As another year comes to close, we can't just sit back and rest on our gains from the year that was 2007. Sure, Evergreen Solar (eslr), Ormat Technologies (ora), Yum Brands (yum) and the almighty Google (goog) were all great plays for this past year, but you have to ask yourself, what is next? What will be the best bull markets of 2008?
I believe 2008 will be the another year of the green! Alternative energy and any pollution reduction company will reign supreme as the governments around the world, (maybe even ours here in the states) begin to make these pressing issues a priority. It seems like you can't turn around these days and not hear something about climate change, pollution and expensive dirty energy. Stocks like Zoltec (zolt), which is one of the leaders in producing carbon fibers used in Wind Turbines, and Evergreen Solar (eslr) are going to continue their run in 2008 as more and more investors realize the explosive growth these industries can provide. With oil prices continuing to climb, manufacturing cost dropping due to government subsidies and a general increase in demand, the whole sector should do well. Solar, Geothermal, and wind power are the future, and now is your chance to make some green off of these clean renewable energy companies.
The next year will also be another year to watch China continue to expand at a insane pace. While I am not too fond of Chinese stocks, I think that Yum Brands is a way to get great Chinese exposure without investing in Communism. Kentucky Fried Chicken is opening up a store a day in China, and will only benefit even more with the buzz and increased traffic from the coming Olympics. There is a lot of opportunity in the Chinese market, but I just have something against a country that censors it's own news and internet. Enter at your own risk...
Two picks that have turned a bit soar since I recommended them, Boeing(ba) and Royal Bank Of Canada(ry), I still believe will do well in 2008. Sure, these are two of the less exciting stock picks out there , but that doesn't mean there not worth owning over the long term. Boeing has orders lined up for years to come with countries around the world, and Royal Bank Of Canada was brought down somewhat unfairly by the downfall in US banks. They both pay a dividend, BA at 1.78% and RY at 3.98% yields. Not only that, but both companies just raised their dividend in their last quarter, which shows the confidence the management has in their future income.
My last two are Vacso Data Securities (Vdsi) and Google, no real surprise there, I have been behind these two for literally years now, and I think they will continue to vastly outperform the market. Vasco is still looking cheap here after it's big fall, and Google will dominate in 08 with it's mobile business, the ever-growing monster that is Internet and those other 100 projects they are working on.
So, am I still worried about subprime, a weak dollar, a possible recession and falling home prices? Well of course, but these stocks are all long term investments, and can be bought over time and many different prices just like any other stock out there. Just remember, never buy all at once, and always do the proper research before you ever buy a stock. It also helps if you really are interested in what the company itself that you are putting your hard earned money into, this can make the research much less tedious.
Happy investing in 2008 from all of us at Stock Picky!
For more information on any of the companies above just click the company's name in the above article.
Wednesday, December 26, 2007
As another year comes to close, we can't just sit back and rest on our gains from the year that was 2007. Sure, Evergreen Solar (eslr), Ormat Technologies (ora), Yum Brands (yum) and the almighty Google (goog) were all great plays for this past year, but you have to ask yourself, what is next? What will be the best bull markets of 2008?
Sunday, December 16, 2007
With the Fed's decision to only cut interest rates by 0.25%, we should all be reminded that it is certainly not wise to buy all at once. No matter how great your stock is, there are other factors out there in the market that could affect your stocks performance, even if the company is raking in the money. What you need to realize is the difference between a stock that has been taken down along with the market, and one that truly does deserve to go down based on it's future earnings and fundamentals.
So, when you have a great company that you have invested in, and you believe can be even better in the future, you need to stop and take a look at the bigger picture. All stocks take unjustified hits from time to time. This is were following the general stock market can help because on some days, almost everything goes down. Remember, long term investing allows you to purchase shares of a single company at many different prices over time to build your position in the stock.
