DePaul Bull & Bear

8x8 LOOKS LIKE A WINNER?

2011-06-29T18:31:00.000-07:00

8x8 Inc. (EGHT) has been firing on all cylinders the past few months. Check out "8x8 Looks Like a Winner But I'm Waiting for a Pullback" at Seeking Alpha.

GAP: NICE BUYING OPPORTUNITY?

2011-06-27T21:58:00.000-07:00

I love Gap (GPS). The clothes are great and they cater to many different consumers. Shares are down more than 20% the past couple of months and it appears a great buying opportunity has arose. Read "Gap: Nice Buying Opportunity" at Seeking Alpha.

THE EURO'S FUTURE IS CHINA'S TOO

Chinese premier Wen Jiabao is in Europe this week. China still exports the largest amount of goods to Europe and the fate of the Euro is being watched closely by the Chinese. Read more about it here, via The Telegraph.

BLAGOJEVICH CONVICTED

Former Illinois governor Rod Blagojevich was convicted of corruption charges on Monday. Read more about it here, via The Seattle Times.

METALICO: TURNING SCRAP INTO PROFIT

2011-06-27T21:54:00.000-07:00

Metalico (MEA) looks to be an interesting niche play in the scrap metal sector. Read "Metalico: Turning Scrap Into Profit" at Seeking Alpha.

CAMECO CORPORATION: URANIUM DEMAND STILL EXISTS?

2011-06-20T21:33:00.000-07:00

The 2011 Japanese earthquake and tsunami, coupled with Fukishima Daiichi Nuclear Power Plant meltdown triggered a massive sell off on uranium stocks. Uranium stocks saw a massive sell off as many questioned whether uranium demand would ever recover.

To be perfectly honest, uranium demand is going nowhere soon and there still remains a large demand for uranium. Which brings us to our stock of the day: Cameco Corporation.

First some basics. Cameco Corporation (CCJ) is a company engaged in the exploration, mining, refining and conversion of uranium for energy with a market capitalization of $9.16 billion. The stock has a 52 week high of $44.81 and a 52 week low of $20.70. The stock was trading at $37.38 on March 11th, before the earthquake, and fell to $28.10 on Marth 17th as Fukishima became world news.

Let's take a look at some of the pros and cons of Cameco before we can consider it a buy:

Pros: (via Q1 2011)
- P/E of 19.56.
- Debt-equity-ration of .22.
- 40.8% gross profit margins.
- 1.7% dividend yield.
- Net operating cash flow of $266 million, up 99% yoy.
- 5 year dividend growth rate of 28%.

Cons:
- Net income fell 35.8% yoy.
- Revenue fell 6% yoy.
- Stagnant EPS growth.
- Growing pessimism/skepticism for future uranium demand due to Fukishima.

Conclusion:
Cameco is the second largest uranium producer in the world and they currently produce 16% of the world's supply of uranium. Worldwide uranium energy demand remains strong and it's estimated China will increase uranium demand seven-fold by 2020. The earthquake and tsunami in Japan will not stop the demand for uranium in the future; in the next 8-10 years uranium demand is estimated to be 400 million pounds and currently only 110 million pounds of uranium is produced.

The company had a rough quarter and the events in Japan only compounded the situation. Net income and revenue both fell compared to the previous year's quarter. Yet Cameco still looks like an attractive option. It sports a 1.7% yield and has a P/E of 19.5. It also has very little debt on the books and some of the highest profit margins among its peers.

While many uranium stocks are in the process of mining or have not even begun mining, Cameco has several sites that produce large quantities of uranium. They are also improving their sites to increase production to meet the growing demand in the future; Cameco has a goal of doubling uranium production within the next 8 years.

To conclude, shares of Cameco look like they are a real bargain right now. The company has solid infrastructure in place and they produce much of the world's uranium. As demand continues to grow, Cameco also looks poised to benefit in the future from increased demand. The events in Japan may have caused many to reevaluate the uranium industry, yet the industry is not going away for the foreseeable future. Expect Cameco to rise from its current slump and do well in the future.

