Google Buys Motorola
The big news of the week was that Google paid $12.5 billion dollars to acquire Motorola. The purpose of this acquisition for Google was to substantially increase its patent portfolio to make it more competitive (and perhaps the top dog) in the mobile phone market. Because Google paid a 63% premium for Motorola, Motorola shareholders were rewarded with a 63% share-price increase in one day.
An Arms Race for Patents
A very important factor for success in the mobile phone market is access to patents. Google took a big step forward by acquiring Motorola, but there are still many companies with desirable patents out there. Two of Google's main competitors in the mobile phone market include Microsoft and Apple. Both of these companies have huge cash positions; Microsoft has over $51 billion of cash and Apple has over $20 billion of cash. The word on the street is that Microsoft, Apple, and potentially Samsung are looking to acquire more patents to stay competitive with Google.
The company with the most desirable patent portfolio according to many sources is today's recommendation InterDigital (IDCC). With a market capitalization under $3 billion dollars and a patent portfolio that could potentially be worth $20 billion dollars, Interdigital has a TREMENDOUS potential return. I'm talking about over 500%.
For a more detail analysis of IDCC's patent portfolio value check out Seeking Alpha's write-up.
Downside Limited
Although we never know exactly how the market will behave, Interdigital shares do not appear to be super overvalued. In other words, IDCC is a pretty good company in its own right with the added bonus of potentially being bought out by Apple, Microsoft, or Samsung. IDCC has been successful with its patent portfolio business by increasing both revenues and cash flow consistently year in and year out. In addition, all the profit margins are extremely high, which is to be expected from a company that simply collects royalties for its patents. Whether or not IDCC gets bought out, it will continue to receive royalties for an expanding mobile phone technology market.
This is the type of company that you have to be patient with. Because there is so much speculation as to whether or not it will get bought out, the share price will no doubt be volatile. However, the bottom line is that IDCC's patent portfolio is worth A LOT of money. I believe that the huge upside and seemingly small downside to IDCC make it an attractive risk vs. reward investment. Remember to invest responsibly and never allocate too much of your portfolio to any one stock!
Tuesday, August 16, 2011
Monday, August 15, 2011
"Seeking Alpha" Likes VPRT
Below is an excerpt from SeekingAlpha.com in regards to VistaPrint; definitely a good read.
VistaPrint NV (VPRT) has seen loss in excess of 35% over the last month. The company announced earnings on July 29 which reflect revenue growth of 27% and net income of $14.4 million over $11.7 million year over year. This financial report caused the stock to decline along with guidance below analyst expectations. The company has increased revenue, EPS, and assets each year over the last 5 years. In addition, the company has eliminated it's total debt during the last 5 years and currently have no debt. The company announced potential EPS of $5 and revenue of $2 billion by 2016 which show the company expects continued growth over the next several years.
I believe this stock is offering investors the perfect buying opportunity, regardless of how the markets feel about the company not meeting EPS expectations. Revenue is growing at the same rate and EPS has increased year over year, and is projected to continue. I expect P/E to increase along with earnings, making the current price of $28.35 a bargain for any investor.
Thursday, August 4, 2011
Buy Vistaprint (VPRT)
The Business
Vistaprint is the premier resource for small businesses. Whether you need to make a website, create and distribute business cards, mail special reports to clients, or create an email database, Vistaprint has all the answers. In fact, Vistaprint has a specific niche in the market for micro-businesses that have ten employees or fewer. Although this may seem like a small market, Vistaprint's research has shown that there are at least 50 million micro-businesses in the United States, Europe, and Canada alone. This global perspective has influenced Vistaprint to diversify its business, which can be shown through their revenue distribution: 57% of revenue comes from North America, 38% from Europe, and 5% from Asia Pacific. It is important to note that Vistaprint is pursuing increasing its footprint in the Asia Pacific market.
The Stock
Vistaprint appears to be a very attractive growth investment because of its strong financials and solid value. Compared to last year, revenue and earnings growth have increased over 21% and 22%, respectively. This means that Vistaprint has successfully expanded its business in North America, Europe, and Asia Pacific. With zero debt and over $230 million dollars have cash, Vistaprint is poised to continue its aggressive expansion and increase its customer base.
