The 3 P's Of Investing

     Many often say that there are two types of investing, investing with the mind or the gut.  In previous posts I discussed looking at a companies financials and technical data in order to make a sound investment but most do not have the time or knowledge to do that.  Therefore many of us rely on our gut judgement when picking a stock that we believe has a bright future.  While doing so we often look at many different aspects such as do I use this company, does the company have a good record, or do they have reliable products.  You may not know you are doing so but in some shape or form you are using the 3 P's of investing, People, Product, and Potential.  Let me discuss a few points on each.

People - The first thing to do when looking at a company is to look at the individuals who are in charge and make the decision.  Do they have a good track record with previous experience?  Are they fully committed to the company and its products or are they just working there for check and a nice bonus if the company does well.  Elon Musk of Tesla is a great example of someone who has experience, as a former founder of PayPal, SpaceX.  He has proved successful in starting business and running them successfully.  Additionally, he knows his products and is involved in their development.

Product - What does the company make or provide to the consumer.  Years ago it was easy to identify a companies product as many were manufacturing companies.  During this time it is a little more complicated as you have technology and social media stocks.  Therefore you must also look at a product in terms of service.  Facebook and Twitter provide a service to its customers, and monetize their service through advertising.  Other companies such as Google has expanded their products from a search engine to gadgets, mapping services, and software.  When looking at a product you must take into account its usefulness, longevity, creativity and future advancement.  What may be the hot item of the year or decade may be something that will be long forgotten in a couple years, such as a cassette or even a CD.

Potential - Ultimately you are investing in a company because you believe it has potential.  Potential can be derived from many factors including, personnel change, a new product, expansion, development or patents.  Additionally, when looking at potential you have to keep in mind short and long term potential.  Apple consistently represents an example of short term potential as every year they release new products with increased capabilities or technology giving the stock a short term run up.  Noodles & Co. represents long term potential as the fast food casual dining chain is only located in 33 states and is opening new stores every month.  The potential for the end result of revenue gain is great as the company expands. 

     When looking at a new company to invest in, it is vital that you do some research and I recommend you focus on these three areas.  Rate one company against a similar company and you will see why some are more successful.  As always feel free to leave comments below and follow me on twitter for real time stock updates.

11-March-2014 Market News

What Is The Right Price For Investing Advice?
     If you’re approaching retirement, chances are good you’re looking for, or are already working with, a financial adviser. Which raises two critical questions: Are you paying primarily for portfolio management or comprehensive financial planning – and do you know the difference?  Full Article

Plug Power Plummets
     Plug Power shares traded at their highest in five years, and the stock was the second most active in U.S. markets in early trading Tuesday.  Then Andrew Left of Citron Research came out and said Plug Power shares would be fairly valued at 50 cents.  Shares of Plug were recently down 25%.Full Article

Cannabis & Biotech Advancers Forge Ahead
     Biotech news and Marijuana's continued rise in growing demand results in companies taking steps to advantage of strategic alliances: OSL Holdings, Terra Tech Corp., Growlife, Medical Marijuana, and InterMune, Inc..  Full Article

Single Touch Recevies Analyst Coverage
     NEW YORK, March 11, 2014 /PRNewswire/ -- Single Touch Systems, Inc. (otcqb:SITO) is an innovative mobile media solutions provider serving retailers, advertisers and brands. Through its proprietary suite of mobile solutions, Single Touch helps its retail and advertising clients engage with customers via their wireless devices. Single Touch has a core operating business consisting of high quality, organically growing revenue, 95% of which is recurring.  Full Article

GE Capital Lends To Taco Bell
     SCOTTSDALE, Ariz., Mar 10, 2014 (BUSINESS WIRE) --GE Capital’s Franchise Finance business announced today that it has provided $80 million in senior debt to BurgerBusters Inc., a Taco Bell franchisee. GE Capital served as administrative agent and GE Capital Markets served as lead arranger and bookrunner on the transaction.  Full Article