As long as the long term story of a company is still in tact you can feel at least a bit more confident that you are making a good financial choice when you add to your investment at a lower price, and in turn lower your cost basis. (Cost basis is simply your break even point on the stock)
Even though the market is very unpredictable, one thing is for certain when you look at the scheme of things. While the banks, mortgage companies, and many other business maybe in trouble , there are way more companies that are thriving in a booming global economy. Just because the "precious" United States hits a financial speed bump the rest of the world will just look on and continue to expand at it's rapid pace.
Now for my prediction for next week, and the week after that, and the year after that... BA, GOOG, CECE, VDSI, and YUM! Merry Christmas From Stock Picky!
Wednesday, December 5, 2007
Ormat Technologies NYSE: ORA is in a perfect situation as alternative energies begin to take flight. Just like the red hot solar stocks, Ormat is a play on the growing demand for alternative energy. What makes them unique is that they use geothermal power and other eco-friendly sources to generate revenue. In case you aren't familiar with the geothermal process, it is basically capturing the heat given off from the earth and turning it into electricity. The great part about this process is that it emits little or no emissions.
Not only this, but they operate in countries all over the world, so you certainly don't have to worry about any kind of "slowdown" here in The States...
Geothermal is not the only part of Ormat though, what I really think could be huge is the Recovered Energy Generation potential. What Ormat has done, is made it possible to take the heat that is waisted on a typical power plant, and harnessing it back into energy. That's right what a simple concept that should be adapted by power plants all around the world that are just literally blowing off steam...
Ormat Technologies is a small company that just became public in 2005, so it still has plenty of upside potential. They even have rather unique dividend policy, in which they are aiming to pay at least 20% of their annual profits through quarterly dividends. Which is just another potential huge reason to own this company, as it continues to earn more money in the future.
Now, it does have a sky high P/e ratio of 83, so it is by no means inexpensive, but there are a lot of people out there that see how explosive this company could become with climate change and pollution coming to the front lines. Ormat Technologies Inc. reported 3rd quarter 2007 earnings of $0.41 per share on 11/6/2007. This beat the $0.31 consensus of the 7 analysts covering the company.
As a fair warning, this is a small company with a high p/e ratio which can be the recipe for disaster. While I think that Ormat is a great long term investment, as always the best idea is to not buy all at once. I would buy a little bit here, and then wait until after the fed meeting to see if you can get in at a lower price. As I write this Ormat Technologies is trading at $50.11...
Tuesday, November 27, 2007
Every year I see it happen... The Christmas season comes along and what it brings could make or break you. People go out of their way and out of their minds, to buy the best gift.
Only to realize, maybe they should have bought them some stock for the holidays?
Every Holiday season could be reeking of the benefits soon to come, by simply knowing when a stock does it's best or even possibly, it's worse?
I'll have more to say about that later...
I feel the need to talk about "Nike" right now. NKE
Just because "I knew I should have gotten into them years ago?"
Eventually they go up steadily? Although they are a gigantic corporation soon to be bigger!
It's still a good stock.
From June to Dec, it seems to do it's best and then into the new year it ends. Almost every summer it peaks. A long with the Christmas season, it is a stock that does very well but also tends to drop off before and after the end of the year?
Do not underestimate this stock though!
It also likes to jump after the new year, or easily take the fall...
The trick of course is to know when they have hit rock bottom?
So if you like to Short a stock or maybe take a chance while it may be Low? I think this year and the next will be similar to the years of NKE.
Not knowing yet what may happen... I would SHORT NKE just before NEW YEARS.
Then BUY when I thought they might be at their bottom after that?
I would not buy them tomorrow either though... I would wait till Monday or Tuesday?
Posted by paulyclos19 at 10:06 PM
Monday, November 26, 2007
With all the talk of retailers having to cut prices and in turn suffer though lower profit margins, shouldn't we be focusing on the bigger picture here? The mighty Google is the one directing a ton of traffic to all these different sites this holiday season. Not only that, but a smarter consumer that is looking for bargains is going to be more inclined to click on an ad or two while looking for the perfect price on a product. The more people that search for all these high tech gadgets and anything else they are looking for on the net the better...