Over the past month, shares of Vistaprint have dropped 42%. For a company of this quality, the share price drop is quite astounding. Aside from the market getting beat up in general, Vistaprint shares dropped because they produced lower than expected earnings expectations for next year. Despite the large sell-off, Vistaprint has a very sound business plan to continue its expansion. With a market capitalization of $1.29 billion and a P/E ratio of 16, I believe that Vistaprint represents tremendous value.
Side Note
Remember not to allocate too much of your portfolio to any one stock. A general rule of thumb is not to let any stock represent over 10% of your portfolio, and to also own at least 20-30 companies.
Michael R Caligiuri owns shares of Vistaprint.
Vistaprint is the premier resource for small businesses. Whether you need to make a website, create and distribute business cards, mail special reports to clients, or create an email database, Vistaprint has all the answers. In fact, Vistaprint has a specific niche in the market for micro-businesses that have ten employees or fewer. Although this may seem like a small market, Vistaprint's research has shown that there are at least 50 million micro-businesses in the United States, Europe, and Canada alone. This global perspective has influenced Vistaprint to diversify its business, which can be shown through their revenue distribution: 57% of revenue comes from North America, 38% from Europe, and 5% from Asia Pacific. It is important to note that Vistaprint is pursuing increasing its footprint in the Asia Pacific market.
The Stock
Vistaprint appears to be a very attractive growth investment because of its strong financials and solid value. Compared to last year, revenue and earnings growth have increased over 21% and 22%, respectively. This means that Vistaprint has successfully expanded its business in North America, Europe, and Asia Pacific. With zero debt and over $230 million dollars have cash, Vistaprint is poised to continue its aggressive expansion and increase its customer base.
Over the past month, shares of Vistaprint have dropped 42%. For a company of this quality, the share price drop is quite astounding. Aside from the market getting beat up in general, Vistaprint shares dropped because they produced lower than expected earnings expectations for next year. Despite the large sell-off, Vistaprint has a very sound business plan to continue its expansion. With a market capitalization of $1.29 billion and a P/E ratio of 16, I believe that Vistaprint represents tremendous value.
Side Note
Remember not to allocate too much of your portfolio to any one stock. A general rule of thumb is not to let any stock represent over 10% of your portfolio, and to also own at least 20-30 companies.
Michael R Caligiuri owns shares of Vistaprint.
Wednesday, August 3, 2011
Good Vera Bradley Article
Below is an article on Vera Bradley stock from Streetinsider.com. I still would like to see the long term investments start to pay off before purchasing shares again.
Wells Fargo Upgrades Vera Bradley (VRA) to Outperform; Not A Falling Knife
Wells Fargo upgraded Vera Bradley (NASDAQ: VRA) from Market Perform to Outperform, price target range of $39-$41.
Wells analyst says, "When we downgraded the stock on May 12th, it was due to our view that the valuation looked full at $50.37; today, VRA's growth opportunities are essentially unchanged and at $31.95, we think that a tougher macro environment is priced in and there is 22-27% upside potential to our valuation range of $39-41. We feel comfortable with our estimates (which assume some slowdown in 2H vs. 1H) and see potential upside in 2012 from a likely Dillards rollout and lower cotton prices. VRA's valuation has contracted significantly relative to other growth names over several concerns that could be resolved over the next several quarters. Short interest has risen dramatically to 23% of the float. We believe VRA has a proven brand (29-yr history), significant growth opportunities (retail, wholesale and international) and strong operating margins (20.5% in 2010; only Coach (NYSE: COH), Lululemon (Nasdaq: LULU) and Tiffany (NYSE: TIF) have higher margins)."
For more ratings news on Vera Bradley click here and for the rating history of Vera Bradley click here.
Shares of Vera Bradley closed at $31.95 yesterday, with a 52 week range of $22.00-$52.36.
