Insight: The Saudi-Conspiracy

As the oil price (WTI) fell down from $103.66 in June 2014 to $86.83 today, you may start to wonder why this is happening and whether this is a good thing. For consumers this is indeed a good thing in the short-run. Gas prices will fall, which means that consumers will have more money to spend on other products, which is in turn helping the economy. The long-term effects however, may be different. Oil is largely produced by Middle-Eastern countries, which gives them power over the oil market and they would like to retain their market power. Recently, the USA is spoiling the fun for Middle-Eastern countries by drilling more and more shale gas, causing the oil price to drop due to excess supply. Consequently, the oil barons in Saudi Arabia see their profits decline as their margins drop. Then why don't they take action and drive up the oil price? The answer is hidden in the drilling costs. The USA have a significantly higher cost of drilling oil than the Middle-Eastern countries. Since the oil price in the past year has been growing steadily (until the collapse of the oil price), it only became feasible for the USA to start drilling now that their margins where high enough. This is also causing the current fall in the oil price because there is more supply in the oil market. The danger for the USA is now that the oil price may fall to hard, which makes drilling shale gas in the USA unfeasible once more. This is where the Saudi-Conspiracy comes into the picture. The Middle-Eastern oil barons do not feel threatened by the low oil price, because they are slowly forcing the USA to sell shale gas under its cost price, while the oil barons are still selling oil above its cost price and thus forcing the USA out of the oil market. Causing future oil prices to be at a structural higher level and this harms consumers all over the world in the future. Of course as often with conspiracy theories, we do not know the real motives of the major players. Maybe time will tell...

Spotlight: Pfizer Inc.

Pfizer (NYSE:PFE), one of the largest pharmaceutical companies in the world has experienced a downward trend of its stock price over the last year, while major competitors in the industry saw its stock prices rise. Does this mean that the golden era of Pfizer is over? The problem for Pfizer is the patent cliff; patents are ending which means that competitors can easily copy products without the research and development costs. It is not just Pfizer that is hurt by this patent cliff, the whole industry is hurt by it. However, it should be noted that Pfizer is more hurt by it than its direct competitors. Pfizer runs the risk to lose a quarter(!) of its revenues as a result of patent losses in the coming years. The only way for Pfizer to counter this event is by creating a new product and consequently also issuing new patents. If we take a look at the drugs Pfizer is currently working on, we note that there is 1 drug in particular that is interesting to boost Pfizer's sales in the future: palbociclib, a drug to treat breast cancer. Testing of this drug revealed a significant slower progression of advanced breast cancer. On the other hand, the testing results also indicated an insignificant effect on the overall survival-rate of patients. So there are 2 ways to look at this drug. There will be a market for this drug even though overall survival-rate is not affected by it, but the drug will become quickly obsolete if a drug is created that will also increase the survival-rate of patients. Since Pfizer is highly dependent on the outcomes of the sales of this new drug, it makes Pfizer a risky investment. In conclusion, Pfizer could be a nice stock in the future if you are willing to take substantial risk, but it may be wiser to look for other companies in the pharmaceutical industry.

Spotlight: Apple Inc.

If there is one fashionable tech stock, it must be Apple (NASDAQ:AAPL). Apple is so popular that some people are close to worshiping it. Is Apple able to sustain this cult-status and more importantly its profitability level? A quick look at the third quarterly results of Apple tells us that they sold 16% more iPhones than they did in the same period last year, resulting in an increase of net profit of 13% year-on-year. What Apple does really well is appealing to the current customer base. A lot of people who already own an iPhone buy the newest version of the iPhone each time a new version is presented to the market. Therefore, with the introduction of new iPhones, Apple can be sure that it will be sold in large quantities. But Apple is more ambitious than just maintaining its customer base, it also wants to expand. The third quarterly results show that Apple is already on its way to conquer more market share as Apple sold  50% and 25% of their iPhone 5s sales in the USA and China respectively to new smartphone users. On the other hand, the iPad sales are a bit disappointing, but this is compensated by the iPhone and the Macbook sales. In the short run, we expect Apple to keep performing well and increase its revenues. mainly because of the success of the iPhone 6. Apple's CEO Tim Cook even noted that he expected this December to be the best month for Apple in its history. In the long run Apple will need to work hard to keep on expanding its customer base, but it will be helped by the ever growing consumer market in China. Besides the good results in the third quarter, Apple is feeling the pressure of stock owners to pay out more dividend because of Apple's high cash position. Which may make Apple an even more interesting stock. In conclusion, Apple remains to be a solid tech stock to have in your portfolio, because of its high profits, growth opportunities and possible dividends.