Marijuana Bull Market Is Underrated
     Mar 11, 2014 (ACCESSWIRE via COMTEX) -- Carlsbad, CA / March 11, 2014 / The Marijuana Index, or MJX Marijuana Index - the first and only equity tracking index for marijuana stocks, cannabis stocks, and hemp stocks featuring dynamic financial content - experienced a turbulent week between March 3rd and March 7th as several stocks faced unprecedented interest, while others succumbed to selling pressure and possible profit taking (a credit to Alan Brochstein again, who has done a tremendous job with daily updates for the investing public in this sector via "The Daily Dab," and his pay-to-play service 420 Investor).  Full Article

06-March-2014 Market News

Facebook A Threat To Twitter
     Twitter gained nearly 1% to close at $54.83. Janney Capital analyst Tony Wible cited new research that showed a growth in “TV-related multitasking” which he said “signals that both TV networks and social networks have some way to go to drive TV related activity that they can monetize.”  Full Article

Tengion Presents At Roth Conference
     WINSTON-SALEM, Mar 04, 2014 (GLOBE NEWSWIRE via COMTEX) -- Tengion, Inc., a leader in regenerative medicine, today announced that John L. Miclot, President and Chief Executive Officer of Tengion, will present at the upcoming 26th Annual ROTH Conference on Monday, March 10, 2014, at 12:30 p.m. PDT in Dana Point, CA.  Full Article

Less People Listening To Pandora
     SAN FRANCISCO (MarketWatch) — Pandora Media Inc. shares fell more than 5% Thursday after the Internet radio company reported listener hours for February that fell slightly from the prior month and said it would discontinue delivering monthly information on its listenership data.  Full Article

GE Engergy Signs Agreement With New York Power
     SCHENECTADY, N.Y., Mar 06, 2014 (BUSINESS WIRE) --Building on a long-standing business relationship, GE Energy Consulting and the New York Power Authority (NYPA) have agreed to a one-year license arrangement allowing NYPA to use GE’s Multi-Area Production Simulation (MAPS) software. NYPA is expanding its current modeling capabilities to perform high-fidelity nodal analysis and has chosen GE’s MAPS software as the best tool to satisfy its modeling needs.  Full Article

GE States Buses Will Be In High Demand
     CHICAGO, Mar 06, 2014 (BUSINESS WIRE) --Mini buses, limo buses and coaches are expected to be in high demand by specialty vehicle buyers in 2014, according to a new survey by GE Capital, Commercial Distribution Finance (CDF). CDF is a major provider of financing for manufacturers and dealers of specialty vehicles including buses, mobility vans, emergency vehicles and more.  Full Article

Understanding Analyst Ratings

     When looking at a stock you will often see an analyst rating.  These ratings often come from a financial institution and is based on a company's financials, earnings reports, or future products and outlook.  These financial institutions typically give a stock one of 5 ratings indicating what an investor should do.  Many times a rating is increased or decreased when a financial institution raises or lowers a price target for a stock.  Also note that many larger financial institutions have holdings in stock or may want to invest in a company, and though it is not ethical, this may factor into their rating for a stock.  Below is an example of Analyst Ratings for Yandex from the website MarketWatch.

 

 

From worst to best the analyst ratings are as follows:

 





Sell - The investor should sell the stock as the performance of the company has been poor and the stock price is likely to decline in the future.

Underperform - The investor should look to selling some or all of the stock as the performance of the company is not expected to meet expectations.  This may be caused to competition in the market, product issues or other factors such as weather as many stocks have been blaming recently in their earnings.

Hold - The investor should hold their current stock as the performance of the company is expected to meet requirements. Often stocks are a hold while they are continuing slow growth or maintaining their expectations.

Outperform - The investor should look to buy small into a stock or maintain shares as the performance of the company is expected to beat expectations slightly.

Buy - The investor should buy into a stock as the performance of the company is expected to beat expectations greatly.  Often companies receive a buy rating when they release a new product, expand their market, or beat their competition. 


