Story-Stocks.com

Stocks and dividends

2009-01-27T21:54:00.002-06:00

In the world of common stocks there are two major ways to profit. The first is through appreciation of the price of a share of a particular stock. The second is to bank the dividends paid by a particular company. It is the second method that we are going to be talking about today.

Stocks and dividends are not a particularly difficult subject to master. A stock is share of ownership in a corporation and a dividend is a monthly, quarterly or yearly payout to owners of that corporation. Let's look at real world example.

Let's say you own 100 shares of XYZ corporation which trades at $100 a share. The XYZ corporation has a declared dividend of $1.00 a quarter (or four dollars a year). Your dividend yield for this particular position would be .04% per year. So the company would pay 4% of your investment back to you each year.

So, to continue the example, let's say that you owned 1,000 shares of XYZ. The purchase of which would cost you $100,000. After twelve months you will have received 4 dividend payments of $1,000. At the end of this period you'd have 4,000 or .04% of your initial investment.

Seeing as you can bank .04% in a risk free bank account you may be unimpressed by this return. However, one can profit twice when playing the stocks and dividends game. You will receive 4% annually in the form of dividend checks while also participating in any gains in the underlying security.

So, though this may be hard to fathom after the year we have had, let's say that your shares of XYZ appreciate from $100 to $110 in a given year. In this circumstance you will gain both the $10 per share price appreciation (assuming you locked in this gain by selling) as well as the $4 per share dividend check. This would result in your total investment after one being worth approximately $114,000 resulting in a gain of 14%.

Naturally, 14% in a single year amounts to a phenomenal investment. And in these times investors in stocks should pay extra heed to the dividend. For instance, let's look at a current example. General Electric currently yields $1.24 annually on a share price of 13.06. This amounts to an annual yield of 10.3%. Very appealing, no?

However, in this economic market it would not be shocking to see a corporation like GE cut its dividend. Regardless, it is possible (or even likely) that GE will maintain it's dividend. Therefore, one can profit approximately 10% annually by buying into General Electric at these prices.

Is there some risk? Absolutely. However, a staid, economic giant like GE does not cut its dividend without fear of massive blowback. And at these prices you can count on a 10% return going forward plus gaining any capital gains from the gains in the share price.

So, in closing, consider stocks and dividends not just stocks. There are two ways to profit in the market and share appreciation, while certainly the sexier alternative, is not the only game in town.

Characteristics of a Winning Investment, Part II

2008-02-14T03:42:00.008-06:00

Generally the stocks I single out for investigation on this blog share many traits. In an ongoing series I outline the qualifications of these story-stocks.

When I invest in a particular stock, I'm really investing in the people employed by the corportation. While I do not know them generally, it's easy enough for me to find out certain things about them. The first thing I want to know is whether they believe in themselves. This, I can ascertain by investigating the level of insider ownership.

Insider ownership is represented by the percentage of outstanding shares in a public company owned by the directors, managers, officers, or others who have key 'insider' knowledge of the operations of said company.

In a general sense I'm looking for corporations whose insiders own at least 10% of the operation. This indicates that the interests of those in charge of the outfit will be compatible with those of the shareholders. Namely, both hold a significant financial interest in the performance of the stock.

It's not suprising that many of the wealthiest men in America, including the top dog Bill Gates, have achieved their enormous riches by partaking directly in the exponential growth of the world-changing enterprises they oversee.

If one owns 857,499,336 shares of Microsoft (MSFT), then one is Bill Gates and he should be too busy to read this blog.

But, joking aside, it's clearly evident how Mr. Gates, and others in his position, benefit by appealing to investors (especially of the institutional variety) and taking actions that best serve the stock price over the long run.

Therefore I consider it a net positive for a company's insiders to hold a significant stake in the outfit. And when insiders purchase company stock on the open market, it's an even more bullish sign. For insiders may sell for any one of a million reasons, maybe their child is off to college or perhaps they're buying a new home. But insiders only buy for one reason: They think the stock, and very often with good reason, is going to go higher.