Spotlight: Google Inc

There are few people in the world who have not heard of Google (NASDAQ:GOOGL), but does that also make Google an interesting investment? Let's take a look at the third quarterly results which they announced today. The first thing we note is that Google did not perform as good as the market expected. Earnings per share (EPS) and revenues stayed behind on expert expectations, mainly due to less network growth and less income due to 'paid clicks'. EPS also stayed behind because of the high research and development (R&D) costs of Google. We do not expect Google to suddenly turn the tide and increase its growth rate drastically in quarter four, but keep in mind that Google is still growing at about 9% year-to-year and is thus still growing substantially. If we then take a look at the long-term expectations for Google we see that because of Google's high innovation costs, we may expect these costs to pay off in the future. Google is not just the search engine on the internet anymore, it has expanded way beyond that and keeps on doing so. Android is a part of social life today and will probably stay around for a while. And what to think of Google Drones and the Google Glass? Moreover, Google is also expanding into the home automation market. It is because of all these innovations that Google is still an interesting stock as they are likely to gain substantial future revenues for Google. All in all, even though the revenue growth rate of Google today is a bit disappointing, the future still looks bright because Google is highly innovative which will create value for Google in the long run. Therefore, we tip Google as a stock you should have in your portfolio. 

Insight: The danger of penny stocks

Penny stocks; a quick way to get rich. An ever quicker way to get poor. Often private investors step into the penny market with the expectation of earning quick money, but soon experience the disappointment of this market. A great danger of penny stocks lies in the volume traded each day. Buying a penny stock is often not that hard. Selling on the other hand may cause a problem. Since the stock market is based on supply and demand, for a transaction to take place both supply and demand are needed. Even if the value of the penny stock you own increases, you may not gain a profit, since you might not be able to sell your stocks, because there simply is no demand for low volume traded stocks. Hence, you have an unrealized profit in an illiquid asset, so you are also not able to invest this money otherwise and you may still see this unrealized profit as a loss. Besides this problem on the penny market, we also see that the penny market invites investors to partake in risky behavior. The penny market is extremely volatile and it is hard to predict whether these stocks will go up or down. But because the first day a stock may gain 10% and the next day it may lose 15%, some investors go short or buy financial levering products on these penny stocks, resulting in very high gains if you make a right call, but you may lose it all if you make the wrong call. Since this market is highly unpredictable, instead of going short or buying complicated financial products on penny stocks, you may just as well want to consider taking your money to the local casino. Sure, the penny stock market can make you rich, but you also need to be aware of how this market works. Information is often very vague or sometimes even non-existent in this market, giving you little direction in whether the stock will create value for you. With incomplete or no information, a penny stock that seems profitable may turn out to be trash and often investors do not realize the risks of lack of information (because they don't observe possible negative information). All in all, penny stocks can make you rich very quick, but if you don't understand the market or if you don't want to take very high risks, you should stay away from this market.

Spotlight: Nike

What does the future hold for Nike (NYSE:NKE), one of the largest companies in the world? We often see that stocks as large as Nike are fairly stable and therefore interesting stocks for investors who are not willing to take much risk. For Nike this is not the case. Nike has a higher volatility compared to the average stock on the Dow Jones index. Moreover, Nike stocks are relatively expensive at the moment, because it has a Price/Earnings-ratio of 27. Usually, if a company has high volatility and a high P/E-ratio you expect the company to have a high growth rate to justify these numbers. Nike shows a steady growth rate of about 11-12% each year. This growth rate may be too low if you look at the current stock price of Nike. On the other hand, what Nike does really well is reaching the Chinese consumer market, where the middle-class is increasingly buying Nike products. Nike has also recently reformed its business model in China, reducing overhead costs. Therefore, the growth rate may be, relatively to competitors, on the low side, but the growth rate is also relatively more steady. This steady growth rate will counter the volatility-threat of Nike. If we also take the regular dividend payments of Nike into account (about 1,2% per year) we see that Nike may be an interesting investment for the patient investor as we may not expect miracles from Nike overnight. As with each company, Nike also faces some risks concerning its revenue growth. Because Nike is active in all corners of the world, it also faces the risk when there is an economic downfall and disposable income is reduced. Since Nike is highly dependent on consumer spending, this could harm the growth rate if the economy stagnates or even fails. However, this threat is not very probable to occur for a longer period in time soon and thus Nike may still be considered a solid investment for the long term.