     As an investor you must be aware of these ratings and when a stock has received an upgrade or downgrade as it will affect the price.  Ultimately you want to already be in a stock before they receive and upgrade and sell a stock before it receives a downgrade.  Now as an average investor, without inside knowledge of these ratings it is difficult to time however you can take advantage of ratings.  Every investors ultimate goal is to buy low and sell high so do just that.  When a stock receives a downgrade lowering the price and telling you to sell, do just the opposite, buy the stock.

3-March-2014 Market News

Where To Put Your Money During War
     All things considered, so far the market reaction to Russia's actions in the Ukraine appears better than it could have been. Long-duration Treasury's continue to get bid, but thus far, the buying has not been panicky. Funny how the rising-rate-environment crowd went aggressively silent. To think that bonds won't do well in the face of tapering simply is false and completely disregards history and the reflation disconnect.  Full Article

"Google Of Russia" Shares Skid
     U.S.-traded shares of Yandex, the search company known as the Google of Russia, were down more than 14% on Monday as the crisis intensified with news that Russia has reportedly demanded the surrender of two Ukraine warships.  Full Article

Tesla Model S Taxi Cab
     QUEBEC CITY, QUEBEC, Mar 03, 2014 (Marketwired via COMTEX) -- 4Degrees, the firm behind the largest eco-responsible Internet colocation centre in Quebec City, has sponsored the very first all-electric Tesla brand taxicab in North America, according to Tesla Motors.  Full Article

Lithium Exploration Group On Tesla Batteries
     SCOTTSDALE, AZ, Mar 03, 2014 (Marketwired via COMTEX) -- On Friday, Tesla Motors Inc. CEO Elon Musk publicly discussed their plan to build the world's largest lithium-ion battery factory and locate it in the United States. At Lithium Exploration Group (otcqb:LEXG) we are very excited to see this development from one of the industry giants.  Full Article

Exone Appoints New COO
   NORTH HUNTINGDON, Mar 03, 2014 (GLOBE NEWSWIRE via COMTEX) -- The ExOne Company ("ExOne" or "the Company"), a global provider of three-dimensional ("3D") printing machines and printed products to industrial customers, announced that Timothy R. Pierce has joined the Company effective March 3, 2014 as U.S. Chief Operating Officer.  Full Article

How To Read A Stock Profile Part 2 (Profitability)

     In this post we will continue learning how to read a stock profile, analyzing the Profitability.  Once again the stock is Yandex (YNDX) and the profile is from MarketWatch.

 



 

 

Profitability

 

Gross Margin - Gross margin indicates how profitable a company is.  This value is the total revenue minus the costs of goods sold divided by the total revenue ((Revenue - Cost of Goods Sold) / Revenue).  Gross Margin is the measure of the total profit received from revenue.  YNDX retains $.6475 for every dollar of revenue generated.  Typically the higher the gross margin the better.  You will often see tech companies with a higher gross margin then compared to manufacturing companies.

 

Operating Margin - Operating margin indicates a companies operating efficiency.  This value is the operating income divided by the net sales (Operating Income / Net Sales).  Operating margin lets the investor know what proportion of the company's revenue is left over after paying costs (wages, materials, work area).  Typically the higher the operating margin the better.

 

Pretax Margin - Pretax margin determines the companies profit before tax and in dictates the company's profitability.  This value is the earnings before tax divided by the total sales (Earnings / Total Sales).  The higher the pretax margin the more profitable the company.

 

Net Margin - Net margin indicates a how effective a company is at controlling costs.  This value is the net profit divided by revenue (Net Profit / Revenue).  This value is important because you can determine how effective a company is at controlling internal costs compared to its profit.  A higher net margin is better.

 

Return On Assets - Return on assets tells you how profitable a company is based on its assets.  This value is the net income divided by the total assets (Net Income / Assets).   Return on assets may also be referred to as return on investment. 

