industry, that was one of the larger gainers in 2013, is the 3D printing industry. So far this year 3D printing stocks have been hammered, companies like 3D Systems, Exone, and Stratasys, have all seen their stocks fall but has this recent sell-off made 3D printing stocks cheap?

Exone- stock down 40.09% year to date.

3D Systems- stock down 38.87% year to date

Stratasys- stock down 20.97% year to date

                Clearly these losses are immense but the fact that 3D printing stocks have fallen this much in such a short period of time might suggest that they might be ready to bounce back. But before I discuss whether 3D printing stock is now a buy it is important to understand why investors have been dumping 3D printing stock.  

                3D Printing stocks enjoyed a god run-up last year with shares of major players in the market increasing as much as 50-100%. Plus 3D printing is being viewed as the future of manufacturing which it may be, unfortunately this might have created a bubble in 3D printing as investors all rushed to buy into the industry which is selling the future.

                In addition to the over speculation in 3D printing stock the industry is capital intensive and has not gone mainstream. Although many have speculated that 3D printing will replace the current $10.5 trillion industrial manufacturing infrastructure, this has so far not happened, and with companies like Exone recently announcing poor earnings it is appearing that the hype over 3D printing is collapsing.

                Yet what could be even more detrimental to the plight of 3D printing companies like 3D Systems and Stratasys is the news that Hewlett-Packard might be going into 3D printing (the $60 billion giant that is a major player in the standard printer market). H.P’s entrance into 3D printing will create an enormous competitor to current 3D printing companies, especially since H.P is considerably larger than even the largest 3D printing companies out there (3D Systems has a market cap of $5.9 billion, Stratasys has a market cap of $5.2 billion).

                All these factors, over speculation, slow entry into the mainstream market; poor earnings and lowered expectations for the next year coupled with the possibility of an enormous new competitor have clearly put pressure on 3Dprinting stocks and have caused them to fall.  

                But are 3D printing stocks reaching a bottom? Well judging by their fundamentals they are not, the only 3D printing company that is so far profitable is 3D Systems which showed a $44.1 million profit last year. Earnings per share were about $.44 which gives 3D systems a P/E ratio about 66, not exactly cheap when compared to the S&P 500 which trades at a P/E ratio of just 15.

                Normally I would say that futuristic like technology companies like 3D systems should trade at a premium when compared to the rest of the market but in this case 3D systems is showing that its growth is slowing meaning that it is not giving investors any reason to maintain the stocks premium status. Other 3D Printing companies are not profitable at all and have evaluations even worse than those of 3D Systems.

                So in my opinion 3D printing stocks have not reached the bottom yet, but this does not mean that the 3D Printing Industry is doomed. I am convinced that 3D Printing stocks will start going up again to all-time highs, but I do not believe that right now is the right time to buy.

                With that said to those of you who want to invest into 3D Printing but do not want to deal with the volatility and bearish sentiment surrounding 3D Printing stocks a good alternative would be investing into Hewlett-Packard. If H.P goes into 3D Printing as they are expected to then it is obvious H.P will shoot up.  

                H.P does not have many of the problems that other 3D Printing companies are facing, first of all H.P has an alternative revenue stream which includes its line of PC’s and standard printers, this gives the company resources to develop its own 3D printers that are superior to those of the competition. H.P also has a good evaluation, trading at just 11 time’s current earnings, which is below the market average of 15.

                So to conclude this week’s article, 3D Printing stocks are not yet a buy, since even after the sell-off there evaluations and fundamentals are still not aligned to that of the rest of the market, making 3D printing still a premium industry to invest in, even as sales begin to slow down. If the sell-off continues though, within a few months we could see a comeback in 3D printing stock but for the moment Hewlett-Packard, the technology giant, is probably the best company to invest into if you are looking to invest into 3D printing.  

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Sunday, March 9, 2014

The Future of Solar Energy and its Outlook in 2014


             It appears that nothing can stop the rampaging of the bulls this year, even as the world had its eyes on Ukraine and stocks all over the world fell on Monday, the markets bounced back on Tuesday and ended the week with gains.

                My last few articles I have been talking about the pros and cons of investing into certain industries, including casinos, electric cars, airlines, 3D printing and the pot industry. In this week’s article I want to talk about another industry, one that has been ripe with ups and downs, solar power.

                Solar energy is nothing new, and many solar energy companies like First Solar, Trina Solar Energy and Solar City have benefitted tremendously from last year’s bull market.

First Solar- Up 113% in the last year

Trina Solar- Up 332% in the last year

Solar City- Up 371% in the last year

                The question is how will solar energy stocks fare this year? Solar energy has traditionally been viewed as the best alternative to expensive and un-clean fossil fuels such as oil but in recent months the price of oil has fallen as the energy boom in the U.S continues. Also with natural gas also competing with solar energy it is possible that the solar industry might face serious problems in 2014.