Spotlight: Facebook

It is trendy for internet companies to get listed in the stock market and Facebook (NASDAQ:FB) is no exception. But is a trendy company also a good company to invest in? Facebook introduced its stocks at an initial price of $38 and saw its stock price fall to $18 within 4 months. However, Facebook noted an astonishing $72.91 yesterday. A quick look at this shows us the skeptical approach of investors at first, but after the first results were published investors were confident of Facebook's future performance. But it is likely that the current stock price of Facebook is overvalued. Facebook has a price/earnings ratio of nearly 80, indicating a very high price with relatively low earnings. The business model of Facebook also shows some flaws, which only increases the P/E-ratio. Facebook's main income is advertising income. To gain advertising income Facebook needs more clients. It is unlikely that Facebook can maintain their growth rate of new clients, hence the growth in revenue income of advertising is also unlikely to have a sustainable growth. As we often see with popular social networks (e.g. MySpace & Hyves (dutch social network)), they first rapidly expand their customer base through young people. At some time, 'older' people will also join these networks, making the networks less appealing to the young because it loses its cool-factor. This results in the young searching for a new social network and from there on the cycle repeats itself. Consequently, social networks have a hard time retaining their customers with the consequence of falling revenues over time. As Facebook already notes a decline in young people having a Facebook account, it is likely to assume that the same faith will befall Facebook in the future. The only way Facebook can avoid this, is by investing in other products. Facebook's CEO Mark Zuckerberg is aware of this threat if we look at how Facebook tries to counter this danger: he took over WhatsApp for a incredible amount of $19 billion. The problem is that Zuckerberg also announced he won't place advertisements on WhatsApp and also won't create other means of milking WhatsApp. Hence, the $19 billion is squandered on WhatsApp, destroying value for shareholders. Unless Facebook finds a way to enter other markets (there are speculations of a Facebook Phone) it has a hard time being sustainable and the share price will fall.

Spotlight: Alcoa

It is that time of year again: the third quarterly results are dripping in. Alcoa (NYSE:AA) is traditionally one of the companies that kicks off this exciting period. The results Alcoa showed were better than the market had anticipated. Alcoa, a manufacturer and distributor of aluminum and aluminum goods, noted higher profits and lower costs. The higher profits are partly due to the better aluminum market, since the aluminum prices have risen and Alcoa was able to sell its products at a higher price. On the other hand, Alcoa is reforming their business, resulting in lower costs. Leading to a better performance of Alcoa. Interestingly, Alcoa is still busy reforming and cutting costs, so we may expect costs to decline even further in quarter four. The outlook for Alcoa is therefore positive and earnings per share are expected to grow from $0.20 to $0.25. However, there is also a threat to Alcoa's cash flow: the aluminum future market. Where the aluminum market in the third quarter positively influenced Alcoa's results, the aluminum price may hurt Alcoa's results in the fourth quarter. We notice a sharp fall in the aluminum price in September ($2100 to $1900), if this trend continues the cash flow projections of Alcoa may be overstated. Dividends may also influence your decision of buying Alcoa stock. Alcoa has been paying dividends even when they made a loss. Of course, Alcoa has also been affected by the financial crisis, causing them to cut back on dividends since 2009 ($0.03 per stock since 2009 compared to $0.17 before 2009). Now that Alcoa is reporting increasing profits, Alcoa may decide to update its dividend and start paying more than the previous $0.03. Based on the third quarterly results, we see that Alcoa's profits are increasing and with the possible option of higher dividends, we expect Alcoa to be ever more profitable for investors.

Spotlight: Imtech

The stock price of Imtech (AMS:IM) has been in a rollercoaster today. Imtech issued a rights claim this morning, issuing 60 billion new stocks with a value of €0.01 per stock. The market reacted with putting Imtech 2000% higher today. One hour later, 'only' 1000% remains. This raises the question whether Imtech is now over- or underpriced. A quick and simple calculation tells us that Imtech's market value was €146 million yesterday. The rights claim created €600 million cash for Imtech, resulting in a total value of €746 million today. If we divide this by the total (new) amount of shares outstanding we see that the share price would reflect Imtech's real value if the stock price is €0.012. The stock price however, is currently trading at €0.13. We see here a clear indication that the stock market is not efficient, because it is also influenced by speculations and psychology. A stock price of €0.13 seems very cheap and is for many private investors a reason to buy Imtech, however, if we compare this price to the real value of €0.012 you still pay an incredible amount for the Imtech stock. Also, speculations drive the price of Imtech, with no particular reason. Once investors all do their calculations, the stock price is likely to revert to the real value of €0.012, which is a decline of 90% compared to the current stock price of Imtech. In conclusion, with relative high certainty we may expect the stock price of Imtech to fall to the level of €0.012, making Imtech a no-go (unless you want to consider going short).

