Archives for February 2012

February 2012 - Page 8 of 11 - Money Morning - Only the News You Can Profit From

Groupon Inc. (Nasdaq: GRPN) Earnings Report Sends Investors Bailing on the Stock

Today's (Wednesday's) Groupon Inc. (Nasdaq: GRPN) earnings report – the first since the company went public in November 2011 – failed to show investors why they should believe in the social media-related stock.

Groupon reported a net loss before adjustments of $42.7 million, or 8 cents a share, compared to a net loss of $378.6 million, or $1.08 a share, for the same period last year. Revenue rose 194% to $506.5 million.

Wall Street expected earnings per share of 3 cents on $475 million in sales. With profit missing expectations and disappointing investors, shares fell 12% in after-hours trading.

The lower-than-expected earnings fueled the bearish outlook on Groupon.

"True, Groupon has plenty of cash in the bank and no debt, but you can find much better tech companies out there with stronger cash flow and solid earnings," Money Morning Defense and Technology Specialist Michael Robinson said last month. "For 2012, GRPN is a tech stock to avoid."

Avoid Groupon Inc. (Nasdaq: GRPN)

Groupon has slipped about 7% since its first trading day Nov. 11 to Wednesday's closing price of $24.58. Wall Street has a one-year price target of $25.06 – a mere 2% gain from Wednesday's close.

Groupon stock, along with last year's other Internet IPOs LinkedIn Corp. (NYSE: LNKD), Pandora Media Inc. (NYSE: P), and Zynga Inc. (Nasdaq: ZNGA), got a pop from recent investor excitement over the Facebook IPO. Groupon was up 7% Feb. 2, the day after Facebook made its IPO filing. LinkedIn rose 6%, Pandora 3%, and Zynga 17%.

Regardless of a recent share price spikes, the Internet IPOs of last year still face the growth and profitability obstacles that turned investors off before.

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The New Money Market Fund Rules You Could Face

The U.S. Securities and Exchange Commission (SEC) plans to unveil new money market fund rules that could drastically change the industry – even end it, if investment companies' claims are true. The SEC is designing new rules to stabilize money market funds. The investments should be secure and easily accessible, but the SEC says a […]

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Cash-Secured Puts: Keep the Cash Flowing - Even After You've Sold the Stock

In January, I told you how you can double or even triple your yield by selling "covered" calls on your dividend stocks.

While this is a safe and highly effective strategy, selling covered calls does have a drawback – of a sort.

If the stock you're holding rises in price before the calls you sold expire, you could be forced to sell the shares at the option's designated strike price.

This isn't likely to be a huge problem since you'll be selling your stock at a profit. The problem is that if you no longer own the stock, you won't be getting the dividend.

Fortunately, this problem has an easy solution. It's a strategy called selling "cash-secured puts."

Using cash-secured puts, you can maintain your cash flow while you're waiting to repurchase the actual stock at a price equal to or below where you just sold it.

How to Use a Cash-Secured Put to Generate Income

Here's how it works.

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Iran is Now a Full-Blown Crisis, Stage Set for $200 Oil

Just when it looked like we could take a breather from the Strait of Hormuz, all attention is back on Iran.

There are three reasons for this – all happening within the last week:

  1. First was Tehran's successful launch of a satellite, viewed by all in the region as being for military intelligence.
  2. Second, in his toughest talk to date, Iranian Supreme Leader Ayatollah Ali Khamenei voiced defiance to Western sanctions and pledged open retaliation if they are instituted.
  3. Finally, last Thursday, U.S. Secretary of Defense Leon Panetta expressed concern that, if matters continue, Israel could attempt an air-strike takeout of Iranian nuclear facilities within a month. Iran has been frantically moving essential components of its nuclear program underground to withstand such an attack.

All of this is, once again, leading to a rise in crude oil prices.

What's more, the EU decision to stop importing Iranian crude starting July 1 will cripple any chance Tehran has to combat escalating economic and political turmoil at home.

Yet Khamenei's defiant tone during his Friday prayer meeting speech indicates that Iran's religious leadership will not wait for the system to unravel.

And that is what makes this both a full-blown and an intensifying crisis.

Brinksmanship in the Straits of Hormuz

So what's being done?

Washington has little – leverage, save its ability to temper an immediate escalation by Israel (leverage the U.S. can still apply, at least for the moment). It also has some indirect influence on what the E.U. does.

Meanwhile, Saudi Arabia also is a wild card. It will not tolerate a nuclear Iran.

And yes, there are ample indications that American and Israeli intelligence have concluded Iran will achieve the ability to develop nuclear weapons in the next 18 to 24 months.

Some elements of that process will be available earlier, but remember: A weapon is of little value unless it can be controlled and delivered. The logistical and infrastructure considerations need to be in place first.

Yet with such an inevitable conclusion staring them in the face, the West has decided to embark on a risky path…

The target here is not the nuclear project at all (over which there is less and less outside control). Instead, it has become about creating massive domestic instability to bring down a regime.

Now, this is not about ending the theocracy. With or without Mahmoud Ahmadinejad as president or Ali Khamenei as supreme leader, Iran will remain a Shiite-dominated country. Religion decisively controls politics, and the clergy oversees the society.

The West is seeking a more moderate application of what will remain the Iranian cultural reality.

However, as the brinksmanship intensifies, so will the price of crude oil. Tehran, in this dangerous game of international chicken, really only has one card to play – the Strait of Hormuz.

There has been much misinformation circulated about the strait. Here are the facts.