RESCUE LOAN TO GREECE DELAYED

2011-06-19T21:06:00.000-07:00

European governments failed to sign off with a rescue plan needed to keep Greece from defaulting at the end of the month. Greece must pass spending cuts of nearly 28 Billion Euros by the end of the month to allow for the next 12 Billion Euro bailout package. Read more about it here and here, via The Chicago Sun Times and Bloomberg.

GOOGLE: TIME TO BUY?

2011-06-19T20:38:00.000-07:00

Everyone knows about Google. Google is the leading internet search provider in the world with a market capitalization of $156 Billion. It is almost natural to open up a browser and use Google to search for what you're looking for. If not, then you probably use Gmail to check your email or Google Finance to check the markets.

Recently Google (GOOG) shares have been in a prolong slump. Since January 19th when shares hit $640, the stock has lost 24% and settled at $485 at Friday's closing bell. Shares have not seen these prices since September of 2010.

Lets take a look if Google is a screaming buy, a hold or a sell:

Pros: (Q1 2011)
- P/E of 18.8; P/E of 12 for estimated 2011 EPS.
- $37 Billion in cash on balance, approximately $114/share.
- $7 Billion FCF.
- PEG of .75.
- Projected earnings growth of 15% in 2011 and 2012.
- Robust growth with the Android operating system.
- International revenue up $6.4 Billion
- Continued investment in R&D.
- Revenue growth of 27% yoy, 2% qoq.

Cons:
- Uncertainty with Larry Page as CEO.
- Google has gone on a hiring spree; lower margins and more expenditures.
- Increased competition from Apple, Microsoft, Yahoo and Baidu.
- Slower growth than in the past (15% compared to 30% in past).
- Worries Google is branching out into too many sectors.

Conclusion:
Google is still Google and it's still the king of online search engines. The company appears to be severely undervalued relative to its competitors. As a tech stock, Google has a P/E of 18.8 and a PEG of .75. Google appears to be undervalued relative to other tech competitors and is priced like it is a stable giant with no more room for growth.

Yet there is much more room for growth. Google has nearly $7 Billion in free cash flow and they have invested heavily in research, development and new hiring. They have enough cash to swallow up innovative new tech companies and to continue with further research. International revenue has also increased and now 53% of the company's revenues come from non-U.S. markets. Current estimates show that Google will continue to grow at 15% in 2011 and 2012, growth rates that are nothing to be down on.

Google's Android OS looks to be giving Apple a run for its money. Samsung's new phones will operate with Android and demand will continue to rise. With such large amounts of FCF, the company is able - and willing - to continue to spend on R&D for the future.

Many investors are also hesitant about the direction Larry Page is taking the company. Page is no slouch, he is investing heavily in research and development to position Google for the future. The company has continued to branch out in many sectors and they still have many of the most innovative individuals in the tech industry.

To conclude, Google trading at $485 appears to be a steal. The company has garnered a lot of uncertainty the past few months due to a new CEO and branching out into other sectors, yet the company is setting itself up for the future. It was not long ago the company was trading well north of $600 and the current slump has presented a clear buying opportunity.

RIM PLUMMETS 21%

2011-06-17T11:14:00.000-07:00

Ouch.. Research in Motion (RIM) released quarterly earnings after the closing bell on Thursday. After lowering profit forecasts seven weeks ago, the company fell short of lowered analyst expectations. To date RIM is down nearly 54%. Let's recap their earnings below and see whether or not a buying opportunity arose:

- Q1 revenue of $4.9Billion, compared with $4.24Billion in previous year's quarter

- Q1 profit fell 9.6% to $695Million or $1.33 per share, down from $769 Million and $1.38 per share in previous quarter

- Current fiscal year EPS estimates of $5.25-6.00 a share, lower from $7.50

- Shipped 13.2 Million Blackberries

- Lowered estimates for Q2 EPS to $.75-1.05

- Shipped 500,000 Playbooks, up from 336,000 expected

- Overseas revenue up 67%.