More traffic = More Searches = More Money For Google
But wait there's more, in case you missed it Yahoo's server's weren't working for part of the day. Customer's couldn't even complete transactions through Yahoo on this all important Cyber Monday! Imagine all of those retailers that are going to come running over to Google Checkout... what better reason to switch then to have Yahoo let you down on one of the biggest days of the year! So guess where all those potential customer's went? That right, straight over to a site that allowed Google Checkout. With the Google Checkout promotion ending at year end this will certainly be a great future revenue stream for the big Goog.
Tuesday, November 20, 2007
Ceradyne (crdn) has been in free fall since reporting earnings on October 30, 2007. It has fell from it's peak of $84.41 and is trading today at only $42.42! Wall street was not impressed when Ceradyne guided to the low end of guidance and has been punishing this stock ever since. This company is trading at only a 7.99 P/E ratio which is basically saying that this company can't continue to grow it's bottom line.
Let me give you some basic information about Ceradyne for all of you who are not familiar with this company. It is a small company valued at just over a billion in market cap and only 27 millions shares of float out there. They are a fully integrated developer and manufacturer of advanced technical ceramic products and components for defense, industrial, automotive/diesel, electronic and medical markets. The light weigh ceramic body armor has been one of the main drivers of it's growth over the past few years and with the war in the middle east continuing with no end in site, I think this will continue to fuel it's growth, but that is not the only reason why I like this stock.
Ceradyne has two major proposals that it has turned into the federal government for review. The first and most important in my eyes is the BULL combat vehicle. Ceradyne has been working with OshKosh Trucks to develop this vehicle that can withstand the roadside bombs that have been causing so many casualties in the ongoing conflicts in The Middle East. The BULL has already passed limited testing by the military and is currently in the advanced stages of testing. Ceradyne expects some sort of a response by the end of this year or early next year. Along with this possible contract they have also submitted a body armor contract for their XSAPI body armor, this too is under review by the government.
Since Ceradyne is not completely sure if it will land these two contracts they have issued a very broad range of guidance for the next year and this spooked investors even more who went running for the exits. Yet another growth opportunity is it's business in China. They have constructed a factory there that will produce high purity ceramic crucibles which will be used in the manufacturing of silicon solar cells. They have also made two recent acquisitions which could help produce some major revenue streams in the future. EP Boron and Minco are both solid well establish companies that could further help Ceradyne's bottom line. So basically, as the saying goes you should never try to catch a falling knife, but I can tell you there is nothing wrong with just picking it up off the floor... This stock pick is certainly very risky, but I think the long term prospects of this company could really make for some huge gains in the future. Plus Ceradyne just announced today that they will be hosting a teleconference on November 27, 2007... could this be where they announce the results of The BULL testing? Either way we should see some major price action on this stock that day...
Thursday, November 15, 2007
CECO Environmental Corporation (stock symbol CECE) is looking like a great long term play on tightening environmental standards and a world that is becoming more polluted with every passing day. They just reported earnings on Monday of 14 cents per share, beating analysis expectations of 12 cents per share. Revenue rose an impressive 73% over last years to $65.3 million which also beat the estimated $58.8 million.
CECO Environmental Corp. has been providing clean air solutions for over 94 years for such companies as Motorola, Exxon, Ford, Dupont, and U. S. Steel. They design, build and install complete systems to improve air quality and meet the government's regulatory requirements of their diverse customer line. CECO is also the exclusive suppler to the U. S. military for destruction of nerve gas. Its filtering systems were engineered into incinerators where several thousand tons of Sarin and VX nerve gas and blister agents have so far been destroyed, along with more than half a million rockets, bombs, mortars and mines.
I believe that as the environmental situation worsens around the world governments will be forced to step in and implement tougher standards on all companies, which will play directly into CECO's hand. This company has also recently paid off almost all of it's debt last quarter due to it's secondary offering. With a strengthening balance sheet and a growing product line CECO looks like it will be in the sweet spot for the next few years. This little known gem is only a 196 million dollar company by market cap with only 14.79 million shares of float out there so it certainly has a lot of room to grow.
