Which Is The Best Big Internet Or Tech Stock To Own For 2013?

For the year, the tech sector is up 18%. This despite a sharp sell off in recent weeks. I still see the tech sector as one of the highest-growth sectors, with many top performers delivering strong and rapid growth. The sector is worth trillions of dollars, with a number of fast-moving companies attracting the attention of investment managers with their strong fundamentals, even as many of their sky-high share prices can make others gulp.

Many tech stocks are one shot wonders, rolling out a new technology, and they become shooting stars. But all too often their rapid ascent is snuffed out when they begin to transition to a new,more mature businss stage filled with competition. Mature tech stocks that have been providing magnificent total returns to investors in the past are well worth investing in, as these companies have learned the art of constant innovation and repositioning according to the dynamic environment.

I looked at four of the very biggest to see which looks to have the brightest future for 2013: Amazon.com Inc. (AMZN), Apple Inc. (AAPL), Google Inc. (GOOG) and Intel Corporation (INTC).

Amazon.com Inc.

Financials: Amazon’s recent closing price was $237.56, within a 52-week trading range of $166.97 – $264.11. Amazon currently trades at a Price to Earnings ratio (PE) of 2,828.10 with an earnings per share of $0.08. The Company has a current ratio of 1.04. It has profit margin of 0.07% and operating margin of 0.93%. The company pays no dividends

AMZN Chart

AMZN data by YCharts

Profile & Recent News: Amazon is one of the largest online marketplaces, having grown originally from merely selling books, tapes and movies to now almost anything. The company has been investing heavily into activities like digital publishing, which is mainly why earnings have fallen. The online retailer also has offered some users membership to its subscription-based shipping and streaming service for a monthly fee, intensifying competition with media rival Netflix Inc. (NFLX).

Amazon also manufactures and sells Kindle devices. European Union regulators are set to end an antitrust probe into e-book prices. The Eu is expected to accept an offer by Apple and four publishers to ease price restrictions on Amazon that allow it to sell e-books cheaper thanits rivals in the fast-growing market. However there is lots of competition and Amazon is already slashing its Kindle prices, by 5% to $100, in Japan before it has shipped a single device.

A stronger 3Q report cheered investors while the company is expected to benefit from a healthy online holiday shopping season, expected to increase sales by double digits, year-over-year. However as the eye-popping PE ratio attests, Amazon has not found a way to turn its new era investments into profits. If it can, then its stratospheric share price is worth it. However I would want to see more evidence that the new business models are actually performing before I would advise investing.

Apple Inc.

Financials: Apple’s recent closing price was $547.06, within a 52-week trading range of $363.32 -$705.07. The company currently trades at a Price to Earnings ratio (PE) of 13.20 with earnings per share of $44.15. Apple has a current ratio of 1.50. It has profit margin of 26.67% and operating margin of 35.30%. It declared a cash dividend of $2.65 per common share, payable on November 15 to shareholders of record as of November 12, annual yield on the dividend is 1.72%, with a payout ratio of an incredibly conservative 6%.

AAPL Chart

AAPL data by YCharts

Profile & Recent News: Apple Inc. is the iconic face of technical innovation – starting with personal computing with the Mac and broadening out into personal electronics with the iPod, iPhone and iPad. Apple has carve out a unique market segment, with fanatical customers willing to spend more for its products than competitor’s products. Apple enjoys a profit margin of about 45% on iPad’s and the company has a howling flood for free cash flow.

The company is ridiculously valued by many measures, the 13.20 PE Ratio the most obvious. Yet there are concerns. While sales in 2012 are setting records, the company has a short product cycle. Company revenues are tied to its ability to continually evolve new products and upgrade/redesign new models on an annual basis. This was taken for granted when the company’s founder and innovation Godfather oversaw the R&D pipeline. However now that he has sadly passed away questions remain if the company can continue his legacy.

Looking at the price and return on equity numbers from the accompanying chart, it appears the price had gotten ahead of itself a bit in 2012. However the recent correction has returned Apple closer to its more recent growth line. I panned Apple earlier this year, believing that a price north of $700 a share was unsustainable and in fact it has come down over 20% since those heady days of September. Now though, I think the company’s shares are well priced and offer an excellent opportunity for 2013.

Google Inc.

Financials: Google’s recent closing price was $681.72, within a 52-week trading range of $556.52 – $774.38. The company currently trades at a Price to Earnings ratio of 21.36 with earnings per share of $31.91. Google has a current ratio of 3.94. It has a profit margin of 22.20% and an operating margin of 28.06%. It pays no dividends.

GOOG Chart

GOOG data by YCharts

Profile & Recent News: Google is the web leading search platform. The company boasts of a fortress-like balance sheet, with a debt/equity ratio of only 0.11 and current ratio of almost 4. Its return on equity has plummeted to a “mere” 17% as more and more people are using mobile devices to search the Internet. However the company recently announced a major campaign to grow into the mobile market.

