Insight: The ECB Danger

The European Central Bank (ECB) started its Quantitative Easing (QE) program early 2015, where they buy sovereign debt from countries in need of liquidity to help the Eurozone economy recover and to control inflation. There have been many discussions about whether the ECB should have stepped in. Of course, only time can tell if the ECB made the right decision about QE, but it may be wise to be aware of the dangers of QE.
First, QE may seem safe, as it is helping the Eurozone economic stability, it may in reality create higher risks. The QE program lowers yields on bonds, making them less interesting investments. As a result, investors may look for other assets which have a higher expected yield such as stocks, which drives the stock prices up. But this higher stock price is not a real reflection of the underlying value of a stock, its price is only inflated due to the higher demand for higher yielding assets. But the QE program can't be continued for ever, so when the ECB announces to gradually stop the QE program, bonds will become more attractive as their yields go up again. Meanwhile, the stock market will suffer as stock prices were over-optimistic and investors start selling their stocks to switch to the bond market again. The question that remains is not if the stock market will react badly towards the end of the QE program, but how badly it will react.
Second, there may be low interest margins for financial institutions. We learn from the experience of the US and Japan QEs that margins tend to be narrower, which gives banks less space to manoeuvre in the financial markets. This puts a strain on their liquidity creation, because banks become less willing to lend to more riskier clients (this can also be positive as the risk of defaults declines, but that's another story). The major pitfall is the harm it may cause the small and medium-sized sector, which is the major part of the economy. This is contrary to what QE is supposed to achieve.
In the end, QE will definitely have some (short term) advantages, but it remains unclear whether the long term effects of this program will be that positive as well. Be aware of the pitfalls of QE!

Spotlight: Huawei Technology

The Chinese telecommunication company Huawei Technology (SHE:002502) has attracted lots of attention recent years. This may not be surprising as Huawei is currently the largest telecom company in the world. Which brings us to the question: is Huawei stock still attractive?
One of the first dangers of this stock is of course the Chinese bubble. Moreover, the volatility of Huawei stock has increased heavily the past year. Huawei was trading at 34 Yuan ($5.35) in June, only to drop to 15.80 Yuan ($2.48) early July and eventually rebounded to 31 Yuan ($4.88) mid-July. What's striking is that at first Huawei seemed to suffer big time in the Chinese crisis, but quickly rebounded between a band-with of 25-30 yuan ($3.90-$4.72). So Huawei has experienced heavy stock price fluctuations, but seems to be able to cope with the crisis to a certain level. The problem for Huawei could be its domestic market. If the disposable income of the Chinese working man also declines then Huawei will have to drastically revise its growth expectations. However, the Chinese bubble may be more of a crisis in the financial world and may have less social-economic impacts.
          There are of course also opportunities for Huawei as they sold about 40% of their produced units overseas. With a growing demand in Europe and the US in value smartphones (smartphones of good quality for a lower price), Huawei still has more market share to capture in the Western countries. But Huawei has to be aware of its image. Chinese safety standards are simply not as high as in the Western countries, which raises some questions about how easily Huawei phones can be hacked. Some even go as far as stating that Huawei shares its technology with the Chinese government so they can spy on anyone with a Huawei phone. Of course Huawei denies these allegations, but it puts a strain on the willingness of some Western consumers to buy Chinese phones.
What may be key as to why Huawei is an interesting investment is the vast amount they are spending on research and development. In 2014 they've spent a total of $6.6 billion on R&D, which is more than IBM, Facebook or Apple did. Even with this expenditure on R&D, they still managed to be highly profitable ($4.49 billion in 2014). Compare this with a company such as Amazon.com which also spends a lot on R&D, but fails to be profitable. Hence, Huawei is a company with lots of potential (in overseas markets), it may produce new innovative products that can conquer a market, while they already make a solid profit. The Chinese market may cause some trouble, but if you handle a long-term investment strategy, Huawei is definitely a stock you want to have in your portfolio.

Spotlight: BAM Group

The Dutch building company BAM, is it a definite buy? Let's take a look at the pros-side of BAM. If you read the advice written by investment banks, they'll almost all tell you to buy BAM because of the recovering global construction market. You might even call this market booming nowadays. Yet, this does not mean you should pick the BAM stock per se, as a recovering global construction market is no reason to expect BAM outperforming this particular market and competitors.
So what else makes BAM interesting? BAM is getting more and more orders for large projects. What's more important, is that these projects are well diversified across countries all over the globe. Consequently, they are less vulnerable to changes in regulation by (local) governments. What's even more striking is the fact that BAM manages to avoid regions of the world where there is a lot of economic uncertainty nowadays. They avoid South-America, where countries such as Brazil and Argentina are experiencing big economic troubles and China, where we saw a bubble deflating recently. However, they do have projects in Indonesia and India, which have a high correlation to the Chinese market, so some restraint should be taken here.
Also, BAM has taken a massive hit during the crisis of 2007-2008, losing 90% of its value compared to 2012. This is now proving to be an opportunity as BAM was forced to restructure the company. Today, BAM is harvesting the benefits of this restructuring and is also expected to do so in the nearby future (the restructuring is still going on).
Of course, there are also cons as to why BAM might not prove a too successful investment. First, the stock has risen to €4.94 today from €1.82 in September 2014. So one might wonder how much the stock price can still rise after this massive incline this year. Second, even though project orders are rolling in, the margins on projects remain not too overwhelming. Which means that surprise costs can seriously harm profits for BAM.
In conclusion, we do not think BAM is a definite buy due to the posed risks of this stock, but we like to mention the upward potential of this stock. So if you like to take a little risk, BAM might be a nice addition to your portfolio.

