Stock talk for the main street investor.
Jun 7 2010

iPhone 4

Apple announced their new iPhone today and they didn’t disappoint. While not quite the revolution the original iPhone was it is (in my opinion) their best improvement to the device. Lets go through a few of the features.

Display – The display is now better than your eye can even detect. In other words improvements to this display would be futile. Can’t get better than that.

Mail – Small improvements in mail but the all-inbox and thread features will be very hand for those of us who use multiple email accounts and have long threads clogging them up.

Multitasking – It’s surprising it took this long for Apple to allow the phone to multitask but it looks as if they’ve done it well. A single click on your home button and your open apps pop up at the bottom of the screen. Keep email, Pandora and Yahtzee open all at once.

Video, Pictures – The camera has front and back view, HD video capability, better resolution and a flash. The flash may be a little disappointing but I’ll take it. I really like having the camera feature and now that these features have been added why would I ever buy a camera.

Facetime – This is probably the biggest WOW of the presentation. Video calls right from your phone. You need a Wi-Fi signal but it looks amazing. Their presentation had a guy signing to someone else over the phone. The ability to make a phone call without being able to hear is pretty amazing. My hat’s off to you Apple.

I still think Apple is expensive but it’s hard to argue with their dominance in the marketplace.

Disclosure: Author has no position in AAPL.

Jun 4 2010

Using Options To Reduce Risk

I’ve recently started selling covered call options to reduce risk and increase cash in my portfolio. A call option is the option to buy a stock at a pre-defined price. For example I recently sold 4 call contracts on SPWRA at $14 expiring in July for $0.72/share. This means that if the stock is over $14 on July 16 when the options expire I will be exercised and I will have to sell my shares for $14. On the other hand if the stock is below $14, I get to keep $0.72/share. Since I own the stock the worst thing that can happen is getting called and having to sell my shares at $14.

What this does is reduce downside risk in a stock. Since I sold the options when SPWRA was about $12.50 if the stock is not below $11.78 I haven’t lost money. Best case scenario is the stock is somewhere close to $14 but not above.

To trade options you have to have special approval in your brokerage account. Personally I have approval to sell covered calls, but not uncovered calls (where I don’t own the stock). This keeps me from taking too much risk.

If you’re looking to take some risk out of your portfolio in turbulent times covered calls might be a good way to go.

Disclosure: Author is long SPWRA and short SPWRA calls.

Jun 2 2010

What Will Happen To BP?

As BP tries to stop oil from gushing into the Gulf of Mexico I was asked recently if this will lead to bankruptcy for BP. It’s certainly possible and would be unprecidented to take down an institution so large and seemingly stable. So lets look at some back of the napkin numbers…

BP had $16 billion in cash at the end of last year. That should be the first thing chewed up by cleanup and lawsuits. Last year they generated another $16 billion in free cash flow, most of which was returned to shareholders. Say they spend $4 billion in cleanup (recent estimates are they’ve already spent $1 billion) they would have ~$28 billion by the end of the year to pay liabilities.

Consider less liquid assets they have like other drilling rigs, Castrol, land, etc and you would have to see $60 billion or more in lawsuits for BP to go under. They’ll be able to delay some of their payments in court so the cash thrown off by the business can be used for payments in the future. Certainly not an enviable position but I just can’t see them bankrupt right now.

It’s too bad that’s the case. Causing a disaster like this should leave BP on the ocean floor next to the oil rig that blew up.

Disclosure: I have no position in BP.

May 18 2010

Euro Crushed US Stocks

We’re back at it. Panic has hit the street and the US becomes the logical place to hide. This forces the euro lower and causes many stocks to suffer because of heavy focus outside the US. Multinationals like GE and 3M are hurt as well as euro based companies like Vestas.

But this doesn’t really make any sense long term. As a whole the EU is in better financial position than the US. There are pockets of trouble and there will be pain to fix them but I am more worried about US deficits and China collapsing than a tiny place like Greece.

So what’s going to fix this? Trading happens so fast these days that huge positions can be put on and taken off in the blink of an eye. There are big time traders that are short the euro right now and when the euro strengthens or the stock market starts rising they will have to cover their short positions and drive both the currency and stocks higher. It’s a classic momentum trade.

I’m not too concerned about the long term but it’s bound to be a bumpy ride for the next few months.

May 10 2010

The Market Rages Back

Whiplash has probably set in for most investors after the market went up 4% today. A little certainty in Europe apparently goes a long way for the US markets. What these dips do is give an opportunity to see what the market undervalues and underestimates right now.

If you’re like me and you think we’re headed for a long slow recovery you should take a long term look at where the economy is going. I would stay away from anything to do with housing. The housing market will be mired in a slump for 5 maybe even 10 years before we get back to normal. I would also start to be cautious with China. There’s a lot of bubble talk and even though a Chinese bubble wouldn’t be as bad as a US or Europe bubble it could be disastrous for China focused companies.