The numbers are brutal to say the least. The Playbook, though numbers exceeded analyst expectations, seemed rushed and unready for market. The number of Blackberries shipped was less than expected and only further showed the shrinking market share of smart phones RIM has. Management stated they would lay off employees, yet they continued to remain optimistic for the future.

Management also remained optimistic for 2012 when they move their current software to their new QNX system. It remains to be seen if the QNX will be successful and 2012 is quite a ways away to have anything more than a guesstimate when talking about its success.

As much as Wall Street has beaten down RIM and Blackberries, a bottom may be forming in the near future. There has been nearly seven weeks of the share sliding since management lowered forecasts and much of the slide was in anticipation of Thursday's earnings. Share have slid more than 20% today. Investors were aware of lower earnings and the shorts have been out in full force that past few weeks riding the stock down to where it is now. Now a buying opportunity has arose; let's take a look why.

Earnings where down across the board and the company is moving through a rough transition. However, the company looks severely undervalued at this point. The P/E is 4.4 and the company looks oversold with a three month RSI of 14. With sales of $4.9 Billion in Q1 and higher than average profit margins for the industry, to company still remains strong financially. Management has also stated that they will continue to buy back shares. The Playbook looks like a flop, but growth in overseas markets grew at a robust rate. The company still remains strong fundamentally and though they may never regain their past market share, they will remain a viable player in the industry.

The company no longer appears to be in the $60's anymore, but analysts expectations in the low $40's appear to be more than realistic. A buying opportunity has arose and the risk/reward appears to be more reward and less and less risk.

UPDATES FOR 6/16

2011-06-16T09:13:00.000-07:00

WEINER TO RESIGN

Rep. Anthony Weiner has announced he will resign today. A press conference is scheduled at 2 P.M. ET. Read more about it here, via FOX News.

RUSSIA AND CHINA STRENGTHEN ENERGY RELATIONSHIP

Russia and China agree to strengthen bilateral trade to $200Billion by 2020. Russia and China to for "long-term strategic energy relationship." Read more about it here, via The Hindu.

RIMM TO REPORT AFTER THE BELL

RIMM will report earning after the bell Thursday. Analysts expect EPS of $1.32; shares are down nearly 40% year to date. Read more about it here, via Reuters.

UPGRADES/DOWNGRADES

PBR: AS TASTY AS BEER?

2011-06-15T21:09:00.000-07:00

I like PBR. It's cheap and it makes me feel good when I see it in front of me. Just for clarification, I am talking about Petroleo Brasileiro and not Pabst Blue Ribbon! Now lets take a look at the stock below.

Petroleo Brasileiro (PBR) is an oil and gas company with operations in Brazil and a market cap of $214Billion. The company operates in five different segments; exploration, production and refining, transportation, gas/energy and international. From the exploration and refining segments, the PBR operates approximately 100 platforms and 16 refineries.

Before we can consider PBR a buy, lets look at some of the pros and cons first:

Pros:
- P/E of 8.4.
- Holds the potential to become major oil exporter (China, other BRICS).
- Price/Book ratio of 1.12.
- 42% rise in Q1 net profit from previous year quarter.
- 9% rise in Q1 revenue from previous year quarter.
- Favorable treatment from Brazilian government.

Cons:
- Increasing regulations on deepwater drilling.
- Growing debt to equity ratio.
- Government interference and a movement towards ethanol use.
- Low dividend yield.
- Unstable inflation rates in Brazil.

Conclusion:
PBR appears undervalued and is currently trading at relatively cheap levels. With a P/E ratio of 8.4 and strong growth rates, the company looks poised to do well in the future. With oil demand expected to rise, PBR is positioned itself to become a major oil exporter to countries like China. Lastly, the company receives favorable preferential treatment from the government (which takes a hands on approach to the industry) which bodes well with long term aspects.

