Personal Portfolio Update Archives

Buying Netflix Stock at $60 a Share

Buy Netflix StockI am buying Netflix Stock at $60 a share, despite a rapid $20.11 a share drop in today’s trading session. The drop can attributed to a second quarter earnings report.  Full disclosure, I actually bought a $70 call option expiring Jan 2014 for NFLX.

Why invest despite disappointing earnings?

  • Netflix put up $.10 a share for it’s Q2 2012 earnings, which actually surpassed many analysts expectations.
  • Total revenues increased 12.8% Year over Year to about $889 million. Growth in both domestic and international revenues
  • Total subscribers increased by about 17% from the prior year
  • Netflix could be on the verge of “taking over the world” when it comes to online television.

How can Netflix “take over the world.”

Netflix has a very unique opportunity, which is that the company has an early entry lead to the market. Most people realize that Netflix’s online service is a fraction of what it could be with more content. I currently am a Netflix subscriber, but I am finding it very hard to find quality content that interests me. I personally do not consider Netflix a good place to find good movies. Ultimately, the battle for content will decide the winner.

Netflix has the proven infrastructure, it just has to land the content to be king of it all. Could the content go somewhere else or at the very least be split amongst other providers? Of course, but if you were distributing a movie, Netflix is currently the best gig in town to make it happen.

The downsides to Netflix

The level of entry for competition isn’t as high as many make it out to be. Furthermore, Amazon and Apple already have loaded guns when it comes to distributed media.

I personally find the most un-easing thing about Netflix to be the management (CEO: Reed Hastings). When Netflix talked about splitting their online content from their dvd service into a new company called “Qwikster,” it scared me a lot. I understand that DVD delivery service isn’t the future, but it made me feel as if they have absolutely no idea what they have going for them right now. The name and early entry is one of their best assets. If they don’t see that, then something is terribly wrong.

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Buy Netflix Stock

 

Six Flags Entertainment Corp (Symbol SIX), might be one of the best short positions available in today’s market. I’m sure these words would make Mr. Six sick to his stomach.

The Facts

  • Six Flags’ Chapter 11 bankruptcy in August of 2009
  • Six Flags gave up 92% control to it’s lenders for canceling its debt to lenders
  • Was only profitable 1 out of the 4 last years and that was to a negative balance in “unusual expenses” for the year.
  • Overall Revenues have not shown many gains at all in the last 4 years.
  • The stock has more than tripled since June 2010, with very little fundamentals to actually support it.
  • The P/E is 855.18

The only real pro I can see in this stock is that with the forgiving of debt, the company has a very small amount of debt in comparison to assets. Because of this very little debt, the overall earnings per share for the last quarter on record looks fairly strong, but even if that pace keeps up for the entire year, we are still talking 80-90 P/E for this stock.

I have read analysts reports (link) that talk about all of the potential and positive trends, but honestly I just don’t see why I wouldn’t want to short this stock, other than the fact that option chains are not available for Jan 2014. If these options are released anytime short, you can be certain I will be considering throwing a small portion of my portfolio (I would guess 5%) into a leveraged short position on Symbol SIX.

Until they, let the hype continue and I pray the stock hits $60+ a share despite all logic, but who said the stock market was logical anyways?

Six Flags Symbol SIX

Short Six Flags

Six Flags Entertainment Corp
(NYSE:SIX)

When I hear the phrase “dividends are passive income,” I vomit a little bit in my mouth. Passive income? A couple of percentage for assuming the risk on a security is not exactly appealing to me. I feel that the underlying security should always be the focus and that dividends are ultimately irrelevant. You shouldn’t be afraid to buy no dividend stocks.

Why dividends are irrelevant
It might be a shock to hear, but when a company pays dividends, they have less cash. It’s just crazy enough to be true.

When you buy a stock, you are ultimately putting your faith in the fact that the company will be successful. You are trusting that company as a shareholder. If the company decides that it is best to pay a large portion of its profits out in the form of dividends, then so be it. But if the company sees opportunity for that cash on hand, they shouldn’t be looked down upon for making business decisions. Maybe they decide to expand with that money into foreign markets or invest in better equipment at it’s factories, whatever the case, you have displayed trust in that company’s decision making. If the companies new decisions are successful, the stock is sure to appreciate to display that success.

That being said, if the company makes decisions you do not agree with, that is when you can choose to show your disapproval but selling the security.

Example of where dividend investing can go wrong

I read an article a few years back about ArcelorMittal (Symbol ADR) when it was trading for $30-40 a share. The article basically said the stock was off it’s high enough that it could potentially become a good dividend play. It was paying a little over 2% yield dividend wise at the time. The idea was simple, the stock was so far off the high that you could hold the stock, collect the dividend, and pray for a rebound. The only missing part to that plan was the rebound.


Not only did the stock not rebound, but it fell to about $15 a share. The overall decline since this article was probably about 50-60%. All for what? Annual distributions of $.64 worth of dividends?

People who don’t factor in the security itself into dividend investing, shouldn’t be investing.

The first argument I imagine coming from the opposition to this article is this, “But I still have the stock, I will continue to get dividends forever.. who cares about the stock.”

I wonder if Kodak Eastman Company (Symbol EKDKQ) shareholders thought the same thing as they watched their shares become drink coasters ($.25 a share, soon to be $.0).

Imagine you bought EKDKQ in 1992 and held it until today. Roughly $40 a share in 1992, you would have earned $22.22 in dividends (according to shareholder.com) but lost about $40 a share in value. That’s a loss of about $17-18 a share over 20 years! On top of that, $40 a share (used in example) was a relatively average price, it could have been much worse.

Lesson here, is that is it okay to buy no dividend stocks and that buying stocks with only dividends in mind is reckless investing.

Symbol JPM

I am currently long on JP Morgan Chase & Co. ( Symbol JPM ). You might be taken back by that statement with all of the recent bad press related to large losses from bad investments, but does anyone even look at fundamentals anymore? JP Morgan is making hand over fist money and has a P/E of about 7.5!

Absolutely insane that this stock has performed so poorly, regardless of the bad media. In fact, despite the investment loss, JP Morgan is still expected to report a giant gain for the second quarter (most likely over $3 billion). Furthermore, the last 4 years of performance (before taxes): +$26.74B, +24.85B, +16.06B, +2.77B. That is $70 billion dollars (before tax) from 2008 until the end of 2011. Market Cap of JPM, only $129.58 billion.

Now of course you have to decide which factors and heavily you weight those factors when deciding on investment decisions (disclaimer: consult a professional), but how much sweeter does this stock get?

  • P/E of 7.5
  • Making money hand over fist, even AFTER massive mistakes
  • Has a dividend
  • Market Cap is drastically undervalued compared to 4 year performance (in my opinion)
  • Heavily institutionally owned stock (74%).
  • Has flirted with the $40+ range numerous times within the last 2.5 years. Note: $40 would be a +17.5% gain from today’s closing price.

If you are looking for a long-term stock, I think JP Morgan and Co. ( Symbol JPM ) should probably be in the running for a portion of your portfolio. Honestly I wouldn’t be surprised if this stock hit $45-50 by the end of 2012.

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