Remember though with small companies like this there is big risk, but there is also big rewards. I think this could prove to be one of the best plays on the coming tougher standards that will inevitably be put in place by governments around the world. Don't forget sometimes going green can make you some green!
As I write this CECO is trading at $13.37...
Friday, November 9, 2007
It's weeks like these that remind me not to buy a stock all at once, and to focus on the long term and not to panic driven short term. You can get burned badly, especially when the market takes a dive right after you buy. Here is the proper way to buy a stock...
Let's say you have $1000 to invest in a stock that is trading at $100 per share, you should put in half or less of your investment and then if it drops to $90... it's a gift! Now you can purchase those same shares at a discount to what you paid earlier for them. If you would have put all your money in at once you would be down a quick 10%... ouch!
Now, of course this can work in the opposite fashion as well were a stock goes from $100 to $110, but all you are doing there is not making as much money as you could have if you would have thrown it all in at once. Buying in increments is the safest and most intelligent way to build a position in a stock. This rule will help you become a better more disciplined investor. Another thing that buying in increments can do for you is to lower your cost basis. Cost basis is basically your break-even price on a stock. Think of it this way, if you buy that same $100 stock and it drops to $90 like above, you can buy it again at $90 and bam! You just lowered your cost basis to $95. This means when the stock goes back up to $95 you have already broke even on your investment. This can be a great thing to consider when you have your stock takes a big unjustified hit, you just invest again at a lower cost and in turn lower your cost basis. This makes it easier for your stock to get back to the green, even if your stock never climbs back to the price you first bought it for!
Tough week, but I think things will begin to turn around next week... Remember when the market has a correction like this it brings out some fantastic buying opportunities. Stocks I think will do well next week are Goog, VDSI (calling a bottom), CECE (reports on Monday), and BA $94.21!
Good luck to all... and stay tuned to stock picky for more stock picks and tips!
Tuesday, November 6, 2007
As we continue to watch the banks here in The United States implode from the inside, I have been looking north for quite some time now to Canada for financial stocks that are actually worth owning. My favorite from the great white north is The Royal Bank Of Canada stock symbol (RY).
In my opinion this is one of the best, and safest picks out there in the financial sector right now. Not only is the Canadian dollar just killing the American dollar, but the subprime mess has hardly effected Canada, if anything it has actually help them. With the stronger dollar Canadian companies like The Royal Bank Of Canada can make acquisitions inside the United States and around the world for much, much cheaper than they could have years, or even months ago. Royal Bank Of Canada is taking advantage of this already by purchasing a Caribbean bank and Alabama National BanCorporation recently.
Not to mention, that juicy 3.65 dividend yield is payable in Canadian dollars so investors here in The States reap the benefits of a strong loony through the dividend payments! This is a company that consistently raises it's dividend and is all about creating shareholder wealth while growing the company core business at conservative pace.
As if that weren't enough reason to own (RY) they just announced that they will be buying back 1.6% or 20 millions shares of the company. This should provide a nice downside protection against any kind of negative price movement in the stock.
Royal Bank Of Canada is also one of the most respected corporations in Canada, and does a ton of work for it's communities and the environment, so you can even sleep well at night knowing you own this one... Overall, I would say this is one of the safest picks I have made so far and one of the best long term investments out there, but I would be slightly cautious going into their earnings report on 11-30-07. My suggestion would be to buy some here, and buy some after earnings this way you don't get burned if there is something in the quarter that investors don't like...
For more about Royal Bank Of Canada visit their website here or to learn more about why a good dividend like the one this company has is so important click here!