Spotlight: Tesla Motors

Tesla Motors (NASDAQ:TSLA) might easily be the most hyped stock of the last couple of years. Investing in Tesla in July 2010, would have amounted to a 950% profit today. But is the current stock price of $201.62 justified? If we take a look at the income statements of Tesla, we notice that they have never made a profit yet, but because Tesla is operating in a relatively new market segment high development costs can be expected and usually profits will come only after a few years. So it's not a surprise that Tesla has failed to gain profit yet. Still, investors seem to expect a large profit in the future, because the stock price is sky high for a company with negative results. Are these investors too optimistic or are they simply timing the market right while Tesla's stock price is still low? Tesla's CEO Elon Musk said last week that he expected Tesla to be profitable in 2020. Moreover, he said he does not fear the competition by General Motors (NYSE:GM) and other electric car manufacturers. We feel that Musk is overconfident of his own chances in the market. Simply because General Motors announced a car for a lower selling price and with a higher action radius than Tesla's cars. These two aspects are key when producing electric cars. Hence, we think it's odd that Elon Musk dismisses the danger of competition. Consequently, we also feel that his statement of profitability in 2020 might be overstated and that this could easily be 2025. Moreover, as time goes by, it becomes easier for other companies to enter the electric car segment, because they can produce with lower R&D costs due to reverse engineering, which will harm Tesla's profit. Therefore, even though the electric car segment might be the future for the car industry, Tesla's chances in the market may be highly overstated and current investors in Tesla may be too optimistic. This makes Tesla a big gamble in the stock market and its a gamble that Stock Smash is not willing to take.

Spotlight: ASML

Is ASML(AMS:ASML) the holy grail on the Dutch stock market? Five years ago, the chip-manufacturer traded for 203,66% less than it does today (€90.30). Can they keep up this incredible growth or has the moment past to gain substantial profit on this stock? As they announced their fourth quarterly results today, we immediately saw a rise of their stock price by 4%. The reason for this: a record of sales in 2014 (€5.9 billion), also resulting in a 25% growth in profit year on year. But these are not the only indicators that the stock price will soar ever higher in the future, since ASML also announced a repurchase of shares for €1 billion in the next two years. A share repurchase is often an indication that the current share price is cheap compared to its real value (otherwise companies would not repurchase shares, because then they would simply pay too much for the stock). This indicates that the real value is likely to be higher than the current stock price, hence an upward spike can be expected. But what can be expected from ASML in the long run? ASML recently issued a statement in which they expected the total sales in 2020 to reach €10 billion (compared to €5.9 billion in 2014), which amounts to an ambitious 9,2% sales growth. Since ASML is highly competitive and is also highly spending on innovation, we think that this number might be quite accurate or even conservative. ASML is highly spending on a new laser technique (EUV), which may alter the chip-industry as a whole. This technique will definitely boost ASML's sales and profit, therefore we also think that ASML will prove to be a great stock in the future. ASML may not be the holy grail on the stock market, but it surely is quite a pearl.

ManVsMarket: Should you listen to stock experts?

Early October 2014 Stock Smash decided to test whether stock expert advice is really helpful, so we created 2 S&P portfolio's; 1 with 10 stocks advised by an expert (of investorplace.com) and 1 with 10 random stocks. Today, it is 3,5 months later, so lets see how both portfolio's did. If you had followed the advice of the expert you would have gained a gain of 9.32%, compared to 8,20% gain in the random portfolio. So we congratulate the experts with their win.
However, this comparison might not be fair, because a closer look at the results tells us that the experts seem to have taken a much greater risk than the random portfolio. Hence, we might have expected a bigger margin between the expert portfolio and the random portfolio. Therefore, we at Stock Smash feel that this is a rather false victory for the expert portfolio. We will keep track of both portfolio's and hope that next period will indicate a more clear outcome.

The results of both portfolio's are shown in the table below.
        

Spotlight: Air France - KLM

What does the future hold for Air France - KLM (EPA:AF)? Stock price was sky high in 2007 (€38.30), but when the crisis hit Air France it all came crashing down with no real sign of recovery to date as the stock is currently trading at €8.42. Why does the stock not recover? First of all there is the high competition in the passenger aviation branch, because pricefighters are gaining more and more ground. Where Ryanair and EasyJet are able to have lower wage costs, Air France is not able to reduce these costs. Moreover, pilots of Air France are on strike because they demand even higher wages. In the end Air France will have to give in to their demands, simply because pilots can easily switch employers as there are a lot of other companies who are willing to take these pilots in. The recent strike has already cost Air France €500 million, putting pressure on Air France to come to a quick solution. If we then look at how Air France performed over the last years, we note that they last reported a profit in 2010. Hence, Air France is in desperate need of the money and all the employee malaise is not helping them reporting a profit for 2014. Air France is also losing market share, because it simply can't compete with the prices of these pricefighters, meaning that Air France does not only have a problem on its cost side, but also on his revenue side. So what can they do to turn the tide? Air France has played with the thought of taking over companies to regain market share. The big drawback is the huge initial costs that comes with such a plan. Besides, this does not eliminate the threat of the pricefighters. Costs of Air France may however drop in the future due to the plunging oil price, but since other companies also gain from this trend, it does not give Air France a competitive advantage. In conclusion, we strongly do not recommend the Air France stock, because this company simply can't keep up with the changing business environment in the aviation industry. Instead, look for competitors that are able to comply with these changes.

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.

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.