by | October 20, 2014 · 11:59 pm

International Business Machines (IBM) Take Advantage of the Drop

IBM dropped significantly today when it reported its earnings, which were significantly less than the consensus analyst estimate. This major earnings failure comes at the same time as investors are beginning to question IBM’s sustainability and power; whether or not Big Blue really has the same ability to grow as it did before.

In actuality, IBM is not nearly the company it was before. The company is currently going through a huge transition from a hardware company to a software company, focusing on high growth areas such as the cloud. The company has already shed off many of their hardware businesses by selling them off, and today has even reported that they will pay GlobalFoundries $1.5 billion to take their semiconductor chip units, a part of the business that has been unprofitable for years.

The main argument against IBM is that their revenues have been falling for years now, and will likely continue into the future. That, however, is misguided, since the most fundamental reason that IBM’s revenues have been falling is because they have been going through this business transition, and need time to re-stabilize their business.

At trailing and forward P/E ratios of just 10, IBM is exceptionally undervalued. This is a company that has major market share in a rapidly growing part of the tech industry: the cloud.The growth prospects and what IBM could do with their new business position are enormous, yet the market is valuing its growth potential like it’s nothing.

Also, IBM is a dividend aristocrat, meaning that the company has increased their dividends for more than 25 years in a row, adding up to a very nice flow of cash. The company is also a serial re-purchaser of their own stock. Spending billions of dollars in buybacks every year, the company is still speeding up their share repurchases, especially since they think shares are so undervalued now.

The company is also very good at setting goals and achieving them, never straying from the path to success. Management lays out what they call “road maps” every few years, which involve setting an EPS price target for the future years. They easily attained their last road map target a few years back, and are currently on a good track to surpass their 2014 target of $16 per share.

It’s also worth a mention that respected investor Warren Buffett also holds IBM as one of his core “Big Four” holdings. These Big Four stocks are four companies (WFC, KO, AXP, and IBM) that he has held through thick and thin, good and bad. These are companies that he expects to hold forever, and expects them to be extremely lucrative over that time period as well. He recently purchased IBM, but the other three were bought in the 1960s and 1980s, and have now netted him gains in the thousands of percentages and vastly outperformed the market. Also, IBM is a technology company, an industry that Buffett has long declared too hard to understand and changeable. The fact that IBM is one of the only tech companies in his entire portfolio shows that he has probably already done much research on the company and therefore trusts it above all others.

In conclusion, IBM is a great company that is trading at incredibly low valuations in the short term. These valuations should stabilize to an acceptable level in the future, which should most likely also reflect some premiums because of Warren Buffett’s support of the company and it’s shareholder-friendly history. The current bearishness in the company is only an effect of revenues that have dropped in the short-term due to an inevitable company transition into the software business. This issue of revenues will come to pass when the company gets back on track with their business and finishes their transition into the software business. Investors should look to IBM for sustainability, growth, and undervaluation.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | October 20, 2014 · 4:58 pm

Fear Index plunged

Wow, what a rally in Japan, up 579 points to 15,111, which is up +3,98%. Gold and Silver is also up, but they are moving like turtles. Up 0,57% and 0,72%. Crude oil (brent) is down -0,28%, trading at 85,92. It will continue to be big opportunities for day traders now, as the market will still move up and down.

Vix 20.10.2014

(Picture: Fear Index)

The appetite for volatility is bad for the Fed, and it didn`t take long for them to respond to last week`s market turbulence. A representative for the Fed said last week that the Fed could slow its retreat from a highly accommodating monetary policy, and this is something investors like to hear.

There were some rumors last week that the Fed could embark on QE4 to support asset prices. Not only investors are nervous at times like this. Also Fed are. So, what can we expect the coming days and weeks in the market?

We need to look at charts and data. The S&P 500`s 200 MA price is 1,906, and the stock market was trading below that technical level. That level was a floor during the selloff since November 2012, and the average price of the S&P 500 is a good indicator to be bullish on.

This is not the first time that have happened, and we have seen this many times. The mentality now is «buy the dip», as there is pretty good U.S fundamentals out there, which is making investors interested in buying again.

The fear index plunged -12,74% on friday, and the gap in the curve in the Vix futures, gave investors optimism. If we compare the cost of the options that protect against losses in shares in November versus those timed to expire in 90 days, you can predict the future. On friday, selling dropped down 3% on October 15, while near term options skyrocket 25% above those timed to January, and this is the most in three years.

We are close to the end of the sell-off in the equity market, as the bottom has been seen and this is historically a time for bottom fishing. It has happened six times when Vix has surged above its own futures like we saw the last week. The inverted curves is historically a sign that investors think the spike is coming to an end.