As I write this article Royal Bank Of Canada is trading at $57.77
Tuesday, October 30, 2007
The float of a stock is another important factor that can help you make a proper decision when it comes to picking a winning stock. The float is simply how many shares there are available for trade on the open market. Most finance sites will give you this information if you dig just a little. The float is a crucial thing to consider, because it is part of the equation that gets you to the earnings per share. (Net Income/Number Of Shares Or Float = Earnings Per Share)
Remember how important the EPS or Earnings Per Share is too, as it drives the most basic stock equation (EPS * Stock's Multiple = Price). Generally, I believe that the smaller the float the better. It breaks down to simple supply and demand. If a stock has a small float and gets a piece of great news they will go up a lot faster then one with a large float, simply because there isn't very many shares out there to buy. Watch out though because this can also work the opposite way. Check out what happen to VDSI which has only 37 million shares of float after it missed earnings estimates, just painful!
This is also were buybacks and stock splits come into play. A company that has passed it's growth phase needs to increase it's EPS somehow, so it simply starts reducing it's float by buying back it's own shares. The less shares on the market the easier it is to raise your Earnings Per Share and keep the shareholders happy! Take a look at Boeing (BA), they just announced a big buyback and the stock was rewarded.
Now when a stock split occurs you are normally just increasing or rarely decreasing the float. Lets say you have a 2 for 1 split. If the float was 50 million before the split it is now 100 million or if it was 10 million before now it is 20 million... just that simple!
Here are a few basic companies to look at that have a small float...
Cogent (COGT) 94 million shares, Vasco Data Securities (VDSI) with 37 million shares, Ormat (ORA) with 38 million shares, Zoltec (ZOLT) with only 29 million shares of float!
Compare that to some of the bigger companies out there, Microsoft (MSFT) with 9.3 billion, Motorola (MOT) with 2.2 billion and General Electric (GE) with a whopping 10.2 billion!
Basically, it is a lot easier to move a stock that has a small float, not only that, but a stock with a small float has a lot of room to grow, which is always a good thing when you are looking for great long term investments...
Picture Taken By Paul Clos
Thursday, October 25, 2007
Anyone who held Vasco Data Securities (vdsi) yesterday is down a whopping 33.95% today! Talk about pain, that was one of the worst days I have ever seen for any stock. So, you might think that this stock is done, over, and just going to keep going down, but I am here to tell you that this is not going to happen.
This was the biggest overreaction to an earnings report that I can remember in recent times. The drooling analysts were looking for 17 cents per share and Vasco came in at 15 cents. That was an amazing 79% over last years earnings. Their revenues came in at 30 million which was below anayists' expectations, but was still a 60% increase over last years revenues. Vasco Data Securities won 608 new customers in the third quarter, including 106 banks and 502 enterprise security customers.
With the 15 cents a share in earnings Vasco's P/E ratio is only 44 based on it's current price of $26.13, which is low for a company that can grow at 79%. Vasco's backlog of orders also grew to an all time high of 33.4 million for the fourth quarter. My point is that the long term story with Vasco is still in tack. They re-affirmed their guidance of full-year revenues to rise 55 percent to 65 percent. Vasco Data (vdsi) also sees gross profit as a percentage of revenue for 2007 to be in the range of a very healthy 60 percent to 68 percent!
I have been a bull of this stock for a long, long time now and I did watch it's valuation get a little a head of itself, but this almost 35% sell off in the stock is just unjustified. This stock may be in for a rough ride the next couple of days, but this is an opportunity that I would jump on soon before the smoke clears.
To learn more about Vasco Data Securities visit their website and to see what I thought going into earnings check out this post!
If you are still looking for more information about the company listen to what the CEO T. Kendall Hunt has to say in this presentation in Chicago...
Tuesday, October 23, 2007
Well I certainly can't say that I would put too much down on the table before earnings on Thursday, but this certainly is a good stock to consider for the long run. Evergreen Solar (eslr) is small company that is quickly expanding it's manufacturing facilities not only here in the states, but in Germany as well with it's joint venture with Everq. Germany is arguable the leader in the world when it comes to Solar technology, so ESLR has it's eggs in the right basket. They are still operating at a loss though, so this play is not for the faint of heart. They are also very small compared to the other players out there with only a 960 million dollar market cap, but with great risk comes great rewards. Here is a look at their 1 year chart courtesy of Google Finance.
