Spotlight: Twitter Inc

Trouble in Twitter-paradise as S&P rated Twitter bonds junk. Why has the sentiment on Twitter (NYSE:TWTR) stock suddenly turned around? The Twitter stock as been a real rollercoaster as the stock price shifted from $26 to $73 falling back to $30 again, climbing back to $55 and it is currently trading at $41.85. Curiously, this all happened within one year's time. So how do investors need to feel about the Twitter stock? Twitter is often compared to Facebook (NASDAQ:FB) after Facebook's successful IPO. But it is important to note that these companies are hard to compare when it comes to profitability and cash inflows. After Twitter's IPO, it seemed that investors expected Twitter to be able to copy the revenue model of Facebook, but if we look at the facts, Twitter has a problem on its revenue side. To be more specific, Twitter reported an earnings per share of $0.01 according to internal accounting methods. Using international accounting methods, Twitter should have reported an earnings per share of -$0.29. If we take a look at the expected revenue for the next year ($0.34) and compare this to its stock price, we note that the price/earnings ratio is a staggering 220. This an absurdly high number, indicating that Twitter is highly overvalued at the moment, unless Twitter is able to innovate extensively to boost its profits. If we look at the chances of this happening, we think this is highly improbable. The growth rate of new Twitter users is diminishing, making it harder for Twitter to be profitable in the future. But Twitter has a plan for the future; it wants to focus more on video's. Yet, we don't think this focus justifies the high stock price of Twitter. Consequently, we think the Twitter stock is destined to fall.

Spotlight: BNP Paribas

Banking in France; an interesting business nowadays as France is becoming more and more the partypooper in the Eurozone. Let's take a look at how this affects BNP Paribas (EPA:BNP), one of France's biggest banks. First we note that the BNP stock is down 14.09% year-to-date, which may not come as a surprise given the recent economic problems in France. The first problem for BNP lies on its credit side, since banks in France are perceived riskier than its German competitors for example. As a result, banks in France are still able to attract capital, but at a higher cost, because lenders want to be compensated for the higher risk they take in financing French banks. BNP is not only feeling pressure on its credit side, but on the debit side as well. International companies in need of financing also want to avoid risk, causing them to do business with safer banks than French banks, resulting in BNP to miss out on revenues. Yet, BNP is keeping revenues at a fairly steady level since 2009 as revenues ranged $38.8 and $43.8 billion. But this also why BNP is not an interesting stock, because the growth rate is low if not not-existent. Moreover, BNP is subject to hard sanctions ($9 billion sanctions already, while BNP pleaded guilty to other violations, so they might even face more sanctions), which disables BNP in expanding. A final remark should be made on the new CEO; Jean Lemierre, who has more of a political than a banking background. It is funny to see BNP positioning itself as the bank for a changing world, while BNP is itself not very able to cope with the changes in the world. In summary, we think BNP Paribas is not a stock you want in your portfolio right now due to its lack in growth possibilities and economic environment.
 

Spotlight: Akorn, Inc.

What is happening to Akorn (NASDAQ:AKRX)? Its stock price increased a staggering 23% from 15 to 28 October, but from there on it has also decreased 17%. Akorn, a pharmaceutical company that focuses on diagnostic, therapeutic ophthalmic and injectable pharmaceuticals, recently announced its third quarterly results, which immediately lead to a decline of 10% of its stock price. The earnings per share were -$0.11, which disappointed investors. However, it should be noted that this is due to incidental costs. Earnings per share were $0.27 which beat market consensus by 2 cents. Yet, a lot of investors seem to lose thrust in its future performance. An indication that the stock was overpriced could be the Vice-President of Akorn, who sold a substantial amount of his Akorn shares when it was trading at $44.27. This causes us to believe that he has information on the real value of Akorn stock and that he felt the stock was currently overpriced as afterwards the stock price reverted to the range of $36-$39, meaning that the stock could now be trading at its real value. If we then take a look at Akorn's P/E-ratio, we see that Akorn stock is trading at a staggering 135 times its earning per share. Indicating that investors either expect substantial growth from this stock or that the stock is still highly overpriced. Since there is no real evidence that Akorn is producing or even researching a product that is to increase revenues substantially, we also don't expect a major change in revenues and thus in profits. Consequently, we feel that the Akorn stock is still overpriced and that it does not reflect future cash flows.