While not an ironclad rule, the stocks you'll see profiled on story-stocks generally possess a high percentage of ownership by insiders. It isn't a requirement per se, but it's absolutely a good rule of thumb.

Dislosure: I do not own shares in any of the companies mentioned.

Stock Market Riches on $3 a Day?

2008-02-12T11:27:00.008-06:00

Let us imagine that you're just starting out. Maybe you're working a 9-to-5 and your pocketbook isn't exactly overflowing with disposable investment income. Still you'd like to build up some measure of a nest egg for the future. Happily, I can report, you are not out of luck.

The first step requires that you take inventory of your financial situation. Full time wage earners in the United States earn a minium wage of $5.35 an hour. Hopefully you're doing a little better. But let's say you're not. How can a person earning $42.80 for each eight hour shift save anything with which to invest.

Admittedly, it won't be easy. But imagine you could place just $3.00 aside each day. That would add up to $1095.00 a year. Obviously, we are beginning to arrive somewhere.

Saving $3.00 a day might take a little sacrifice. Perhaps you could do without your morning latte, substituting a cup of Folger's at home. Such a small, and in the grand scheme, insignificant sacrifice can pay big dividends down the road. David Bach calls this the latte factor. (He's even trademarked the name.)

So you're doing without the latte or you're washing your own car (or whatever it is) and are able to set aside $90.00 this month. Congratulations. Now you're going to need a place to sock the cash. I recommend that you set up a cybersavings account at a place like ING and reroute the cash into an interest bearing account. This is fairly easy to do. It's a point, click, and type in a few account numbers.

Setup your ING account to automatically deduct this amount monthly from the bank account in which you deposit your check. (Also, easy to do.) Next you'll need to open an account at Sharebuilder (coincidentally owned by ING). With this account you'll be able to purchase stock at $4.00 a transaction. It's a little pricier to sell, at $14.95, but since we're accumulating wealth, we're not planning on selling until we've build up quite a bit of equity.

Every four months instruct your Sharebuilder account to debit your ING account in the amount of $360. And buy some Standard & Poors depositary receipts (SPY). (NOTE: I do believe that one can earn a superior return through individual securities but, for the purpose of this article, I am recommending SPY.) The S&P has averaged an 10.43% annual return since 1926. Forty one percent of this return has come from dividends, so make certain to set your Sharebuilder account to reinvest those for you. (Sharebuilder will reinvest dividends free of charge.)

You can set all this up in about an hour. And then you just have to forget about it. The rest of the work will be done for you by market forces.

A word of warning: You won't receive 10.43% return on your money this year. That number is an average. Some years the S&P will gain 25%, some years it will lose 15%. Over time it would be reasonable to expect a return in the ballpark of the 10.43% historical return.

Let's take a look at how you'd fare over various time intervals.

After 4 months you'd have $360. One year, $1095. After two years the amount increases to $2,418.41. At the end of five years your kitty would be worth $7,275.95. Keep up the savings for another five years and you'd accumulate $18,886.23. After twenty years you'll be sitting on $70,608.50. Finally, forty years from now, when you're thinking about retirement, this one action, saving $3 a day, will have produced $586,300.39.

Not too shabby, huh? Now imagine if you could only save $5.00 a day. For further reading, I highly recommend the works of Mr. Bach.

Why Mutual Funds Fail To Beat the Market

2008-02-12T05:52:00.000-06:00

Perhaps you have heard that 75% of actively managed mutual funds will fail to keep pace with the general market over any significant period of time. Well, you heard right. With history as my guide, I can confidently proclaim that the vast majority of mutual funds will underperform the market over the next five years.