I believe things can only get better for this company as governments around the world begin to offer even more incentives for green energy. Climate change is becoming more of a reality ever day and I believe we are soon going to be scrambling to provide the world with cleaner forms of energy.
One of the things that separates Evergreen Solar from the rest of the solar industry is the fact that they manufacture wafers, cells and panels all under one roof which will allow them to more efficiently control costs, and perfect the manufacturing process. They also produce panels that have the smallest carbon footprint of any panels on the market today, and with their revolutionary quad furnace I think Evergreen has a leg up on the competition.
Is Evergreen the best solar play out there right now? Maybe not, two others to consider are SunPower Corp (SPWR) and Suntech (STP) but I think that a year or two down the line Evergreen will be vastly outperforming both of these stocks... What are your thoughts?
NASDAQ ESLR is trading at $9.60 as I write this...
Saturday, October 20, 2007
While a lot of people are in the market just for growth stocks, there is a safer, less exciting way to build your fortune. Just look for stocks that pay a hefty dividend and that have consistently raised their dividend over the years.
A dividend is simply a payment that is issued to stockholders normally every three months. Most brokerages allow you to either take the dividend in cash or you can re-invest your dividends directly back into the stock. My favorite personally, is to re-invest those dividend payments. Think of it this way, you put $1000 into a stock that pays a 4% dividend. Three months or less later you get your first dividend of $40. As I stated above, you can take this in cash or simply re-invest it automatically.
This way you are technically buying stock every three months automatically without even raising your finger! As you can imagine this will really end up paying off in the long run. Plus, if a company is raising it's dividend it is always a sign that business is good so stocks like this tend to go up naturally as well! It is a win-win situation!
For me though, the idea is to eventually have so much stock that you can simply live off of the dividends as well. This way no matter if a stock goes up or down you still receive that dividend.
Yet another advantage of dividends is that in a market like we had on Friday, which was terrible in case you missed it, stocks that have high dividends tend to not be hit as bad as ones that do not. So while it is great to have growth stocks that shoot straight up there is nothing wrong with a good steady stock that pays a nice dividend. A couple that I would suggest looking at include Royal Bank of Canada (ry), Yum Brands (yum) or any other stock that has been increasing it's dividend consistently.
Find out more about why I like Yum brands here, or you can learn even more valuable information about the stock market here!
Thursday, October 18, 2007
Nothing new here, Google (goog) blows past analysts estimates posting $3.91 earnings per share (eps) vs the estimated $3.78 that analysts were predicting. They also beat on revenues with 3.01 billion which is 70 million above what the analyst were looking for. Mind you this beat was already after many analysts had raised their estimates prior to the release, so the bar was already very high, and Google still had no problem beating!
The only blemish on the quarter was continued hiring by the company that spooked investors a bit in after hours trading. If you listened to the conference call though, they explained that some of that was due to the acquisition of Postini and some due to an overhang of people that were hired in the second quarter that didn't start till the third quarter. The management said that they would keep a watchful eye on hiring in the future as well.
Overall, this looks like another great quarter from the company that never seems to stop growing it's impressive bottom line. They have introduce serveral new ad formats for adsense and have just begun to start making money off of Youtube with the new overlay ads. Also, with the release of the I-Phone, mobile Internet use has only begun to hit and Google just released adsense for mobile which will pad the bottom line a bit next quarter! Basically, with the seasonally strong forth quarter coming up it is hard to find another stock out there with this much potential.
You might be thinking I can afford to buy a $600 stock, but don't forget that you don't have to buy a full share of a company like this and others with such a high price tag. You can buy partial shares though places like sharebuilder and other brokerages. Don't think you missed the boat either, because as grows the Internet grows Google. This is a worldwide play on the growth of the Internet and the push from traditional adverting into Internet advertising which is much easier to track through services like Google Analytics. Plus, with the Summer Olympics coming up in China and the presidential election next year things are only going to get better for this company.
For more information on how I see the Google Story check out these past posts...
Google Should I Stay Or Should I Go?