Google has purchased more than 100 companies in 14 years and I expect management’s solution will involve using its cash horde to purchase an answer.

Overall the future of computing, whether mobile or desktop will impact how companies like Google will grow into the future. This will remain a concern until Google can provide more details into its mobile future. I addition, several key senior managers have left the company, their heads turned by competitors Yahoo (YHOO) and Apple.

Intel Corporation

Financials: Intel’s recent closing price was $21.73, within a 52-week trading range of $21.22 -$29.27. The company currently trades at a Price to Earnings ratio of 9.48 with earnings per share of $2.29. Intel has a current ratio of 1.93. It has a profit margin of 22.13% and an operating margin of 29.92%. The Company declared a quarterly dividend of 22.5 cents per common share, payable on December 1st to shareholders of record as of November 7. The annual yield on the dividend is 4.1%, with a payout ratio of 37%.

INTC Chart

INTC data by YCharts

Profile & Recent News: Intel designs, manufactures and sells computer components. The biggest driver to Intel’s recent share price are reports that Apple is investigating a transition away from Intel’s x86 chips to ARM-based processors in its OS X product line.

Intel, whose processors run more than 80 percent of the world’s computers, has struggled to achieve comparable success in the market for chips that run phones and tablets. The company is pushing a new line of thinner and lighter notebook computers — called Ultrabooks — to rekindle demand for its chips. Intel plan to invest as much as $4.1 billion in Dutch chip-equipment maker ASML Holding NV (ASML) in an effort to shave two years from the time to adopt new production techniques.

While the price is tempting, I would still want to wait and see how things work out on its new initiatives before I committed to Intel.

So, in conclusion I must admit I have a much different outlook now than I did in September. At that time I was cautioning that Apple at $700 was unworthy of a purchase, while even holding shares was chancy. However now that it has retreated to its historical valuation curve I think it is the buy for this group. In my mind the best stock to own in 2013 out of this group is Apple.

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DreamWorks To Give Investors The Red Carpet Treatment In 2013

DreamWorks Animations, SKG (DWA) gave the red carpet to its 3Q 2012 earnings report and it and it was an award winning performance. Earnings per share came in at $0.29, bashing street estimates by a whopping $0.18 a share. This came off revenue per share of $186.3 million, a pleasing 15.9% improvement year-over-year while destroying street estimates by $47 million.

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First Disappointment In Manchester United’s Revenue

Manchester United, Ltd. (MANU) made a resounding splash with its August 2012 IPO. However, the hype never quite caught on with regard to its shares. The English Premier League football club (that’s “soccer” to us Yanks) was originally hoped to come in at $16, then ended up being subscribed at $14. Post-IPO, the share price has since drifted lower, recently closing at $12.85.

 

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Which Of These 4 Food Companies Should You Buy Today?

U.S.-based packaged food companies have been experiencing a saturated market in the U.S. Too much competition means companies either have to get creative or get global to widen their consumer base. In fact most of the big names are moving towards developing markets. So, the best value will be offered by the company which is able to utilize its existing infrastructure to establish its brand in emerging markets.

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Are Any Pipeline Companies A Buy Right Now?

Energy investors have been enjoying halcyon days in 2012. Oil prices have been high, production is gushing, and earnings per barrel is increasing. True in October, crude fell slightly as oil on the New York Mercantile Exchange eased from $92.19/bbl on September 28 to $86.28 on October 26, but so long as oil remains above $70, oil companies will be making money hand-over-fist. But while a lot of attention has been given to energy producers, companies that transport crude oil, especially pipeline companies, are doing record business.

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Comment on QE3

From a comment I made on a discussion at Seeking Alpha about QE3 made by Charles Evans, President of the Federal Reserve Bank of Chicago (No Relation). It was a lively conversation in the comments of article poster Mercenary trader on “The Magical World of Charles Evans.”

The Fed buying bonds is a last ditch attempt to add liquidity to the financial system. The traditional method of lowering Fed rates has pretty much played out its usefulness with disappointing results. The problem is that every time the Fed has tried to juice the economy financial liquidity has gotten a small bump but nothing sustainable. The real problem is that frightened business owners as well as consumers have no faith in the system now, and are hoarding cash. As long as people save and don’t buy, and as long as companies hoard cash and don’t try to expand, there is no economic growth and therefore no new jobs.
Buying bonds is the only real remaining way the Fed can expand liquidity without going to the extreme of simply printing more money and handing it out free to everybody. In theory it can work – make liquidity so cheap that companies become convinced to start investing their cash. However it carries an enormous risk of causing rapid inflation when all of the hidden cash is released.