Wells analyst says, "When we downgraded the stock on May 12th, it was due to our view that the valuation looked full at $50.37; today, VRA's growth opportunities are essentially unchanged and at $31.95, we think that a tougher macro environment is priced in and there is 22-27% upside potential to our valuation range of $39-41. We feel comfortable with our estimates (which assume some slowdown in 2H vs. 1H) and see potential upside in 2012 from a likely Dillards rollout and lower cotton prices. VRA's valuation has contracted significantly relative to other growth names over several concerns that could be resolved over the next several quarters. Short interest has risen dramatically to 23% of the float. We believe VRA has a proven brand (29-yr history), significant growth opportunities (retail, wholesale and international) and strong operating margins (20.5% in 2010; only Coach (NYSE: COH), Lululemon (Nasdaq: LULU) and Tiffany (NYSE: TIF) have higher margins)."
For more ratings news on Vera Bradley click here and for the rating history of Vera Bradley click here.
Shares of Vera Bradley closed at $31.95 yesterday, with a 52 week range of $22.00-$52.36.
Tuesday, August 2, 2011
Sell Vera Bradley (VRA)
Why sell?
I still believe in the long term future of Vera Bradley, but I do not think it is the best stock to have in your portfolio right now. The company has committed to long term growth instead of meeting short term earnings expectations. Investors have already started placing puts (betting against the stock), and the share price continues to fall. I do not know exactly when Vera's long term investments will start to result in strong cash flow generation, and because of that I do not feel comfortable owning the stock.
Potential pick later on
In terms of long term valuation (5-10) years, I believe that Vera Bradley stock is heavily undervalued. There is a good chance that I could recommend to buy Vera again. Furthermore, when Vera's long term investments do start to pay off, the stock will most likely take off like a rocket. As investors, it is important to know when to cut our losses. Although it may seem painful to sell Vera after a 35% drop, it is the necessary thing to do. There are better investment opportunities in the market right now; and the best time to sell is when there is a better investment opportunity. It definitely stings for me to have picked a loser, but the fact of the matter is that Calinvestments has indeed performed well on aggregate. Despite Vera's 35% drop, Calinvestments growth strategy has resulted in big winners such as Mako Surgical (up 20%), Panera (up 27%), LinkedIn (up 30%), Lulu Lemon (up 95%), and Green Mountain Coffee Roasters (up 144%).
I still believe in the long term future of Vera Bradley, but I do not think it is the best stock to have in your portfolio right now. The company has committed to long term growth instead of meeting short term earnings expectations. Investors have already started placing puts (betting against the stock), and the share price continues to fall. I do not know exactly when Vera's long term investments will start to result in strong cash flow generation, and because of that I do not feel comfortable owning the stock.
Potential pick later on
In terms of long term valuation (5-10) years, I believe that Vera Bradley stock is heavily undervalued. There is a good chance that I could recommend to buy Vera again. Furthermore, when Vera's long term investments do start to pay off, the stock will most likely take off like a rocket. As investors, it is important to know when to cut our losses. Although it may seem painful to sell Vera after a 35% drop, it is the necessary thing to do. There are better investment opportunities in the market right now; and the best time to sell is when there is a better investment opportunity. It definitely stings for me to have picked a loser, but the fact of the matter is that Calinvestments has indeed performed well on aggregate. Despite Vera's 35% drop, Calinvestments growth strategy has resulted in big winners such as Mako Surgical (up 20%), Panera (up 27%), LinkedIn (up 30%), Lulu Lemon (up 95%), and Green Mountain Coffee Roasters (up 144%).
Saturday, July 30, 2011
Debt Ceiling
What to do
Don't do anything. Many of you have probably seen your portfolio values drop drastically over the last month and are wondering whether or not you should make changes. Many investors are putting their money in cash or shifting their assets into more stable market sectors. While this strategy of moving your money into less volatile places may make you sleep better at night, it is not the best way to manage your portfolio. Of course the advice above only applies to long term investors who do not need their money anytime soon. If you are a short term investor trying to make a quick buck, you've probably learned that investing in stocks is like swimming in the middle of the ocean, you're helpless to the forces of the market.
Is the United States going to collapse on August 2nd?