                Personally I have had mixed results with Solar stocks, I briefly held shares of Trina Solar before selling them at minor gains and I held shares of First Solar for about a month until the stock fell 20% in the period of two weeks forcing me to sell at a moderate loss. So I have experienced the volatility of these stocks but the golden question is whether or not these stocks will continue going up.

                Various developments occurred in 2013 to help spark a comeback in solar energy stocks, first of all demand grew. Analysts estimate that solar demand in the U.S grew about 32% in 2023 and they are expecting another 35% gain in 2014. Another development that helped the surge in solar stock was when in June, 2013, Obama’s administration announced a new environmental plan that increased limits on coal powered plants. Coal produces 40% of the electricity in this country, and demand for it is falling meaning alternative energy like solar are picking up the slack.

                Without a doubt solar and other alternative energy products such as wind and hydro are the future, but it is questionable whether the solar industry could repeat the year it had in 2013. The drilling boom in this country and the abundance of oil and natural gas makes investing into solar energy look somewhat foolish.

                With that said however solar demand in the rest of the world is growing and solar energy companies competing in the international markets, like Trina could benefit.

Industry wise the solar industry could face problems in the U.S but flourish elsewhere around the world, but if you are a fundamental investor and critically look over the companies financials before investing solar energy might not be for you.

The solar energy industry is littered with bankrupt companies and financial disasters. Just take a look at First Solar in 2011. The leader of the solar energy industry saw its stock fall 70% in one year. Off course the market conditions in 2011 and now are different; the thing that did not change is that solar energy remains a capital intensive business with many solar energy companies drowning in debt.

Here is a brief snapshot of the financial health of several solar energy companies.

First Solar Inc.-

                First Solar is one of the largest solar energy companies in the world with a market cap of $5.6 billion. Evaluation wise the company is fairly valued with a P/E ratio of 15.2x, matching the current market average.

 In terms of revenue and profit though the company is facing a serious problem, 4th quarter earnings came in at $768 million in revenue, this is about $497 million less than in 2012. What is more devastating for the company is its forecast for the 1st quarter of 2014. The company expects to earn between $800-900 million in revenue which was below the streets estimates of $894 million, E.P.S is expected to be between $.50-.60 a share, and way below analyst estimates of $.84 a share.

So in terms of growth and expansion First Solar’s financials paint a grim picture, but the company does have a few things going for it. First Solar is building a solar energy plant in Texas, which currently represents 10% of solar demand in the U.S.

But even with this new plant First Solar faces obliteration in the marketplace due to its product simply being inferior to the product of its competitors. First Solar modules are more expensive and are less efficient then the product produces by competitors.

 

Trina Solar-

                Trina is no doubt one of First Solar’s greatest competitors in the international market. This Chinese solar company has a market cap of $1.4 billion and is just barely profitable. But the Chinese solar market is recovering from a collapse in 2011, and 2013 has marked a year of rapid consolidation.

                This recovery is reflected in the company’s earnings, in the 4th quarter of 2013 Trina announced revenue of $525 million (up 73% from last year) and profit of $14 million, which is a considerable improvement over last year’s $70 million loss.

                Trina Solar’s growth mostly came from cutting $76 million in expenses, decreasing operating costs by 22% and growing markets in China, Japan and the U.K. Unlike First Solar I believe Trina has great potential to do well in 2014, especially as the company expands into new markets like South America.

 

These are not the only two solar companies out there, others like Solar City, focus on installing solar panels rather than build them. This strategy seems to be working with Solar Cities revenue up 79% year over year and upn15% since the last quarter.

So to conclude my analysis of the solar industry I want to say that 2014 might prove a tough year for solar companies focused on the U.S market. Those focused on the international markets on the other hand will flourish, another note would be that any person who is focused on fundamentals will not want to invest into solar since the industry is capital intensive and is vulnerable to the price fluctuations of products like silicon.           

                 

WILL BE POSTING ONCE EVERY WEEKEND ABOUT MY OPINIONS ON THE MARKET AND VARIOUS INVESTMENT OPPORTUNITIES I HAVE FOUND.

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Sunday, March 2, 2014

A New Casino War in Japan! Who Will Win?


               Investors appear to be over the downswing that occurred in January, with stocks surging in February and closing at or near all-time highs.  Stocks are now poised to continue their march upwards, yet some industries are in the perfect position to outperform the rest of the market. The industry I plan on talking about in this article is the Casino industry.

                Casino stocks have been on a tear as recently as last year, and I have repeatedly expressed my bullish opinions on them. As the global economy recovers people, now more financially secure, are having the opportunity to spend their money on fun, a trip to Las Vegas or Macau for example. All major casino companies have so far reaped the rewards of a resurgent economy and there stock shows it.

MGM Resorts International- Up 121% in the last year

Las Vegas Sands Corp- Up 66% in the last year

Wynn Resorts- Up 108% in the last year

Melco Crown Entertainment- Up 121% in the last year.

                These casino companies (All of which have an international presence) have easily outperformed the Dow and the S&P 500 which were up 16% and 22% in the same period of time. But what drove these particular companies to higher earnings and increased market share was there investments and expansion into Macau, which has become the new gambling capital of the world with six times the revenue of Las Vegas.