A much better solution is for the political parties to get their acts together on some meaningful economic reform to convince business managers that actually investing their cash is a good idea. But if you fall in the number who think neither of the current presidential hopefuls have no useful vision, you have to look for something, somewhere.

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August 2012 – A Look Back on My Portfolio

A Look Back at August

August was a busy month for me and my portfolio. I took a few plunges, over weighted the portfolio into the energy sector and tapped into a writing covered calls as an income strategy. Here is how it broke out.

The first major item was a carryover from July as I continued to monitor the break out after effects of the Conoco (COP)/Phillips 66 (PSX) split. I have had Conoco for several years under their DRiP (Dividend Reinvestment Plan) and had to decide how to handle the one company now being two. Over all I was very happy at the strong numbers reported in their first quarter as independent companies and Phillips 66’s stock rose above $40. It was positive enough that I bumped up my monthly investment into the two to a higher level than before.

The second item was I finally pulled the trigger on making a solid investment into Bank of America (BAC). While there is still a lot of overhang from the mortgage meltdown, especially the AIG and Countrywide legal liabilities, with the stock price hovering near $7 there is little downside and a lot of upside so I opened a long position.

The third item was I doubled my investment in Gulfport Energy (GPOR). This is a regional oil producer which originally was based in Louisiana and Texas when I first invested in it in 2008 after the oil price meltdown. As I thought it survived the oil plunge to below $40/bbl (remember those days?) and positioned itself well for when the oil prices rebounded. With West Texas Crude popping around $85/bbl Gulfport has expanded into new oil and gas-producing positions in the Bakken and Utica fields, ramping up production and set to continue increasing production above 20% per year for the next few years assuming oil doesn’t tank again.

In fact, between my investments in Bank of America and Gulfport I dipped into my margin account to get the purchases done. Unwilling to keep any debt for any length of time brought me to item four, wherein I sold some covered calls to pay down the margin position. These are extremely conservative options written on BAC and GPOR at levels that if they get exercised I’ll be happy, but if they expire worthless I’ll be thrilled.

Looking forward I do need to start looking at my portfolio balance. My biggest stock positions are:

  1. Gulfport Energy (Regional Oil Production)
  2. Conoco (International Energy Production)
  3. Bank of America (Bank/Financial)
  4. Phillips 66 (Oil Refining/Chemical)

This is way too much concentration in the Energy Sector. I am not averse to this on the short-term but long-term it is a bad idea, so I will need to make some decisions to diversify going forward.

My general expectations for the market are choppy times going forward. Low interest rate make for a great and profitable business environment, but the sluggish economy, unemployment, the election cycle, questions about the Chinese economy, US drought and the European Sovereign Debt Crisis make for some serious headwind.

That’s okay, choppy means good values are for the finding. I just need to find the funds to take advantage of it all.

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Why Long Term Investing is Superior to Short Term Trading

What’s a Trader? What’s an Investor? What are you now? And why do I say that you should be an owner of stocks, not a trader?

Investors Beat Traders

First of all, in my world a TRADER is someone who buys and sells something to make a sale on the difference in the transactions. There are people who trade cards, stamps, corn, soybeans, and while we are at it they buy and sell ownership shares in companies. Stock Traders buy and sell stock looking for a quick profit in a short time. Almost all people “investing” in the stock market are really Traders, not Investors.

Meanwhile an INVESTOR buys a business to make a profit on the operation of the business. They are looking to make money off of its dividends and the growth of the business. These people look at investments over years, even decades.

I must admit, I am both an Investor and a Trader since parts of my portfolio show both sides. But when all is said and done, being an INVESTOR is by far the most profitable. There are three reasons for this:

  • Transaction Fees – Every time you buy and sell a stock you pay a transaction fee. If you invest in something you pay the fee only once. If you are a Trader you keep paying the transactions fees over and over again and those fees add up, eating away at any profit and compounding the pain of any losses.
  • Taxes – Anytime you sell there is a tax bill owed for any profits. Short term transactions (those involving ownership of less than a year) are taxed at a much higher level than investments kept longer than a year. Not only must you pay a higher tax than an Investor, but the Trader must pay that tax many times more often.
  • Sort Term Unpredictability – Long Term Predictability – It is a common expectation of most economists and Investors that in the short-term no one knows what the stock market will do. Just listen to the news in the morning before the market opens. The talking heads will be jabbering away about the news of the last 24 hours and wondering how the market will react. That’s right, wondering, because no one knows what news item or unexpected event will change Trader expectations. However it is also a given that in most cases stock price will reflect company value. A company that is well-managed and making profits for its shareholders will bring profits to the shareholders eventually.

Being a long-term Investor will almost always beat a short-term Trader because the Trader has so many disadvantages to overcome.

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