There are a few concerns that must be mentioned. The previously stated high level of government intervention can be causes for concern in the future. High levels of state-controlled exploration and regulation may hinder PBR in the future, however these concerns have not yet been that detrimental. The company must also raise large amounts of financial capital ($224Billion), much of it done through stock offerings, that is increasing the debt-equity ratio percentages. Lastly, the company does not pay out a particularly stunning dividend, and it does not look like it looks poised to do so in the near future.

To conclude, PBR looks to be the main beneficiary of a growing Brazilian economy and a rising demand for oil. The company is undervalued with a P/E that is less than 10. Growth as remained strong and the company also looks to benefit from growing energy needs in China. The 'hands on' approach by the Brazilian government may prove to be a hindrance in the future and the dividend is not something to brag about.

PBR is currently trading at cheap levels and remains undervalued; owning the stock looks to be a good bet for the short/long term future.

I do not own PBR and do not look to open a position in the near future.

UPDATES FOR 6/15

2011-06-15T12:39:00.000-07:00

PANDORA IPO SIMMERS OUT OF GATE

Pandora's (P) IPO today started off with a flare. Shares were as high as $26.00 before falling. Fears of this being another bubble may come to fruition. Read more about it here, via The Financial Times.

GREEK PRIME MINISTER GEORGE PAPANDREOU TO RESIGN?

Greek Prime Minister George Papandreou has offered to resign amid growing unrest in Greece. Papandreou has to increase support for new austerity measures. Read more about it here, via The Los Angeles Times.

THOUSANDS PROTEST IN ATHENS

Thousands of protesters and strikers clash with police in Athens over new austerity measures and growing unrest in a general strike. Read more about it here, via BBC News.

UPGRADES/DOWNGRADES

STD: BANCO SANTANDER

2011-06-15T12:21:00.000-07:00

The European banking sector has been especially beaten up over the past months. However, one bank has stood out above all else and has continued to grow at a feverish pace.

Banco Santander (STD) is the stock we will be examining today. Founded in 1857 with a market cap of $89 Billion, STD is the largest bank in the Euro-zone by market capitalization. The bank offers a wide array of financial services in Europe, Latin America and the United Kingdom.

Before we can consider this stock a buy, lets take a look at some of the pros and cons first:

Pros:
- Currently yields a 9.1% dividend.
- P/E of 7.8.
- Highly diversified; nearly 60% of profits come from Latin America.
- Latin American profit increased 26.8% yoy.
- 10% decrease in loan loss provisions.
- Conservative banking practices. Fiscally responsible.

Cons:
- Europe profit decreased 14.1% yoy and U.K. profit decreased 2% yoy.
- Operating expenses up 13.2% in recent quarter.
- Unrest and economic stagnation in Spain.
- Dragged down by sinking PIGS debt crisis.

Conclusion:
Amid all of the growing uncertainty in the Euro-zone, STD has continued to grow and strengthen its prospects for the future. The bank has diversified its holdings and is experiencing robust growth within Latin America. It remains poised to benefit from continued growth in Latin America and in Europe when the debt crisis is resolved.

There are certain areas that investors must be cautious of however. Growth in continental Europe and the United Kingdom is decreasing/stagnated and that poses serious drawbacks when evaluating future growth prospects. The bank has remained profitable, yet it is also prone to setbacks (in the short term) from what is happening in Greece and Portugal.

To conclude, STD looks poised to benefit from an eventual economic upswing within the Euro-zone. The bank pays a large dividend of 9.1% that should make owning this stock much sweeter. It trades for very cheap multiples with a P/E of less than 8. STD remains a good stock to own in the present because of its dividend yield and in the future because of its international diversification in Latin America and Europe.

I do not own any positions in STD but may initiate one in the near future.