Putting A Value On A Stock
Evolution Of Traditional Advertising
Tuesday, October 16, 2007
I have to admit Vasco Data Securities (vdsi) has gone a lot higher then I thought it ever could in this time frame, but there are some fundamental reasons and major momentum moving this stock upwards this quarter and towards the next earnings release on October 25th. Vasco is a security company that is growing at an astounding pace, and judging by the recent additions of a few key contracts this company is poise to continue this growth in the future. It even opened up a new location in Brazil on October 1st to ensure it's growth prospects in the region. Vasco does the majority of it's business outside the United States, and therefore has a huge untapped market that is just beginning to embrace online banking.
As more people realize the convenience of online banking here in The States, customer's will demand higher security just as they did in Europe and the other over 60 countries that Vasco does business in. The only question I have is the growth already priced into the soaring stock price? It is currently trading at a 80 P/E ratio or multiple which is normally considered to be "expensive". Still there is only a couple analysist that even cover this stock, and it is only a 1.6 billion dollar company market cap wise so it certainly has breathing room still.
No matter what happens this earnings report it appears that the long term story remains, they are a small company (184 employees) that has hit the sweet spot of online banking industry and is leading in almost every place but the united states, which they are beginning to penetrate with their recent agreements with The Royal Bank Of Canada and Az-lan Tech Data which both have a very extensive reach!
Just to be clear though this pick is not for the faint of heart is has been on a crazy run, I would personally wait till after earnings or buy some now and buy some after earnings if all continues to go well...
Sunday, October 14, 2007
You may think it is very hard to try and put a price tag on a stock and it is even harder to tell which direction that stock should be going, but there is a basic underline way to determine how to price any stock out there.
The first and most important thing to consider is a stock's PE or Price To Earnings Ratio. Now sure that may sound complicated, but it's really not. All you do is take this price of any stock, let's say for instance Royal Bank Of Canada (ry) which is trading at $57.56 a share and divide it by it's earnings per share which is $4.19. ($57.56/$4.19 = 13.61 PE) It is just that simple, Royal Bank Of Canada has a 13.61 PE or Price To Earnings Ratio!
So, all we do is apply this same logic to future earnings. Let's say Royal Bank Of Canada earns $6.25 next year and the market is willing to pay the same multiple 13.61 for the stock it would be at $85.06 per share. ($6.25 EPS * 13.61 PE = $85.06)
Basically, if a stock can continue to grow it's earnings and the market is willing to pay the same multiple or more for the stock it will go up naturally. Now, if earnings decrease the price will generally go down and so may the multiple that the market is willing to pay for the stock which is a double whammy.
Another thing to consider is that the higher the multiple the more "expensive" the stock is.... that is investors are paying more for future growth. Sometimes this can really pay off if the earnings are growing quick enough, but stocks with a high multiple that missed their earnings estimates can get hammered. Take Akamai (akam) for example, their recent earnings missed just made their stock drop like a rock due to the fact that their multiple was already so high that any kind of a miss would be ugly and it certainly was if you look at the 3 month chart.
Therefore, in general the stocks with the lower multiples can be much safer, but sometimes it can be worth it to pay up for growth. It all depends on what kind of an investor you are and how much risk you are willing to take on.
One last thing, the multiplies can be a good measure of comparing similar stocks, for instance Google and Yahoo. Google (goog) trades at $637.39 and has a PE of 54.18 while Yahoo (yhoo) trades at $28.48 with a PE of 55.55. So technical Yahoo is more expensive than Google! Yes that's right, even though Google is a $637 stock it is still cheaper than Yahoo at 28 smackers! Amazing really, especially since Google is growing faster than Yahoo which is what the multiple is really based on.
So next time you are trying to hunt for a stock, make sure to keep the multiple in mind and don't be afraid to compare it to it's peers. Let me know if you have any questions or comments and good luck to everyone this earnings season!
Wednesday, October 10, 2007
One of the biggest bulls of Google's stock (goog) Jim Cramer just did one of his famous rants on the recent run up in the stock price tonight on his show Madd Money. Now I have to admit that Jim gets it wrong some if not a lot of the time and I take his advice with a grain of salt, but he does make some very good points about Google's stock valuation.