I`m exited about Apple Inc later today after the closing bell. Are they able to beat the Wall Street? It`s estimated that Apple Inc will report revenue of $39,8 billion ($37,5 last year) and earnings of $1,31 per share ($1,18 last year).

iPhone sales is what people will look for, and it`s estimated to see that Apple may have sold about 38 million iPhones. A strong dollar can help them a lot to beat the revenue estimate, but what about Apple Pay? Is it gonna be launched today?

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | October 16, 2014 · 2:22 pm

Netflix revenue up +27%

Netflix will plunge today. Down about 25%. Investors are disappointed because of their subscriber growth. That said, Netflix have always been a volatile stock.

netflix-logo

They reported Q3 EPS of $0,96 and they beat consensus by $0,03. Revenue was up +27% y/y to $1,41 billion, and hit investors estimate. They have a total paid member base of 50,65 million, and that is up +33% y/y. Free cash is down to -$74 million on higher investments.

They failed in Q3 with 3,02 million subscribers and that`s below its estimated 3,69 million. Netflix reported profits of $59,3 million, and that`s better than last years Q3 at $48,4 million.

Investors do not think that Netflix will reach their membership growth goals because they have raised prices for their new members, but earlier this year Netflix said they added 1,7 million members and that`s better than expected.

Netflix says it will add 4 million new members in fourth quarter as they have launched their service in Europe led by Germany and France. They will start streaming of all 10 seasons of Friends, and belive HBO is their biggest competitor, but they have different programs and shows.

A drop like this is a great opportunity.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | October 15, 2014 · 4:51 pm

Earnings focus

Investors are waiting for earnings this week and today big earnings announcements are coming from Bank of America, BlackRock, American Express, eBay and Netflix. They will all report after the close later today.

What`s happening in the market is a change. Investors move from one sector to another. Investors are not buying everything like last year any more. Take a look at Best Buy. Tripled in 2013, but plunged over 40% at the beginning of 2014. The stock in down 62% from the top, and struggle to bounce back. Stay away from stocks like that.

I see a new bull market starting right now. That`s why it is very important to jump in now, because it will probably be too late at the end of the year.

Jump out of stock without rock-solid fundamentals and buy high-quality stocks with solid fundamentals. Like that, the money will just rotate. The new bull stocks will not be hammered as hard as the crock stocks. They will rather take off right now.

Money will always be on the move and will always flow towards its best and safest returns. Take a look at the dollar. It`s going straight up. At the same time, the fear have doubled. Other quality blue-chip stocks will report later this week. Stocks are plummeting today. Is it emotions or fundamentals?

I`m very excited about the rest of the year and the beginning of 2015. New bull markets starts right now.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | October 14, 2014 · 2:49 pm

Airlines hammered

Many investors are scared right now as it is time for Halloween soon, but Halloween is not the reason. It`s something worse; the stock market.  S&P 500 and Nasdaq had their worst weeks since May 2012, but I don`t think it is a big surprise for someone in the market as this is highly expected.

AA

Russel 2000 is in a correction territory and DJIA has dropped down about 200 points in four days in a row, and that has not happened in years. Last time we saw volatility like this was in 2011. Equities are a scary thing for investors right now, and that is not because of the coming Halloween.

S&P 500 ended at around the 200 MA and that will be a very important level to watch for in the coming days/weeks. SPX declined 3,1% last week and are now trading 5,6% below its peak of 2019,26 a month ago.

Many sectors are starting to be oversold and this is a good opportunity for many to pick up stocks. Take a look at the oil price, which is declining every day now, trading below $90. The surplus for many in this oil sector is good, so they don`t complain with a price below $90, despite an break-even at $92.

Other sectors will benefit from the declining oil price. American Airlines will benefit from reduced fuel costs and the stock looks cheap. Fuel is the largest expense line for American Airlines and a decline in oil prices will have a huge impact to their bottom line.

On December last year, AMR Corp merged with U.S Airways. They are now the world`s largest airline; American Airlines Group (AAL). The shares doubled since they merged, but the stock have had a pullback which makes it interesting for investors as the fuel cost are making it more profitable.

AAL has delivered great results, have good cash flow levels and their revenue are increasing. They have high-capacity and a strong pricing power, and are expanding its network to China. Those routes is one of the most profitable routes worldwide and they will start to compete with Chinese airlines.

With around $10 billion in cash and possible buyback program, the earnings per share will increase to new highs. The forecast for earnings is $5,21 per share, and with a buyback program, this stock looks undervalued, and EPS would strengthen.

The stock slid -7,15% yesterday and looks cheaper and cheaper every day. Another airline stock to decline was United Continental Airlines (UAL), down 7,29% yesterday. The market trend indicator gave us a bearish reading on stocks and that`s for the first time in some time. If we fall below 1,800 on the S&P 500, the war will be over and the bears are the winners. What  investors are doing now, is jumping from one sector to another.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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