UPDATES FOR 6/14

2011-06-14T10:00:00.000-07:00

APPLE TO PAY NOKIA IN PATENT CASE

Apple will pay Nokia a one time settlement and future royalties after losing patent case. Estimates indicated Nokia may receive up to 800Million Euros up front and 8 Euros in royalties for every iPhone sold. Read more about it here, via The Guardian.

NOK: VALUE TRAP?

2011-06-14T09:44:00.000-07:00

Anyone who has followed to market for the past few months have seen the demise of Nokia (NOK) and Research in Motion (RIMM) in the wake of growing competition from Android and Apple. To date Nokia is down nearly 40% and is sitting at a 13 year low! The task of trying to find a bottom for Nokia is an extremely difficult task to accomplish and can be similar to catching a falling knife.

NOK does still offer a few perks that warrants a second look before the stock is thrown into the dumpster. Let's take a look at some of the pros and cons before we throw Nokia in the trash:

Pros:
- 9.3% annual yield at current levels.
- P/E ration of 8.5.
- Price/Sales of .41.
- $16 Billion held in cash ($10 Billion in FCF)
- Largest telephone maker in the world.
- Technical indicators show it's oversold; 3 month RSI less than 8.
- FCF cost of 6

Cons:
- Increased competition in the smart phone market from AAPL and GOOG Androids.
- Losing significant market share; down almost 13% since 2007.
- Shrinking net margins.
- Decreasing revenue growth.

Conclusion:
The sentiment around NOK remains quite bearish from analysts and investors alike. The CEO, Stephen Elop, hasn't done much to quell any of the growing skepticism either. The company is experiencing shrinkage all across the board with decreasing revenue growth, net margins and market share. The fierce competition from smartphone giants AAPL and GOOG will continue to eat into market share in the near future.

But the stock isn't necessarily dead in the water yet. The company pays a hefty dividend that is north of 9% at current prices. It trades for cheap multiples and still holds large amounts of cash in its coffers. Internationally, NOK might be losing market share to AAPL and GOOG in the smart phone market, but it still remains a significant player in providing phones to developing countries where not everyone there can afford or need a smartphone. The strategic partnership with Microsoft has also not proven to be extraordinarily successful to date. It remains to be seen whether the company can whether the storm.

Recent speculation has made NOK a buy-out candidate; if NOK is not bought out outright then it remains a valuable company to be pieced off at premium prices. None of the speculation has proven to be true, but investors can expect to be rewarded handsomely if any of the rumors do come to fruition.

Nokia still remains a bullish candidate. The Finnish company has been able to grown into an international giant over the past few decades while operating in the harsh tundra of Finland. If their strategic partnership with Microsoft proves to be a success and they are able to right the ship, expect to be rewarded substantially if you buy shares of Nokia at these prices. The dividend remains hefty - and has grown annually over time - and that should be an added bonus to the stock. NOK remains a buy and should be gobbled up at these prices.

I remain long and bullish on NOK.

UPDATES FOR 6/13

2011-06-13T21:33:00.000-07:00

BACHMANN JOINS THE RACE

Michelle Bachmann confirms she will run for Presidency. She is an interesting candidate but on larger question still remains - will Rick Perry join? Read more about Bachmann here, via CNN.

IMF TO CHOOSE BETWEEN CARSTENS AND LAGARDE

The IMF has narrowed the candidates to two. Either Augustin Carstens of Mexico and Christine Lagarde of France will be the next managing director. Read more about it here, via The Wall Street Journal.

UPGRADES/DOWNGRADES

S&P DOWNGRADES GREECE

S&P downgraded Greece once again. Greece now holds the distinction of being the lowest rated country in the world. Read more about it here, via The Economic Times.

LESSONS LEARNED FROM URUGUAY

2011-06-12T18:48:00.000-07:00

An interesting article on how the Uruguayan debt crisis is similar Greece's debt crisis via Reuters.

URBN: IS IT TIME TO SELL?

2011-06-12T13:37:00.000-07:00

As a youngster growing up in San Francisco, Urban Outfitters (URBN) was a staple of many people's wardrobes. The clothes were hip, relatively cheaper than designer items and girls who shopped there were quite pretty.