First off, people can't seem to get their heads around a $600 dollar stock. The first thing you need to realize is that there are a lot of other stocks out there that have high price tags. For instance The Washington Post (wpo) at $800, or even Berkshire Hathaway (brk) which is valued at over $120,000 a share!
The only real reason that most stocks don't have such high prices is that they have all gone through stock splits. A stock split is when you take a stock that is $100 for example and you split it in 2. This leaves you with 2 stocks at $50 dollars. Google's management has said from the very beginning that they do not plan on split the stock anytime in the future so the price tag will just continue to go up if the earnings keep pace.
While I do realize that Google's stock price has been on a decent run, it is all up to next weeks earnings to see just how long this can last. If they beat the numbers the stock will continue it's mad pace to 700, if they miss or meat there will be a pull back which would be a good opportunity to place your bets. The only problem is if they beat you could miss out on the fun.
It is up to you though if you believe in the long term story of Google I would put in a little before earnings and a little after this way you can't get burned too bad by a surprise either way. I have been convinced of this story since the IPO and the Google long term story just seems to gets better every day...
Just today it was reported that Boeing (ba) would have to delay delivery of it's Dreamliner series for at least 6 months. Incidentally, the stock fell by 3% almost immediately. This looks to me like a good entry point. The stock has pulled back from it's 52 week high of $107.83 and is currently traded at around $98.
The long term story with Boeing has not changed at all. Boeing doesn't just get orders from companies it gets orders from entire countries! It trades at a reasonable 21 PE and has a dividend of $.35 per share or dividend yield of 1.42% which should provide support for the stock.
As the developing countries progress they are going to need more airplanes and as the world becomes more aware of the problems that climate change is causing people are going to demand more fuel efficient planes. Boeing is already ahead of the game with it's Dreamliners which is much more efficient than the older planes that are on the market right now. Not only this, but Boeing is of course one of the largest defense contractors out there.
While this might not be the most exciting stock pick out there, it is certainly one of the safer picks that I would recommend. For more information you can always google Boeing and do some research yourself.
Monday, October 8, 2007
This stock had a stellar performance today after releasing 3rd quarter earnings. Yum Brands beat analysis estimates by a full $.05 and the stock took off in after-hours trading to hit a new 52 week high.
In case you are not familiar with Yum Brands, they own a series of restaurants including Taco Bell, Pizza Hut, A & W, Kentucky Fried Chicken (KFC), and Long John Silvers and is a company that is quickly spreading itself across the globe. One little statistic I just love is the fact that they are opening up a new KFC at least every single day this year in China! Now that is what I call growth...
I realize that this company is already pretty huge though and therefore their stock could be hard to move, but the company just announced an addition to their buyback plan which should be a good support for this stock. Plus just shows the confidence the management has in the future of Yum Brands.
Overall, I would have to say that this is a pretty safe bet even at it's 52-week high. If that wasn't enough they also pay a dividend which is yet another reason to own this stock.
What does everyone else think about this massive restaurant chain? They seem to trade at a reasonable multiple and are looking better and better with all this global growth, so how far do you think this stock can run?
For more information you can always visit their website here.
This blog will be dedicated to finding stocks that are actually worth investing in and have the potential to make you large amounts of money. We will try our best to find the best value stocks and growth stocks in the entire stock market!
Some of our favorite picks right now include Google (goog), Vasco Data Securities (vdsi), Royal Bank of Canada (ry), Yum Brands (yum), Boeing (ba), and Ormat Technologies (ora)! All of these stocks will be featured in detail in the coming posts, so stay tuned to this sites for more info on these great companies...
Remember though it is very important that you do your own research or contact your stock broker before making any investments. It is also important that you consider were you are in your life. Generally, the younger you are the more you can take risks in your stock picks. If you are nearing retirement you should be much more conservative with the stocks that you choose.
Be sure to bookmark us and feel free to give us your feedback on the stocks that we feature here at Stock Picky!