What I do like is energy and tech. Whether you believe in natural gas, oil or renewables there are great values given the uncertainty in our energy future. I’ve talk at length about my renewable picks but if you like fossil fuels this might not be a bad time to take advantage of a dip after the gulf spill. Check out Atwood Oceanics (ATW) for a drilling play that’s relatively cheap.

In tech I like the big names like Intel (INTC) or AMD if you want a little more risk. I still think Apple is overvalued but HTC (2498.TK) is in a similar market and also makes innovative products. HP (HPQ) and Dell are also reasonably valued.

A way to reduce risk in these markets is to sell call options on stocks you own when the market is up. It gives a little protection especially with volatile stocks. I’ve recently sold LVS call option to cover my position. If they get called I have a nice 10-13% return in a month. If not I pocket an extra $1 per share.

Disclosure: Author is long LVS and short LVS calls. No positions in other stocks mentioned.

May 6 2010

The Market Goes Crazy

The market went crazy again today. Some blame the shenanigans that happened at Citi but I think this is just a panic we’re not going to have a V-shaped recovery. Employment numbers haven’t looked very good lately and even though corporate numbers are solid the market has burned out. You can only hear the same story so long.

What this does do is provide a great buying opportunity for some stocks that have reported good numbers but have taken the brunt of the fall. I’m looking at FSLR with a forward P/E of 15 and has beaten estimates as far back as I can find. SPWRA has a forward P/E of 7.2! Seriously? These dislocations won’t last forever.

I would stay away from retail right now. There’s still too much inventory in retail and until employment improves the sector will struggle.

Disclosure: The Mayor is long FSLR and SPWRA.

Apr 30 2010

First Solar Blows Past Estimates… Again

First Solar (FSLR) reported numbers that surprised to the upside again. This is becoming a theme that Wall Street just doesn’t want to believe. Currently trading at less than a 20 P/E I still think this is one of the most attractive stocks available. Add in possible policy changes and this could be a $300 stock in a year.

For some reason the market and analysts don’t understand the advantage First Solar has in this market. They operate with 50% gross margins when competitors have 20% margins at best. They’re the lowest cost supplier and have a history of lowering production cost rapidly. Worst case scenario is a price war and they bankrupt all of their competitors.

Poly-silicon is the technology most competitors use and poly prices have been falling for a couple of years now. Problem is, even if prices fall to $0 their manufacturing costs are still higher than First Solar’s. So how can they compete on a mass scale.

The other change in the market is the move toward big utility scale projects from small roof-top and agricultural developments. This should also help First Solar as they’re able to compete on cost and scale where others aren’t. The capacity just isn’t there for any other supplier to build gigawatts worth of solar panels.

Look for First Solar to continue to perform well in coming quarters. Some time in 2011 when costs go lower than natural gas the demand should really pick up.

Disclosure: The Mayor is long FSLR.

Apr 27 2010

The President Talks Energy

Today the president spoke at an Iowa wind blade plant about the need for energy changes in the US. Now that health care is done (sort of) and financial reform seems to be heading through congress I wonder if this is going to be his next big push.

I’ve made no secret of liking renewable energy. I’ve been long First Solar (FSLR), Sunpower (SPWRA) and MYR Group (MYRG) for a long time and recently added Vestas Wind Systems (VWDRY). These are all fundamentally strong companies even without major changes in the US but my upside hope is that some sort of reform happens with energy. Wind and solar only need only a small nudge from the government to surpass natural gas and even coal as energy sources. When they do surpass these sources it’s like going over a demand cliff (only inverse). Wind and solar would take off.

The other challenge is power infrastructure. Hopefully some thought will be put into this area as well. For now I’m just happy to see the President talking about energy policy again. It’s about time we make some changes.

Disclosure: The Mayor is long FSLR, SPWRA, MYRG and VWDRY.

Apr 19 2010

Dreamworks Tops Box Office

In it’s fourth weekend at the box office Dreamwork’s (DWA) How To Train Your Dragon has topped the box office with $20 million last weekend. Pretty remarkable considering Wall Street was disappointed with an opening weekend of only $44 million. Turns out long term thinking pays off. Buy the panic, my favorite game on Wall Street.

Disclosure: The Mayor owns DWA.

Apr 16 2010

Goldman Gets Caught

The civil and criminal charges have started on Wall Street. I’ve mentioned in a couple of recent articles that financials are riskier than they appear and here’s another reason why.

I’m sure you’ve already seen the details of the suit by the SEC against Goldman Sachs but the bottom line is this… Wall Street is intertwined in shady relationships on almost every product it sells. You can be guaranteed you don’t know everything about the products you buy or bought from them unless it’s a standardized product purchased on an exchange.

The complicating matter is the role hedge funds play in this back office game. They’re not required to disclose anything to their investors so no one really know what they hold or what they’re involved in. There will be more shady relationships coming out in the next few months and I’m excited to see who will be involved next.