Urban Outfitters (URBN) is a retail/apparel company targeted towards young adults and free spirited people. The company operates four different retail segments: Urban Outfitters with 178 stores, Anthropologie with 156 stores, 47 Free People stores and its online retail segment.

The stock is currently at its 52 week low and look like it is trading at a relative discount compared to future growth. Let's examine some of the pros and cons before we can consider URBN a real buy:

Pros:
- 52 week low (some may consider this a con)
- P/E 19
- Price/Sales 2.03x
- $310Million in FCF and zero long term debt
- Quick turnover of merchandise within stores (approximately two weeks)

Cons:
- Lack of a presence in growing markets (in particular Asia) and the company seems fine with North American/European targeting
- Three consecutive quarters of decreasing gross profit margins
- Rising commodity prices (in particular cotton)
- Increased competition from other retail stores

Conclusion:
If you hold URBN in your portfolio, it does not look like you should consider selling it quite yet. Holding onto the stock appears to be a smart move. The recent six week sell off, poor earnings from other retailers and rising commodity prices in the market has brought down many stocks, including URBN.

The recent market downside does not mean that the company does not face significant challenges going forward. Competition will remain strong from other companies such as Guess (GES), Gap (GPS) and H&M. Rising commodity prices will also remain a challenge; URBN however remains in a position to overcome higher prices by keeping cotton reliance less than 50% in their clothing. Presumably the biggest challenge the company faces is a dilemma that management has "lost" its vision of what's "in", and therefore sales have taken a hit.

The retail segments within the company have also turned in mixed results. Urban Outfitters has been challenged with stagnated growth in store sales yet the retail segments Anthropologie and Free People continue to grow at much more robust rates. It remains vital to keep strong growth in the namesake store and fueling growth in Urban Outfitters remains a vital long term strategy under management.

To conclude, URBN should not be sold for the time being. The company boasts solid balance sheets with no debt and significant cash on the books. Commodity prices and competition remain challenges that the company should be able to overcome. If one were to accumulate shares now that the current price it looks to be a good hold for the year. Retail spending will increase by the holidays and URBN should once again position itself to gain a significant chunk of holiday spending. The short term outlook for URBN remains bleak, but long term expect things to improve. URBN will be given a HOLD rating until further notice.

I am considering entering into a position in URBN within the next two weeks.

UPDATES FOR 06/09

2011-06-09T06:31:00.000-07:00

The European Central Bank is not going to raise interest rates above 1.25% this month. Indications are that they will raise rates in July.

Read more about it from the New York Times here.

The Bank of England is holding interest rates at 0.5%.

BTU: IS NOW THE TIME TO BUY?

2011-06-09T06:14:00.000-07:00

How many times can you recall someone telling to you that we are going to run out of oil? That oil prices are rising due to instability in the Middle East and how often have you heard that the United States should lessen its dependence of foreign oil? I'm sure you have heard these gripes quite a bit, I have.

But I don't believe many people mention much coal. Do they? Coal currently made up 21% of U.S. energy consumption in 2010. Coal has been a part of our national pastime. Sure it's dirty, to an extent, but since 1950 coal use has continued to go up. The U.S. holds 200 years of coal reserves and 93% of coal consumption fuels electrical power. Take a look at the chart below:

Coal production and consumption in the United States continues to grow. Add in the fact that rising oil prices due to tensions abroad and fears regarding nuclear energy following Japan's earthquake have made coal much more desirable, we can expect coal demand to increase.

Which brings me to my highlight recommendation of the day. Peabody Energy Corporation (BTU) is the world's largest coal producing corporation with a market cap of $14.96Billion and it offers a wide array of pros that surely outweigh any cons in determining whether this stock is a screaming buy.