Insight: Dividend Stocks Dow Jones

There are 2 ways of gaining profit on stocks, either by the price of the stock or by dividends. Often, when there is economic uncertainty, investors tend to buy more of high dividend yielding stocks. Since the IMF reduced their economic growth forecast and stock markets are more volatile recently, it is time to shed some light on high dividend yielding stocks noted on the Dow Jones index. One of the highest dividend yielding stocks on the Dow Jones index is AT&T (NYSE:T) . AT&T offers dividends resulting in a yearly 5.21% dividend yield. Moreover, the yearly dividend yield is also growing slightly. Except for the high dividend yield, the AT&T stock price remains fairly constant and has stable fundamentals, making it a low-risk bet. Then there is General Electric (NYSE:GE), which will give you a yearly dividend yield of 3.55% (compared to 2.36% average in the industry). The high dividend yield of this stock comes with a price: don't expect the dividend payments to growth in the near future, even when General Electrics earnings grow. Since the stock price of General Electric is not growing very fast, but steadily, General Electric may be considered a nice dividend stock due to its regular and constant dividend payments. Finally, Chevron (NYSE:CVX) is also an interesting dividend stock. It yields 3.69% each year on dividend, but the more interesting fact lies in the growth of its dividend. Where Chevron paid $0.90 in May 2013, it pays $1.07 in September 2014 (an increase of 18.89%). The dividend payments are expected to keep on growing (possibly at a slightly lower rate than 18.89%, but still at a substantial growth rate). In conclusion, investors seeking stable dividend yielding stocks may find AT&T, General Electric & Chevron nice stocks to invest in.

Insight: TurmOIL in the market

With the commotion in the Middle East, where ISIS is threatening oil production, with Libya producing less and Russia threatening with sanctions, one might wonder why the current oil price isn't soaring high. In June the price for 1 barrel of oil was $111.80 compared to $101.61 in August, a sharp fall in the oil price. The oil price is established by means of supply and demand. Demand has not been lowered as a result of the commotion in the Middle East and Russia. On the other hand, the world supply of oil has been increased recently, mainly by the US with the use of shale oil. Also the production costs of one barrel of oil have been reduced due to new technologies, causing oil barons to drill deeper while they can now still make a profit. Often however, when there is turmoil in large oil producing countries, we see a sharp increase in oil prices. Then why does this not happen now? First of all, the lack of supply from Libya has already been reflected in the oil price recent years. Second, when there is turmoil in the Middle East (such as the threat of IS in Syria now), people tend to judge every country in the Middle East as an important supplier of oil. This is not the case for countries like Syria. They do produce oil, but their market supply is relatively small compared to the world market supply, hence the lack of supply from Syria will not cause a major shift in the oil price. Third, Russia is heavily depending on the profits of selling oil. The market does not expect Russia to limit oil supply simply for the reason that the Russian government can not do without the oil profits. Therefore, a fall in supply of Russian oil is very unlikely, so the Russian commotion will not cause an increase of the world oil price. All in all, we see that the current commotion in the world is not really threatening oil supply, while new drilling technologies improve oil supply, causing the oil price to fall.

Spotlight: Amazon.com Inc.

In recent light of more and more internet companies getting listed on the stock market, you might wonder whether a lot of these internet companies aren't overpriced. Also, what happened to companies that have been listed for a longer period? More importantly, what does the future hold for these stocks. Reason for Stock Smash to shed some light on one of these stocks: Amazon Inc. (NASDAQ:AMZN). Amazon faces some serious challenges. To begin with their profit margin: Amazon has deliberately chosen a business strategy that gave them a low profit margin, but a higher growth rate of their customer base. This is also the reason why Amazon has one of the lowest profits in their segment. Moreover, some of Amazon's strategies did not quite work out the way the hoped: such as Amazon Kindle and the Fire Phone. Even though their earnings are low, their stock price is still really high, resulting in a Price/Earnings-ratio of 850! If we compare this to the rest of the segment, we note the second and third highest P/E-ratios are 22.49 and 21.93 respectively. These numbers are miles away from the P/E-ratio of Amazon. Normally, a high P/E-ratio relatively to the market could indicate high growth expectation. However, The P/E-ratio is so enormously high that it is very likely that the stock is overpriced. Besides the lack of profit, Amazon also faces increasing competition, further pressing its margins. Other companies have shown to gain profit even when they focus on growth of their customer base (such as Alibaba (NYSE:BABA), which recently got listed). The challenge for Amazon is to finally gain some profit, while still increasing revenues under tenser competition. It seems unlikely that Amazon will be able to produce cash flows that would reflect the current price of the stock. Therefore, we name Amazon a Stock Bash.

