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Buy, Sell or Hold: When to Buy Shares of Facebook
You might have heard….
Facebook Inc. (NYSE: FB) is the most awaited initial public offering (IPO) since Google Inc. (Nasdaq: GOOG).
The recent registration of the company's IPO documents means it won't be long until Facebook shares begin trading freely.
But will Facebook shares make you rich beyond your wildest dreams like mural painter David Choe?
Or would you be better off watching from the sidelines before you buy shares of the social media giant?
The Details behind the Facebook IPO
Here's what I've learned from Facebook's S-1.
Some of the data points buried in the IPO document are eye-opening, to say the least.
Chief among those are Facebook's assertion that 6% to 7% of the entire world population logs in every day. More importantly, they stay logged in for a significant amount of time.
However, what will happen in the future to drive the stock's share price after it's brought to market is buried deeper in the details.
It's these details that make Facebook's IPO a hold if you already own shares, but also a "wait to buy" if you are like most people and want to own them.
In a nutshell, what I've learned is the banks are bringing Facebook to market fully priced.
My opinion is the bankers have gotten greedy and decided to push the valuation numbers above the levels that I believe are sustainable.
The company is being valued at $75 billion – $100 billion dollars at launch. This would make it one of the most valuable companies in the world, yet its actual revenue, let alone profitability, is at a more mundane level.
Currently, Facebook is reporting about $4 billion in revenue and profits of $1 billion.
That means if Facebook prices in at the top of its estimated range ($100 billion), based on current disclosures it would have a 100-to-1 price to earnings (P/E) ratio.
In other words, it's only going to take about 100 years for Facebook to eventually earn what it may price at. Compared to other blockbuster stocks, that's quite rich.
By comparison, Apple Inc. (Nasdaq: AAPL) has $100 billion in cash and a P/E ratio of 11 while Google's P/E is 20.
That's why it's time to "Hold" Facebook (**) or wait to buy it until insiders get a chance to sell their shares and bring the price down to levels common people can realistically afford to purchase.
Buy, Sell or Hold: A Look at Carnival Corp (NYSE: CCL) After the Costa Concordia Tragedy
Carnival Corp. (NYSE: CCL) is the world's largest provider of vacation cruises operating under the names Carnival Cruise Lines, Holland America Line, Princess Cruises, and Seabourn in North America; and AIDA Cruises, Costa Cruises, Cunard, Ibero Cruises, and P&O Cruises in Europe, Australia, and Asia.
As you know, Carnival has been all over the news lately because of the deadly sinking in Italy, when the Costa Concordia suffered one of the largest cruise ship accidents in decades.
Since then, Carnival Corp. shareholders have taken some steep losses. Shares are down nearly 12%.
For investors, that leaves the question of what will happen to Carnival Corp. in the wake of the tragedy.
However, from strictly a business standpoint what investors need to know is that the ship is fully insured and at this stage it is the reinsurance firms that will have to fund the refloating and fixing costs.
So as tragic as the disaster has been, Carnival Corp. will survive.
According to a Carnival Corp. release, "the impact to 2012 earnings for loss of use is expected to be approximately $85-$95 million or $0.11-$0.12 per share."
The larger concern, as management admits in the very next sentence of the release, is that "the company anticipates other costs to the business that are not possible to determine at this time." (Full release)
So our problem here in deciding whether to buy, sell, or hold CLL are the after-effects of the accident, such as whether or not people will decide to book vacations on any of Carnival's brands.
More importantly, we won't be able to measure year-over-year comparisons for first quarter bookings until quarter end, and we won't be able to tease the bookings data for quarters two, three, and four for almost a year, when full data will be available.
However, while the company is probably going to be looking at a slower-than-expected year, I believe insurance and the diversity of assets make the Costa Concordia disaster a unique one-off event.
As a result, it's time to "Hold" Carnival Corp. (**).
Buy, Sell or Hold: Dump Petroleo Brasileiro S.A.(NYSE ADR: PBR) Before Its Stock Gets Drilled
At first glance, Petroleo Brasileiro S.A. (NYSE ADR: PBR), or Petrobras, looks like a quality investment…
But looks can be deceiving – and in the case of Petrobras, surface-level success is hiding some serious blemishes.
No doubt, Petrobras is one of the top five major energy companies in the world. And the offshore discoveries made off the coast of Brazil over the past few years have been remarkable.
However, these reserves, while large, present problems of their own. The oil they hold will be costly and difficult to extract, and legal red tape and government interference are further complicating matters.