Lets examine some pros and cons before delving into any analysis:

Pros:
- They supply almost 2% of the world's energy needs.
- The company does not solely provide coal to the U.S., they provide coal from their mines in Australia to China and India.
- Decent P/E of 19.
- .60% annual dividend.
- BTU has met/beat earnings for the past 4 quarters.
- Despite the push for clean energy, it remains expensive, unprofitable and highly government subsidized. Coal is the cheapest form of energy in the U.S., at nearly 1/3 the price of natural gas.

Cons:
- Fears of slower growth in China and a push for cleaner forms of energy.
- Environmental damage in regards to mining practices.
- Coal is dirty and harmful to the air when burned.
- Strong push within the United States for clean energy use.

Conclusion:
BTU remains an attractive pick in today's market. It trades for a relatively cheap price and has been particularly oversold in the past few weeks. Coal is cheap and demand remains high; BTU has a large international portion that sells directly to China and India. Demand in those countries remains high, while prices remain relatively cheap.

Worries remain significant for a multitude of reasons. Environmental and mining practices have come under pressure and there is an ever growing push towards clean energy. But coal, is well coal. It remains the cheapest form of energy extracted in the U.S. and the coal lobby remains particularly strong. Clean coal technology is improving, so much so that many of the harmful emissions are filtered before they enter the air. The U.S. has also invested nearly $90Billion in clean coal technologies. The fact remains that coal remains cheaper than other forms of energy and it is becoming cleaner when used.

To conclude, I remain quite bullish on BTU. Demand for coal remains high and the company remains the largest provider of coal in the world. With mining operations in Australia and the United States, BTU has been able to fill market needs in SE Asia and the United States. The recent drop in the economy has provided a nice buying opportunity to enter into a position in BTU. A nice entry point of $55 could offer significant upside in the mid-term future. It was not long ago BTU was hovering in the $70s and that target remains well within reach. With a long term view, BTU will continue to face significant pressure going forward, but international sales will be able to offset some of the troubles and the long term demand outlook for coal still remains substantial.

For further information before investing in BTU, check out:

Peabody Energy

Barry Schneer: "Don't say no to coal"

U.S. Energy Information Administration: What is the role of coal in the United States?

I am considering entering into a position in BTU in the near term future and I remain bullish on the stock.

What to watch for:

2011-06-08T09:10:00.000-07:00

If you frequent this blog then you are well aware more volatility in the market could be one the horizon. With Obama and Merkel on the same page, could the Euro zone face even rough times ahead?

With rising tensions in Syria and Yemen, how much higher can we expect oil to rise? $105? Is OPEC's power starting to wane? And most importantly, will airline stocks become a buying opportunity?

Feel free to leave comments below!

(Images via Reuters)

NBG: For the faint of heart?

2011-06-08T07:01:00.000-07:00

Is National Bank of Greece (NBG) the perfect stock? Does NBG trade for ridiculously cheap multiples, have a history of growth and more importantly, potential for exponential growth? Yes.

If you're still reading I can assume now you probably have a little hair on your chest, are probably a little adventurous and don't mind losing significant sleep at night.

Before I make any recommendations, lets look at some of the pros and cons with this pick:

Pros: (Q1 2011)
- P/E of 12
- NBG is the largest commercial bank in Greece. Founded in 1841, the bank has been able to withstand WWI, the Nazis in WWII and the Greek Civil War. The ECB tying the hands of Greek macro-economic policy cannot be worse than the Nazis, right?
- Finansbank, NBS's Turkish arm, grew at 151million Euros, +28% yoy.
- Core earnings within Greece were up 238million Euros.
- Operating costs down 8% yoy.
- For the past few months the bank has continually decreased borrowing from the ECB.

Cons:
- The government's austerity measures and actions continue to hamper growth.
- The bank holds a lot of Greek debt (not as much as some other banks) that is more junk than risk.
- It is Greece, don't expect a smooth ride owning this stock.
- Total banking revenue down 3% yoy.

