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.

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

August 3, 2011 7:32 AM EDT 

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.

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%).

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.

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:

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.

Quantitative vs. Qualitative Investing

Quantitative vs. Qualitative Investing

When an investor is deciding whether or not to purchase stock in a company, he or she should perform a qualitative and quantitative analysis.

Qualitative Analysis

A qualitative analysis is basically the non-numbers analysis.  This consists of an evaluation of a company’s brand, mass marketability, competitive advantage, leadership, growth potential, etc.

Qualitative investors care more about the long-term growth potential of a company rather than short-term price fluctuations.  Companies that are currently attractive to qualitative investors, but not to quantitative investors would include Google, Chipotle, Amazon, and Netflix.  When Google, Chipotle, and Amazon had their initial public offerings (IPO’s), quantitative investors claimed that the companies were overvalued.  In contrast, qualitative investors claimed that the future for these companies what limitless.  In a way, both investors were correct.

The qualitative investors were correct because Google, Chipotle, and Amazon ended up being incredibly successful.  An investment in these companies at the time of their IPO’s would now be worth a fortune [this is not true for Google...it's worth 2-3 times its IPO, not "a fortune".  I would say: An large investment in Chipotle and Amazon at the time of their IPO’s would now be worth a fortune, while such an investment in Google would have more than doubled. 

In the quantitative section below, I will explain why the quantitative investors were also correct.

Quantitative

A quantitative analysis is an analysis "by the numbers".  This entails pouring through a company’s financial statements to create a fair trade value.  In other words, quantitative investors look at the current financials of a company to place a price tag on it, and ask if the stock price is significantly above that price tag.  Ratios that quantitative investors put a great emphasis on include the price to earnings ratio, price to book ratio, and PEG ratio (PE ratio divided by the growth rate).

So why wouldn’t a quantitative investor have invested in Google, Chipotle, or Amazon’s IPO?  The answer is that all of these companies appeared grossly overvalued at the time of their IPO.  All of the ratios mentioned above that are important to quantitative investors were astronomically large at the time of their IPO.  For example, when Amazon had its IPO in 1997, the company’s market value was $438 million.  However, the company appeared overvalued because it had not yet even made a profit.  So, if Amazon even earned $1 million, the P/E ratio would have been astronomically high at 438.  Quantitative investors would have a heart attack at the sight of a P/E ratio that high, and probably would have shorted the stock, figuring it was doomed to fail.

The quantitative investor would have been correct in not buying Amazon, because it was not necessarily a good short term investment.  Like many great success stories, there were times when Amazon’s share price was plummeting and short term investors sold their Amazon stock and unfortunately never reaped the subsequent astronomical returns.  Amazon is now worth over $84 billion dollars representing a return on investment of 191,680% from its IPO.  Pretty good!

LinkedIn, Vera Bradley, MAKO Surgical, Green Mountain Coffee Roasters

All of these recommendations are qualitative investments.  It is to be expected that price fluctuations will be great.  We have already seen investments such as MAKO Surgical and Green Mountain increase tremendously in value, however, we have also seen investments like Vera Bradley and LinkedIn decrease in value.  The trick is to "weather the storm" and hold on for the long term if you believe, as I do, that these companies have great products and great leadership that will ultimately dominate their respective markets.  You don’t want to be like the quantitative investor who sold his/her stock in Amazon because the price went down in the short term.  You want to be the qualitative investor who held onto his/her investment and through thick and thin, only to finish financially far, far ahead of the crowd.

Vera Bradley Price Drop

Price Drop


Shares of Vera Bradley dropped 13.82% due to lower than expected quarterly earnings.  For a full article of the news release please click here.

What Now?


Don't panic and don't sell!  Because we are investing in Vera Bradley for the long term, we are more concerned with how it is positioning itself for the future rather than how it is performing in the short run.  Earnings were lower this quarter because the company has been investing in itself to grow.  In order to pay for new stores in Japan, Vera used excess cash from its earnings.  Looking at this through a long term investment lens, it is great that Vera can use its earnings to grow instead of taking out huge loans that it can't really afford.  In addition, Vera grew its revenues by 19% and raised revenue expectations for next year.

Investor Psychology


Here's a fun fact: While the average investment returns about 10% per year, the average investor has a return of under 2% per year.  Why is this?  Because of the nature of human psychology, investors always want to sell when their stocks are losing money, and buy more when their stocks are making lots of money.

Although Vera shares dropped in value today, you haven't actually lost any money.  You only lose money when you actually sell your shares.  I still feel strongly that Vera will be a great investment over the long run, and I recommend to hold onto your shares.  If you have enough cash to invest, I would recommend buying more.  Buy low and sell high!