 

Return On Equity - Return on equity tells you the rate of return.  This value is calculated by the net income divided by the shareholder's equity (Net Income / Shareholder's Equity).  As with other returns bigger is better.  This value is commonly used as the main measure of a stock's success.

 

Profitability Summary

     It is important to understand the profitability of a stock when comparing similar companies.  Remember that with profits bigger is better, however ensure you look at the valuation (see part 1) of a company also to see how their stock value is corresponds with their profit.

 

 



 

 

 

 

 

How To Read A Stock Profile (Part 1 - Valuation)

     Many new investors get scared of or do not understand the technical side of stocks and investing.  On earnings reports and stock overviews you hear many terms regarding the company's finances and estimates regarding their future. In this post I will discuss the basics of the technical terms to give you a better understanding of what to look for in a company.  This example will use the profile of the stock Yandex (YNDX) which I have previously covered and the profile is taken from MarketWatch on 26 February 2014.

Valuation

P/E (Price to Earnings) - The price of a stock divided by its earnings per share (EPS).  Yandex had an EPS of $1.21 and the current stock value is $37.76 resulting in a P/E of 31.2.  This value is larger then the value above because Yandex did not include extraordinary items (windfalls, write-downs...).  Understand that a stock P/E fluctuates daily as the stock price changes.  Typically if a stock has a high P/E you can expect large growth however the investment is riskier.  Stocks with a low P/E are less risky and have slow steady growth along with a better chance of the company paying dividends to keep investors.  Understand that the lower the P/E the better the value because you are buying more earnings power.

P/S (Price to Sales) - The total market value of a stock divided by total sales for the past year.   If a stock is $10 a share and they have 100 total shares the total market value of the stock is $1000.  If in the year they sold $4000 worth of product their P/S would be .25.  P/S tells you as an investor how much you are paying for each dollar of sales by the company.  This value is good to look at for new companies or companies that are not turning a profit.

Price to Book - This value is the ratio of a stocks price compared to its liquid value (office, computers, paper, cars...).  If the stock is $10 a share and the liquidation value of its assets was $1000 the Price to Book would be .01.  If the Price to Book ratio of a stock is less than 1 you are essentially paying more for a stock than its liquidation value is worth and that if a stock goes bankrupt you should get your money back.  If the value is greater than 1 do not expect your money back.  This value is not used often in investing however be aware of new stocks or old companies that are breaking down.

Price to Cash Flow - This value is the ratio of a stocks price compared to the cash from sale left over after company expenses are paid.  If a stocks value is $10 and the company made $5000 in sales and after expenses had $100 left over the Price to Cash Flow is .1.  This value tells you the investor how much you are paying per dollar of cash left after operating costs.  A low Price to Cash Flow is a good indicator of positive returns.

Enterprise Value to EBITDA - This value is considered the most important when looking at the likely hood of a stock to increase over time. Enterprise Value is the complete picture of a company's worth and the value someone would need to pay to buy them out.   EBITDA (earnings before interest, taxes, depreciation, and amortizations) is a value that does not allow companies to fudge their numbers or representation of their earnings.  Enterprise Value to EBITDA ultimately compares the company's value to how much profit is produced so a low EV to EBITDA is better.  If you see EBITDA to EV then a higher number is preferred.

Enterprise Value to Sales - This ratio is the value of the companies overall worth compared to its sales.  This value is similar to Price to Sale ratio however it is considered more accurate because it incorporates a company's debt and market capitalization.  Typically a lower value is preferred.

Total Debt to Enterprise Value - This ratio is the value of the companies current debt compared to its overall worth.  Investors prefer this value to be zero because companies that have debt must eventually pay them off causing future profits to be reduced.  This value is an indicator of such.

Valuation Summary

     There is no full-proof method of picking a stock based on its technicals however you can gage a stock on them.  Below is a quick-look of what you should look for.

1. Low EV to EBITDA or High EBITDA to EV
2. Low Price to Cash Flow
3. Low Price to Sales
4. Low Price to Earnings for slow growth, High for quick growth