Spotlight: Moody's Corporation

Moody's (NYSE:MCO) is often still criticized for its role in the financial crisis of 2007/2008, but is this criticism still justified today? There can be no doubt that Moody's helped strengthening the effects of the financial crisis, but if the rating agencies failed so miserably, why are they still around? Even more, why is Moody's current stock price higher than it was in 2007? During and immediately after the crisis, investors started investing in safe havens such as treasuries to limit their losses. Consequently, due to the lack of risk-taking, the need for ratings was low. But the tide has turned as investors became more confident again. Resulting in a higher demand for risky assets. This resulted in companies issuing more complex and more risky assets as well, leading in turn to a higher demand for ratings as well. Since companies pay Moody's to get a rating, this also increased Moody's' revenues. Especially since investors also regained confidence in ratings, which gave companies a reason to get rated by Moody's. It also seems that Moody's has learned from the crisis as they are currently the rating agency which gives the most conservative ratings for risky products. On the other hand, this is bad for Moody's, because companies often get their ratings from Moody's' competitors, where they can get a higher rating than Moody's would have given them. Moody's is therefore the moral winner, but could financially be left behind its competitors. Nevertheless, Moody's keeps beating market expectations quarter after quarter. In the end, it is the investor who decides what rating agency will perform well. If ratings by Moody's are trusted and ratings by Fitch are not, then the investors will buy more products that are rated by Moody's. Consequently, companies that issue rated products are better off having an investor-trusted rating so they can raise capital more easily. Thus in the long run, Moody's may be better off giving more conservative ratings that can be more trusted than those of its competitors, who seem to focus more on short-term gain by overstating ratings to attract issuers. Moody's is working hard to regain investor trust, but it still has a long way to go. It may take decades for Moody's to be fully trusted again, resulting in opportunities for new rating agencies. However, since investors are once again willing to take more risk and thus the demand for ratings also increases, we think Moody's will also keep on increasing revenues in the short run.

Spotlight: Cisco Systems, Inc.

What does the future hold for Cisco (NASDAQ:CSCO), a manufacturer of IP-based networking products and other related products concerning IT and communications? The first thing to keep in mind is that Cisco has to deal with ever more competitors. Cisco used to focus on the hardware market, but due to recent technology developments, Cisco is also experiencing competition from companies on other markets, such as the software market. We see a decline in the demand for hardware communications and networks, because hardware is often much more expensive than software, hence the shift to software based technologies in networking and IT-communications. Meanwhile, Cisco is having trouble adjusting to this new market environment, which is reflected in the slow reaction to this change, causing Cisco to be left behind on their rivals. Moreover, some top executives of Cisco sold their shares of Cisco recently, which is often a bad sign, because it reflects that even the top executives feel they can not create any more value for Cisco. However, Cisco still managed to gain 9,5% since 15 October. A reason for this could be a new developing market; The Internet of Things. The Internet of Things is the market concerning the connection of all devices (telephones, laptops, tablets etc.) or in other words a machine-to-machine network. Cisco's CEO recently claimed that the market for the Internet of Things could be worth $19 trillion in 2020. Since Cisco is highly present in this market, Cisco is likely to gain huge profits from this market segment. However, this statement lacks credibility, because the top executives sold their own Cisco stocks and they would not have done this if they really believed Cisco to increase its profits substantially. A better, or more conservative, approximation of the Internet of Things market is $1.9 trillion in 2020. This is only 10% of the approximation given by Cisco's CEO. Consequently, this could harm potential investors who expect a total value of $19 trillion if this market turns out to be only $1.9 trillion. In conclusion, we believe that Cisco really does have an opportunity on the Internet of Things market, but we also feel that Cisco is overstating its chances, especially since they have a tendency to lag behind their competitors. Therefore, we do not advice the Cisco stock, but you may want to consider competitors, because this market is expanding rapidly. 

Spotlight: Royal Dutch Shell

With all the turmoil in the oil market you might start wondering what the outlook is for oil-related companies. Today we will take a look at one of the biggest oil companies in the world: Shell (AMS:RDSA). First of all, it is worth noting that the Shell stock is fairly stable, making it an interesting stock for the more risk-averse investors. Especially since this enables Shell to pay-out regular substantial dividends which often amount 4% to 5%. But what are the consequences of the low oil price for Shell in the future? There are 2 sides to this story. You should be aware that companies like Shell have two main business segments. The first is drilling up oil and selling this oil (upstream). The second is to refine oil into gasoline or comparable products (downstream). The lower oil price will harm the upstream profits, because the margin on oil is simply lower. However, this threat is countered by the downstream profits. Gasoline tends to have a smaller reaction in market prices than crude oil. Since the costs of goods sold (in this case crude oil) is low and the gasoline prices stays relatively high, the margin in the downstream segment remains relatively high. Because Shell is a major player on both the downstream and the upstream segment, it is able to diversify the risk of low oil prices away up to a certain level. If we then take a look at the current cost situation of Shell we note that Shell is currently busy restructuring the company, causing costs to fall substantially. This is also reflected in the third quarterly profits of Shell which showed an amazing 31% increase in profits. Considering that Shell is able to counter the oil price threat, Shell's stable dividend payments and Shell's structural lower costs, we think Shell is a solid investment.