Conclusion:

NBG is not normally for the risk-adverse investor, but the chances for profit far outweigh the risks. The bank's Turkish banking branch, Finansbank, is growing as a quite robust rate. If Greece were to restructure its debt, NBG holds a growing valuable asset in Finansbank that can be sold off, and should ease the fears of some investors. NBG is also priced very cheaply; the forward P/E hovers around 7 with the P/E at 12. A potential takeover/merger of Greek Alpha Bank (ALBKY) appears to be in the horizon and would strengthen NBG and offer shareholders a chance for substantial gains.

Much of the fears hover around the fact that Greece could default or restructure its debt due to unsuccessful austerity measures and contracting GDP growth. However, default is out of the question. Any default would send world markets into a tailspin that could create another 2008 scenario. Any restructuring would also hurt holders of Greek debt, in particular German and French banks.

As it sits right now, the stock experiences continuous downgrades and gets beaten down in the news on a daily basis. The negatives (except for absolute default or restructuring) are baked into the price of the stock; expecting the stock to gain significantly on any positive news is not out of the question.

For my two cents, I expect the stock to trade in a tight range for the time being. A nice entry point would be around $1.35. For the time being, one can expect the stock to trade in a fairly confined 10-12% range either way on any news that comes out of Europe. NBG has managed to stay profitable in arguably the worst economic times Greece has ever experienced and Finansbank is looking more and more like a great rainy day asset. The bank also continues to diversify and has many operations overseas in Turkey and SE Europe.

Once the whole debt crisis gets resolved (and much of that will have to do with making the Greek economy competitive and not on bailouts) and a real solution emerges, then the stock should see a strong rise. The stock has risen significantly on speculation of future positive news; actual positive news could send the stock higher permanently. A long term price target for this stock can easily, and more than realistically, be valued at $8. In the short term, a $2-4 target price is more than achievable if a resolution is produced or more funding is given to Greece. Buying this stock, forgetting about it and never looking at it could produce massive earnings in the future.

I remain bullish and long on NBG.

Are shipping stocks a good buy?

2011-06-07T17:59:00.000-07:00

It's seems that for the past few months I have been watching shipping stocks slide with seemingly no end in sight. I've watched PRGN, DRYS, DSX, GNK and SB all continue to slide. Considering the majority of them are all trading with a P/E of >9, some of them look really cheap. But it seems that they keep getting cheaper, and cheaper. It's a hard trick to catch a falling knife.

Which brings me to to SSW. SSW offers probably the safest protection in the shipping industry. It has managed to avoid the profit decreases the others have felt because it locks up contracts for its ships early. It pays a nice dividend of 4.5% and has a relatively low beta average of .92. The company has consistently grown sales for the past 4 quarters, at a time when many shipping stocks were seeing decreasing profits. Expect SSW to outperform the greater maritime shipping market in the near future.

Generational Awakening?

2011-06-07T13:04:00.000-07:00

Just some pictures to mull over. Most students at my school gripe about bleak job prospects when we graduate. Imagine unemployment hovering at nearly 40% in Spain and Greece. I suspect my classmates would be out protesting too if our prospects were that bad. Oh wait ours are quite bad, for the PIGS it's downright terrible.

Take a look at the Der Spiegel article below. It will be interesting how the protests play out this summer. It is easier to protest in the summer than in the winter after all.

Read the article here.

Hey! Welcome to my blog!

2011-06-07T12:47:00.000-07:00

Hey! Welcome to my blog. Every few days I will post insightful information (at least insightful to me) about current event, politics and market changes that can affect your portfolio! Please come back to check for yourself and see if you like!

...and every post I'll offer my two cents on a stock I think is a look.

For my first recommendation, consider GE. With the current glut we've been in the past 6 weeks, GE is trading at $18.60 with a P/E of 14.8. Considering it is a diversified pick, expect it to pick up as the overall economy picks up. GE also pays a nice dividend of 3%. If their bid for ING's ING Direct goes through, consider it another great investment they can hang their hat on. In the short term it should be trading at $20 a share with a longterm outlook for $23-24 per share.