On any given day, 18% to 20% of the world's crude oil passes through it.

According to the Energy Information Administration, the Strait's narrowest point is 21 miles wide; however, the width of the shipping lane in either direction is just two miles, cushioned by another two-mile buffer zone.

Of greater significance, though, is the fact that most of the world's current excess capacity is Saudi. (This is the oil that can be brought to market quickly to offset unusual demand spikes or cuts in supply elsewhere.) And, unfortunately, Saudi volume must find its way through the same little strait.

If we're unable to access the Saudi excess, that loss guarantees the global market will be out of balance. That will intensify the price upsurge – an upsurge that is already happening.

Now for the question I'm being asked several times a day in media interviews…

Just how bad can it get?

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This Defense Company has 24% Upside - Even with the Pentagon's Spending Cuts

When George W. Bush was first sworn into office on January 20, 2001, shares of defense contractor Lockheed Martin Corp. (NYSE: LMT) traded for $31.

By the end of his first term, they had doubled to about $60. And by mid-2008, prior to the October crash, Lockheed Martin had climbed to nearly $120 a share.

Those were the boom years – not just for Lockheed, but for most defense contractors.

Northrop Grumman Corp. (NYSE: NOC) shares doubled in the period stretching from December 2000 to January 2008, and General Dynamics Corp. (NYSE: GD) surged more than 133%.

But times have changed.

The last U.S. troops left Iraq in December and forces are expected to end combat operations in Afghanistan next year.

Meanwhile, the Pentagon is looking to cut spending by a half trillion dollars over the next 10 years. And war spending, which is funded separately by Congress, will likely fall from $115 billion this year to $88 billion in 2013.

Indeed, it's a new, leaner military that's taking shape amid talks of belt-tightening and austerity.

"Capability is more important than size," is the way General Martin Dempsey, the chairman of the Joint Chiefs of Staff, put it.

That means a change of tactics is in order for defense companies.

Some will rely on share buybacks and dividend increases, but that still might not be enough to fortify their stock prices. True success will only be accomplished by adapting to the new military's changing needs.

And right now there's only one company that fits the bill. We're talking about…

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What the Glencore Xstrata Deal Means for the Global Mining Industry

The Glencore Xstrata deal, an all-share merger creating a $90 billion global mining industry powerhouse, would be the sector's biggest and could trigger the busiest year for M&A activity.

The companies announced the deal today (Tuesday) following Glencore's offer last week. Glencore would pay $41 billion for the rest of Xstrata's shares (Glencore already has a 34% stake).

Glencore International is the world's largest publicly traded commodities supplier, and Xstrata is the world's fourth-largest metals and mining company. A Glencore Xstrata deal would create a company rivaling global mining industry leaders BHP Billiton Ltd (NYSE ADR: BHP) and Rio Tinto Plc (NYSE ADR: RIO).

"Glencore being such a dominant trader and marketer of commodities, and Xstrata being such a strong operator of difficult assets, I think it creates enormous value," Prasad Patkar from Platypus Asset Management Ltd. told Bloomberg News. "On one end you have great mining expertise, on the other you've got great marketing expertise. Two and two together should make five."

The new combined entity would be more diversified than other global commodities players, with copper and coal being its biggest earnings drivers. It would be the world's biggest coal exporter for power plants and the top integrated zinc producer.

The new mining industry giant also will go on the hunt for smaller businesses, and encourage other powerful players to do the same.

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Jim Grant and the GOP Joining Forces to Bring Back the Gold Standard

With two GOP presidential candidates saying they'd add legendary Wall Street pundit Jim Grant to their administrations, bringing back the gold standard clearly has moved up on the Republican agenda.

Ron Paul, for whom returning to the gold standard has been a decades-long crusade, has said he would name Grant chairman of the U.S. Federal Reserve. In his case, that would be a compromise – Paul has often called for the Fed to be abolished altogether.

Meanwhile, Newt Gingrich has promised to appoint Jim Grant to head a commission to study the possibility of going back to the gold standard.

Grant, who publishes Grant's Interest Rate Observer, is a well-known gold bug and critic of the Fed.

His ideas have attracted increasing favor in a party that blames the Fed's easy money policy for the country's economic problems.

Grant calls the current system of fiat currency an "anachronism" and questioned the "command and control, top-down system of having a handful of people at the Fed dictate interest rates."

He's worried that the Fed's quantitative easing policies have created a bubble in Treasury bonds.

And make no mistake: If a Republican president gives him the opportunity, Grant already has a plan, starting with making a public case for the gold standard.

"I would then lay out a timeline for the conversion to a constitutional dollar, a dollar as envisaged by the Founding Fathers," Grant told MarketWatch.

Grant said he believes a dollar should be fixed "like a foot, or a pound."

Such a policy would arrest the steep decline in value the dollar has suffered since the United States abandoned the gold standard in 1971 – a point Paul often raises on the campaign trail.

"Since 1971, since we lost our link to gold, the dollar has lost 85%," Paul recently told NPR. "So if you were a saver and wanted to take care of your kid's education, even if you made a little interest, you're going to lose money."

Middle-class worries like that have helped make a return to the gold standard a major issue in the 2012 Republican primary battle.

The other two remaining GOP contenders, Mitt Romney and Rick Santorum, are believed to be against a return to the gold standard, though both refrain from talking about it.

Of course, Republican proponents of the gold standard may not need Paul or Gingrich to win the nomination to move the issue forward.

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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.

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