Additionally, new sources of shale oil are proving more reliable and convenient than such precarious deepwater drilling operations
So it's time to sell Petroleo Brasileiro S.A. (NYSE ADR: PBR) (**), before the only thing getting drilled is its stock.
Into the Deep
Deepwater drilling is hard enough to begin with. Imagine what it takes to force high-pressure/high-heat fluids into chilled production equipment sitting on the ocean floor.
That's no easy task. And in Brazil's case, it's made even more challenging by a thick layer of salt sitting above the oil.
The Carioca field, for instance, is 170 miles offshore, more than 6,000 feet below the surface of the water, and trapped beneath a shelf of salt 500 miles long and 125 miles wide.
The trouble is, it's beyond both Brazil's and Petrobras' capacity to fully fund or provide the level of drilling expertise to carry out these projects. So they must rely on international experts and new, unproven technology to make these deepwater fields productive.
This is a risky strategy – not to mention an expensive one.
The first wells drilled in the exploration cost as much as $100 million each. Petrobras' development plans for 2011-2015 include $224 billion in total investments to fund 688 projects.
Legal Minefield
As if these headaches weren't enough, Petrobras was thrown another curveball in December.
Buy, Sell or Hold: CARBO Ceramics, Inc.(NYSE: CRR) Are the Glory Days Over?
CARBO Ceramics, Inc. (NYSE: CRR) is one of those companies quietly making a killing in today's economy.
Thanks in large part to the natural gas boom, CRR is up over 328% off of the 2009 lows.
However, how long it can maintain its status as a high-flier is another matter entirely.
In fact, I expect that CARBO's entire business model is about to come under attack, which is why now is a good time to sell.
Here's why.
CARBO is one of the world's biggest suppliers of proppant. It's one of the key ingredients in the shale oil and gas boom that is turning places like Williston, ND, into boomtowns.
The Risks Behind Horizontal Fracking
But there is risk behind these boom towns…
2012 Natural Gas Price Forecast: Why to Avoid the "Widow Maker"
I've been watching natural gas for years now and find myself shaking my head lately.
The cost to buy the "clean energy" is collapsing as crude oil, a product that needs refining, stays above $100 per barrel.
In fact, this chart for natural gas is what I call a Widow Maker.
Take a look…
As you can see, it shows the price of the March 2012 NG contract over the past two years – and it's not pretty.
Why Natural Gas Prices Will Continue to Drop
The last time I wrote about natural gas for Buy, Sell or Hold was November 2010.
At the time, natural gas was about to start its most seasonally bullish period of the year. I recommended a multi-month trade with an exit by the end of the March 2011 contract.
However, this year is completely different. Natural gas has collapsed in price instead of climbing during the peak winter cold months.
While it's been a warmer than normal winter across the United States, especially in the Snow Belt, this price drop has more to do with U.S. production rising on a year-over-year basis than it does the weather.
All I Need to Know About Johnson & Johnson (NYSE: JNJ) I Learned 30 Years Ago
All I need to know about Johnson & Johnson (NYSE: JNJ), I learned at my first job at a broker dealer.
To this day, the firm I worked at is one of the largest assets under management (AUM) shops in the world. And while there I had a mentor, who I will call "Joe" to protect his anonymity
Joe was something of a stereotype. He was freaky with math, loved chess, never married, and wore a really bad toupee.
He was also the happiest person in the building.
You see, Joe was worth more than pretty much everyone else who worked on our floor – all upper-management included. He never feared the stock market and would whistle while others cried over their 401k performances.
Joe's secret to success was that he owned a position in Johnson & Johnson. He had worked for the company in the past, and he'd built up a nice-sized block of stock while he was there. Better still, he added to this single position with every dividend.
In a business that preaches diversification, Joe did the exact opposite in his personal life – and it worked for him. I would never suggest an investor fixate on a single investment the way Joe did, but in his context it was amazingly rewarding.
Joe called Johnson & Johnson a once-in-a-lifetime investment – and in a way it still is.
Johnson & Johnson has split at least three times in the last twenty years, and has grown its dividend during that time. It is currently yielding about 3.5%, which is head-and-shoulders above what U.S. Treasuries and bank accounts are paying.
And while the stock has not gone up much in the last decade, the dividends have been pouring in, buying new shares, and in the process compounding the real rate of return on invested capital.
So it's time to buy Johnson & Johnson (NYSE: JNJ) (**).