                While Las Vegas recovers slowly from the collapse in 2008, Macau has grown in leaps and bounds. As the only place in China that has legal Casino gambling, the gaming the tables of Macau draw in customers from all over Asia (In 2013 Macau generated $41 billion in gambling revenue, at the same time Las Vegas made just $6.5 billion). In 2013 Macau provided 61% of all revenue Sands generated, another 30% came from the Sands casino in Singapore.  

                These numbers show just how important Asia is to the big players in the Casino market. Other Asian countries like Singapore and the Philippines have seen the success of casino gambling in Macau and have legalized it as well. But another enormous gambling market seems to be close to opening, Japan.

                It is well known that the Japanese are enormous gamblers and estimates show that the gambling market in Japan could be as large as $10 billion, making it potentially the second biggest casino market in Asia and potentially the world. With the 2020 Olympic games being held in Tokyo It has become probable that the Japanese government will legalize Casino gambling come spring and if they do the question becomes which companies are in the best position to exploit the new market.

                The top 3 American Casino companies; Las Vegas Sands, Wynn Resorts, and MGM Resorts are all contenders in a Japanese market and all 3 companies have announced that they are willing to invest billions into developing integrated casino resorts in Japan. But which company stands the best chance of gaining the dominant share in a Japanese market?

Las Vegas Sands-

                In terms of capital The Sands might be in the best position to develop Casino resorts in Japan. The Sands is currently the largest Casino Company in the world with a market cap of almost $70 billion, compared to Wynn’s market cap of $24.5 billion and MGM’s capitalization of $13.5 billion.

                Sands also seems committed to Asia, with 5 of its 8 casinos located in Eastern Asia (1 in Macau, 3 on the Coati Strip, and 1 in Singapore, with the intention of building more in the Philippines and Taiwan.) C.E.O of the Sands, Sheldon Adelson has recently abandoned the plan to build a $30 billion mega resort in Spain and instead decided to focus his attention on Asia with a possible $10 billion investment in Japan.

                It is clear Sands is serious about Asia and Japan and the company is already the largest foreign casino operator in Macau, with clear advantages over its rivals in Japan.

 

Wynn Resorts-

                When it comes to the world of Casino gambling Steve Wynn is a legend, after inventing modern Las Vegas and selling his Mirage Resorts to MGM, Wynn has started another Casino company which he has grown into a company worth over $20 billion with a casino in Las Vegas and Macau (with another under construction).

                Wynn has expressed interest in Japan, saying that the company would invest well over $4 billion once casino gambling is legalized. Wynn is in a strong position to expand into Japan but with another $4 billion casino project currently going on, on the Coati strip it is conceivable that breaking ground on another multi-billion dollar project could be seen as over expanding.

                The casino in Coati is scheduled to be finished in 2016, building a Casino in Japan would take another 5 years. Although Wynn will most definitely expand into Japan the financial burdens of continuing two large projects might adversely affect the company.

                Now I am not saying Wynn will not be a player in the Japanese casino market it will be but Wynn might have to delay the construction of a Japanese Casino until its Wynn palace is finished in Coati.

 

MGM Resorts International-

                The day after Las Vegas Sands announced that it would invest about $10 billion into Japan; MGM announced that it too would consider investing about $5-10 billion to develop Casinos in Japan.

                Unlike the Sands and Wynn, who derive most of their income from their Asian properties, MGM makes about 65% of its revenue in the U.S and the rest from its sole property in Macau (MGM Macau in which MGM owns 51%).

                MGM’s financial position though is not as strong as Wynn’s and the Sands, the casino company is still recovering from a collapse in 2008 and the company posted a $38 million loss in 2013, even though is a great improvement from the $1.2 billion loss in 2012. MGM will likely see a return to profitability this year but it is questionable whether the company could even afford to expand into Japan.

 

All three companies have expressed interest in partnering with local Japanese companies such as Mitsubishi to help develop the casinos. Also MGM, Sands, and Wynn are not the only companies planning on entering the Japanese market. Caesars Palace and Melco Crown have also expressed interest.  

It is expected that Japan will legalize gambling by June and once the news is out all the major casino companies of the world will try to get a piece of the market. But in the end the company I think that will triumph and gain the largest market share is Las Vegas Sands, with the greatest financial might of any Casino company in the world, the Sands should have no problem breaking into and taking over the soon to be second largest casino market in the world.  
 
 
WILL BE POSTING ONCE EVERY WEEKEND ABOUT MY OPINIONS ON THE MARKET AND VARIOUS INVESTMENT OPPORTUNITIES I HAVE FOUND.

IF YOU LIKED THIS ARTICLE FEEL FREE TO SPREAD THE WORD SINCE I AM CURRENTLY ADVERTISING SOLELY THROUGH WORD OF MOUTH
 

 
PLEASE FEEL FREETO LEAVE COMMENTS ON HOW YOU LIKED THE BLOG