There are a number of reasons for this. Let's look at a few:

1. Mutual funds are often overdiversified.

A diversified mutual fund must hold a minimum of 20 stocks, with many funds owning over 100 or even a thousand individual securities. As you might imagine it's difficult to reap the rewards of a big winner if it represents 1% of your total assets. Furthermore, who has 100 or 1000 good investment ideas at any time. Of course that's not the only reason funds fail to outperform the market.

2. Mutual fund managers must invest even when they believe the market is overvalued.

When a mutual fund has a successful period a boatload of new money often flows into it. The fund manager is forced to put this money to work buying more shares at a considerably higher cost or initiating new positions. A fund manager often can not or will not hold a significant cash position in wait of a better opportunity.

3. Even no-load funds bear expenses for shareholders.

All mutual funds have an annual expense ratio (the average for a stock fund is 1.4%). In effect the fund must outperform its respective benchmark by the amount of its expense ratio just to meet the return of the market. For instance, a general equity fund may charge you 1.25% for the honor of managing your money. But if it does not beat the S&P by about 1.15% (the SPY carries a .08 expense ratio), you're losing money.

4. Mutual fund managers must report their holdings quarterly.

It's often been said, and I believe it's true, that no money manager ever lost his job investing in IBM. It's a simple fact of life that no one wants to look foolish. So creativity is severely lacking among this group of professionals.

Now, all of this is good news. If you're invested in actively managed domestic mutual funds, get out now. And where should one stash one's cash? In an index fund? Well, I don't believe that's the most appealing option either as $10,000 invested in the S&P 500 10 years ago would be worth just $14,800 with all dividends reinvested. That clocks in at just over a 4% return annually. Hardly anything worth writing home about.

If you have the time and the inclination, I believe you'd do best in individual stocks. You do not have to overdiversify. Your expenses are limited to trading costs ($7 a trade). You're never forced to buy. And you don't have to publish your results for the world's inspection.

So that begs the question, "What do I invest in?" Now your starting to talk my language.

Scour the web. If you're reading this blog, you've taken an important first step. But don't stop there. Check out the resources listed in the sidebars. (I think Peter Lynch's One Up on Wall Street is a great place to start.) Read the Motley Fool. Create a model portfolio on Yahoo! Finance. And save, save, save.

After all, you have the advantages. The only thing the professionals have in their corner is an element of fear. They want you to believe that you can't manage your own money, that you'll somehow lose it all. The reality of the situation is that it's likely you'll do better than they will.

Characteristics of a Winning Investment, Part I

2008-02-12T02:21:00.001-06:00

Generally the stocks I signal out for investigation on this blog share many traits. In an ongoing series I outline the qualifications of these story-stocks.

Naturally we're all looking for investments that will generate a superior return on our capital. If we're long the market, we're looking for issues that will rise at a greater rate than the market as a whole. If we're short, we search out the opposite. Let's assume that over the long term you expect the market to rise and are looking for issues that will outperform the market as measured by some benchmark like the S&P 500.

When I go stock hunting, I'm probably rather a lot like you. I look for stocks that I think can double, triple, or more over a significant period of time.

If you were to present me with a list of ticker symbols my first order of business would be to check the market capitalization of each.

A company's market cap illustrates the current value of the enterprise. For instance, a company with 100 million outstanding shares, trading at $10/share, carries a market capitalization of $1 billion.

Since I'm looking at the appreciation potential of a stock over the very long term, I prefer companies that are capitalized at less than $10 billion. There's only really one reason for this: They can go much higher. For instance, General Electric is valued at around $340 billion. It's a behemoth. Can it double or triple in value? Sure and it probably will. Do I think it's a good investment? Probably not.

As a practical matter, General Electric, at $340 billion, can only grow so much. If the stock price appreciated 10% a year it would cross the $1 trillion mark in twelve years. The company would be about as valuable as the entire nation of Ireland. If it were to grow at 20% a year, it would reach $3 trillion over the same time period. In my opinion, it's just not likely that GE can achieve a $3 trillion market cap in twelve years.