We may never be like my friend Joe, with a zero average cost basis on a growing pile of shares, but we can still enjoy some of the slow and steadily growing dividend from this AAA-rated company.
Here's how.
125 Years of Excellence
Johnson & Johnson's positive attributes include [To continue reading, please click here...]
How the European Debt Crisis Could Smother Fiat S.p.A. (PINK: FIATY)
Around this time last year I warned you that the Eurozone debt crisis would trample the Italian economy and take carmaker Fiat S.p.A. (PINK: FIATY) down with it.
To profit from this debacle, I told you to short Fiat. Since then, the stock has tumbled 76%, from $19 a share to yesterday's (Wednesday's) closing price of $4.66.
Fiat is a perfect example of how an unstable home market – like Italy – will kill a struggling company's stock. Fiat is Italy's largest private sector employer, and the past year's market performance mirrors the weakness unleashed by the European debt crisis.
Sadly, Fiat won't be the only company whose shares will plunge.
TheEuropean debt crisis has grown from a problem on the edge of Europe to a problem inside the region's core. You only have to look at the series of bank stress tests that Europe has rolled out to see that things are getting worse, not better.
In fact, the European Central Bank (ECB) announced yesterday that it would provide $638 billion (489 billion euros) in three-year loans to more than 500 banks in the Eurozone. More than a dozen Italian banks borrowed $143.52 billion (116 billion euros).
But the solution is only short term, and the region's grim long-term outlook hasn't changed. We're heading toward a point of maximum pessimism – one I think we'll reach sooner rather than later.
So, it's time to thank the Eurozone, Italy, and Fiat S.p.A. for a great short trade and close it out. While the stock could go all the way to $0, the meat of the move is over, and we want to take profits before a major short-covering event gives the share price a temporary boost.
Fiat S.p.A.: Stung by the European Debt Crisis
The European Central Bank forecasts Eurozone growth will slow to a near standstill next year, with gross domestic product (GDP) only expanding 0.3%. The ECB said area-wide inflation will reach 2.7% in 2011.
This slow-growth, higher-priced environment won't bode well for the region's automakers, which are already feeling the effects.
Automobile registrations in Europe in November dropped 3% to 1.07 million vehicles from 1.10 million a year earlier. That's the biggest decline since June, according to the Brussels-based European Automobile Manufacturers Association. The Italian auto sales market led the region's declines, slipping 9.2%. France was close behind at 7.7%.
AeroVironment Inc. (Nasdaq: AVAV) Is the Future of the Defense Industry
If you don't know about AeroVironment Inc. (NASDAQ: AVAV), it's a name you need to follow.
My fascination with the founder of AeroVironment, which designs, develops, produces, and supports aircraft and energy systems, started when I was 12 years old. History was made that year when a man-powered aircraft flew across the English Channel for the first time.
I remember the flight clearly. The 70-lb aircraft made the 26-mile journey in 2 hours and 49 minutes.
The idea that a man could pedal a bicycle fast enough to fly across the channel seemed crazy to me at the time. But it was made possible because of groundbreaking designs by Dr. Paul MacCready.
MacCready made the first human-powered aircraft in 1977, the Gossamer Condor. Two years later came the Gossamer Albatross, the first fully human-powered aircraft to cross the English Channel. MacCready won the prestigious Kremer prize, which honors pioneers in human-powered flight, for each design.
His innovative creations led TIME magazine to call him one of the "greatest minds of the 20th century."
MacCready started AeroVironment in 1971. His imagination and persistence helped the company become a leader in creating UAVs (Unmanned Aerial Vehicles). Now AeroVironment has grown into the largest provider of UAVs to the U.S. military.
UAVs will play an incredibly important role in our country's future. The art of war is evolving, and these devices have become the next key tool in the U.S. arsenal.
With its great niche in the defense industry, AeroVironment Inc. is a "Buy." (**)
Providing for the Future of Defense
When I think of UAVs, I think of the hunter-killer models the United States uses in its "War on Terror."
However, those are typically large, expensive, unmanned planes with missiles attached to them, which can fly three to five days without refueling. But in fact the U.S. military has purchased thousands upon thousands of small handheld UAVs, with the smallest designs weighing less than five pounds each.
These drones are revolutionizing the real-time gathering of battlefield information. The smaller breed of UAVs use a localized Wi-Fi type communications package instead of broadcasting their information to military satellites. This gives field troops direct access to intelligence, without it having to be relayed back from the United States.
The new UAVs also allow American soldiers to scout enemy territory without having to risk their lives.
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