ManVsMarket: 4th Quarter 2014

In this segment, we test whether stock experts really know what they are talking about. We take 10 stocks selected by experts and benchmark these against 10 randomly selected stocks and see which portfolio performs better. For this quarter the experts (of investorplace.com) have selected the following stock picks: NewField Exploration (NYSE:NFX), Alcoa (NYSE:AA), Edward Lifesciences Corp (NYSE:EW), Electronic Arts (NASDAQ:EA), Micron Technology (NASDAQ: MU), Under Armour (NYSE:UA), Allergan (NYSE:AGN), Avago Technologies (NASDAQ:AVGO), Keurig Green Mountain (NASDAQ:GMCR) & Southwest (NYSE:LUV). Also, a portfolio with 10 random stocks will be selected. We will keep you up to date how the experts do. 

Insight: Football vs Stocks

You are at a party and talk with friends about football. After a couple of beers one of your friends brags about how he recently invested in Juventus (BIT:JUVE). Should you take this seriously? Let's take a look at how some stock listed football clubs performed over the years. Investing €100 in Juventus in 2002, would leave you with €6,40 today. Similarly, if you had invested €100 in AS Roma (BIT:ASR) in 2000, you would now have a mere €11,27 left. Even if we look outside the borders of Italy, we see that Celtic (LON:CCP) gave you a solid return of -76,78% over the last 15 years. These are not exactly facts that seem to make football clubs attractive investments. The problem with stock listed football clubs is their business plan. Football clubs rely heavily on sponsoring, merchandise and TV rights and therefore have a hard time increasing their revenues. Besides the lack of a potential growth rate, football clubs often have large debt quantities compared to their equity, making them very vulnerable businesses. It is not surprisingly that England saw a decline from 14 to 7 stock listed football clubs in 5 years time. Another reason why stock listed football clubs are not very attractive, is the uncertain nature of their future cash flows, partly depending on the clubs' performance in leagues and tournaments, which makes it hard to value their stocks. Because investors do not like uncertainty they tend to stay away from these stocks, thus demand is low, causing the price of stocks to stay low. So let's be honest, these companies are fun to invest in if you are a supporter of the club using small amounts only, but it may be actually more fun to spend this money at the bookmakers.

Insight: Why women are better investors than men

Wall Street and men in suits are inextricably linked. But is this image justified? Is the image of women not being able to be decisive in financial markets really true? In short: yes. However, this is a good thing for women. On average, women tend to be more risk-averse than men. Consequently, men are more likely to trade financial assets often. Men are more influenced by short term losses or gains, because they like risk more. They have a higher intention of selling a stock that went down right away, so they can invest this money in other assets that seem more profitable. On the other hand, when men own a stock that did well, they are more likely to sell that stock and invest it in another stock (with higher risk) to gain even more profit. But this is also the reason why men tend to do worse than women. On average, both men and women gain the same revenues. The problem for men is: they incur more costs, transaction costs that is. So, because women are able to focus on the long term and therefore hold stocks longer, they incur less transaction costs than men and will on average gain a higher profit than their male counterparts. Maybe it is time for women to take over Wall Street?

Spotlight: Alexion Pharmaceuticals

Alexion Pharmaceuticals (NASDAQ:ALXN) is a biopharmaceutical company that focuses on therapeutic products to treat rare diseases. Because they focus on the treatment of rare diseases, their target market is relatively small. Still, their estimated sales growth is expected to be 41,66%, whereas the industry median is only 11,46%, Moreover, Alexion notes a P/E ratio of 77.40, while the industry P/E ratios are close to 20-40. This is an indication that more growth is to be expected from Alexion than from others in this industry. It is also very likely that this growth is sustainable due to the high developing costs of its medicines, keeping competitors from entering a market where there are high R&D costs and a small consumer market, hence there will not be competitors taking market share away from Alexion. Combing these factors with the high gross margin (89,15%) of Alexion, makes Alexion an interesting stock for the long term. Its stock price may grow to $200 (compared to $167 today). Therefore, we name Alexion Pharmaceuticals a Stock Smash.