I narrow my search to companies that I believe can appreciate 20% annually, looking for corporations valued between $250 million and $10 billion. These are, by definition, smaller, more agile, and yet to fully mature. Naturally, these smaller companies can feasibly deliver 20% annual returns without straining the imagination. In twelve years a $250 million corporation, appreciating at 20% a year will achieve a market cap of $2.2 billion. A $1 billion operation would grow to $8.9 billion.

Returning to a point from above, it's perfectably reasonable to expect that GE can appreciate in price in the future. However, it will take time for an enterprise that large to double, triple, or more. It will probably take a great deal of time because it's already so large. The cat is out of the bag so to speak.

A smaller enterprise piques my attention much more. It can conceivablely grow much faster and offer greater returns over a comparably long time period. That's why the companies I profile on story-stocks.com tend to fall within that $250 million to $10 billion size range. They still hold the possibility of making a huge move in the future. Larger, less nimble operations simply can't fuel enough growth to power the share price as high.

Therefore, while General Electric may be a fantastic company, you won't see it on the frontpage of this blog any time in the near future. It is a story that, for my purposes, has already unfolded. Stay tuned for the stories that will unfold in the very near term.

JMBA: Undervalued on a P/S Basis

2008-02-08T00:04:00.000-06:00

Sometimes a confluence of events serves to provide investors with a bountiful windfall or a demoralizing defeat. Often times the same series of events will produce both effects dependent only on which side of the trade one is on. That may be what has happened in the case of Jamba Juice (JMBA).

In the past six months Jamba's stock has swooned from $8 a share in September to close yesterday at $2.76. Several factors contributed to the freefall. Last month the company reported fourth quarter and fiscal year 2007 results to the disappointment of the street. Analysts called for revenue to measure $64 million for the quarter and $327 million for the year. Jamba reported $54.5 and $317.1, respectively. The stock lost 15% in the session following the announcement.

Jamba Juice has continued to languish, shedding another 10% over the last several weeks. A downgrade, by a Wedbush Morgan analyst, and the general fears of recession which have hung over the market in early 2008 bear some of the blame. But, looking over the numbers, I've come to wonder if the street hasn't overreacted somewhat.

At these levels Jamba Juice trades at just a .5 price to sales ratio using numbers from the prior twelve months. That's downright cheap, especially for an outfit sitting on $44.5 million and carrying zero debt. And though revenues did not meet expectations, the company still delivered an 18% increase over 2006 sales.

While the current economic environment does not favor the company, the worst is already factored into the current price. In the event of a sustained recession, Jamba Juice would likely suffer. However, with $0.85 a share in the coffers, how much lower could the sale price recede?

Certainly economic conditions will improve in time. For investors with a considerable time horizon, Jamba Juice may prove an intriguing value.

Disclosure: I do not own shares in any of the companies mentioned.

iROBOT: Too obvious, too pricey

2008-02-07T01:05:00.000-06:00

Of all the stories I've come across in researching articles for this blog this might be my favorite, or at least the most fascinating. Today we'll be talking robots. Rock 'em. Sock 'em. Robots. Yup, robots!

Founded by "roboticists" from MIT, iRobot Corp. (IRBT) operates on the cutting edge of technology. iRobot's robotic offerings are targeted towards providing solutions to problems that are too "dirty, dull or dangerous" for humans to happily resolve. In the future robots may battle mankind for control of the earth, but for now they're happy enough to do our vacuuming and mopping. According to the company its robotic offerings will in time extend to a "broad array of markets such as law enforcement, homeland security, commercial cleaning, elderly care, oil services, home automation, landscaping, agriculture and construction." However, currently their products fall into two categories: military and household.

iRobot's marketing expenditures increased in the first nine months of 2007 by 50% to a little over $30 million, while R%D, obviously the key component to the company's future success, received a 19% bump to $13.1 million. Sales results somewhat disappointed the street. Total revenue increased by 16% on a year over year basis, however inventory increased by over 100% to $41 million in finished goods. The household market accounted for approximately 53% of iRobot's revenue in the nine months ending Sept. 2007 with the government and industrial market making up the remainder. This is perhaps less worrisome moving forward than it might appear. Should the purchasing power of American consumers recede, which it seems likely it will, it is possible that military spending, which increased 39% in the first nine months of '07, can sustain the company until the American consumer rebounds. (Whenever that might be.)