No. Although CNN, CNBC, and Fox News make it seem like August 2nd is Judgement Day, its not. Sure, the market might drop a little bit, but in the long run the United States is going to be fine. A more important point is to not think with such a macro lens and to think with more of a micro lens. I commonly see people pull their money out of the markets if poor housing data or job data is released, but does this even make sense? You have to ask yourself how all the economic data actually tangibly affects the individual stocks in your portfolio. For example, if the United States doesn't get the debt ceiling raised by August 2nd, how much is that really going to affect the amount of coffee Green Mountain Coffee Roasters sells over the next 5-10 years? How much is it going to affect how many surgical machines are purchased from MAKO Surgical? Not very much at all.
Investor Psychology
When the news stations are claiming that the world is going to end and your portfolio value is dropping, your natural inclination is to act; well, your natural inclination is wrong. This is the very reason why the average investor has an average annual return of less than 2% compared to the S&P 500's 10%. Don't sell if you're in it for the long run. Believe in the stocks in your portfolio.
More Stock Picks
I believe that the recent market downturn has created some pretty attractive investment opportunities. Stay tuned as a couple stock picks will be coming soon.
Monday, July 11, 2011
LinkedIn (LNKD) Update
Original Recommendation
On Wednesday, May 25th I recommended to invest in LNKD using a dollar cost average plan. You can click this link for the original write-up. The excerpt below is a specific reference to the dollar cost average plan:
"LinkedIn will no doubt be a volatile investment. Some days it will decrease in value a lot, and some days it will increase in value a lot. Because of this, I recommend dollar cost averaging. This is when you stagger your investments. For example, if you plan to invest 1,000 dollars in LinkedIn, stagger your investments over a three month period. Invest 333 dollars now, 333 dollars a month from now, and 333 dollars two months from now. This will help you account for crazy price swings by averaging out your purchase price."
As it turns out, the price of LNKD has indeed been very volatile. Check out the 2-month graph below. Over a two month period, the share price decreased from $93 to $63 (32% drop), and then increased from $63 to over $100 (59% jump).
If you followed the dollar cost average plan that was suggested, you would have invested a third of your money on Wednesday, May 25th at a share price of $94.33 and another third on June 25th at a share price of $69.94. Let's see the difference that this makes below:
Did not use dollar cost average method: Your investment would have increased 8.5%.
Used the dollar cost average method: You would be up 8.5% on your first 1/3rd investment, and up 46% on your second 1/3rd investment. So, when taking into consideration that you would have only invested 2/3rds of your money, you would be up 18.16%. And you would still have another third of your money to invest on July 25th! The math is below:
On Wednesday, May 25th I recommended to invest in LNKD using a dollar cost average plan. You can click this link for the original write-up. The excerpt below is a specific reference to the dollar cost average plan:
"LinkedIn will no doubt be a volatile investment. Some days it will decrease in value a lot, and some days it will increase in value a lot. Because of this, I recommend dollar cost averaging. This is when you stagger your investments. For example, if you plan to invest 1,000 dollars in LinkedIn, stagger your investments over a three month period. Invest 333 dollars now, 333 dollars a month from now, and 333 dollars two months from now. This will help you account for crazy price swings by averaging out your purchase price."
As it turns out, the price of LNKD has indeed been very volatile. Check out the 2-month graph below. Over a two month period, the share price decreased from $93 to $63 (32% drop), and then increased from $63 to over $100 (59% jump).
If you followed the dollar cost average plan that was suggested, you would have invested a third of your money on Wednesday, May 25th at a share price of $94.33 and another third on June 25th at a share price of $69.94. Let's see the difference that this makes below:
Did not use dollar cost average method: Your investment would have increased 8.5%.
Used the dollar cost average method: You would be up 8.5% on your first 1/3rd investment, and up 46% on your second 1/3rd investment. So, when taking into consideration that you would have only invested 2/3rds of your money, you would be up 18.16%. And you would still have another third of your money to invest on July 25th! The math is below:
8.5% return X 33% of the intended investment = 2.83%
+
46% return X 33% of intended investment = 15.33%
=
18.16%
In summary, despite only investing 2/3rds of your intended investment, the dollar cost average method yielded a return on investment of over twice that of not using the dollar cost average method.
LNKD Going Forward
I still believe LNKD is a good long term investment, and thus would recommend finishing out my original dollar cost average plan. LNKD has been growing at a very rapid pace and is now the #2 social networking website in the world ahead of both MySpace and Twitter, but behind Facebook. For more details read this article.
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