However, the troubling aspect lies in the valuation respective to earnings. First of all, there's no consensus on earnings at the moment. The four analysts with fourth quarter predictions are all over the map. The low estimate calls for $0.24 and the high estimate $0.53. The average, $0.42, is $0.50 higher than the loss of $0.08 that the company reported in the fourth quarter of 2006. For arguments sake, let's say that company meets the average expectation and delivers 42 cents for the quarter and a nickel for the year. That would be a pretty darn good quarter, right? Well, yes and no.

Expectations for this most extraordinary story (stock) are immense because it IS a great story. Who wouldn't want to participate in the robot boom that's sure to happen in the 21st century? Judging from the current valuation, everybody. And unfortunately, that's the problem.

Going back to our predictive fourth quarter report, let's assume that the company meets. In that instance, the multiple for the trailing twelve months, assuming a fairly static share price, checks in at 360 with the forward multiple at 58. And to achieve the forward multiple the company would have to increase earnings by 600% to arrive at the estimate. While this is achievable, the current price doesn't leave much room for price appreciation.

I am not arguing that it's not a great story because it is. It's the kind of macro-trend I like to get behind. The problem is that it's an obvious macro-trend. It's already been bid up. Like a train at the station everyone jumped on board the moment the car arrived at the platform. Where's the upside?

It's more likely, at this juncture, that several folks will need to evacuate the investment, bringing IRBT down to a more reasonable level before the train can again leave the station.

Disclosure: I do not own shares in any of the companies mentioned.

infoUSA: Scaring the Greed Right Outta My Hair

2008-02-05T23:16:00.000-06:00

It sometimes takes courage to buy when the faint of heart are fleeing. In investing, like in life, cliches abound that command us to go against the grain and be greedy when others are fearful. However, equally important are the words of Kenny Rogers who advised that one ought to know when to hold 'em, and know when to fold 'em. These are the thoughts pulsing through my brain at the moment as I relfect upon one infoUSA (IUSA).

The company, which operates salesgenie.com and peddles various marketing lists, elicits in me the great, dichotomous emotions of investing: greed and fear. First, a quick digression. I came by infoUSA while reading a recap of this year's slate of SuperBowl ads. For the second consecutive year, infoUSA ran ads for salesgenie.com that were universally panned as unfunny and somewhat more selectively panned as racist. I watched and I remember the ads well. They were fairly terrible especially by SuperBowl standards. I confess, this interested me. If the company minted money selling their various marketing wares, I could barely care if the ads were atrocious. And, actually, it occured to me that the ads in question were so bad they were in fact remarkably memorable. Since I know next to nothing about sales leads I had to check the story from the grassroots up. Some of what I found excited me. other tidbits terrified me.

The company isn't quite minting money, but it's doing fairly well. infoUSA registered approximately $688 million in sales in 2007 versus $435 million in 2006. So far so good. Furthermore, the company declared a quarterly dividend of $0.35/share in January, good for a 4% yield. Most interesting was the fact that the company trades at a p/s ratio of just .75 while growing profits at about 14% year over year. Plus the cash/debt situation is sterling. I was intrigued. This things is just too cheap, I thought. And I started to get a little greedy. Then I stumbled upon some other news.

I can't say I was one hundred percent suprised to learn that management might not be super shareholder-friendly. Call me prejudiced, but there is something a little off-putting about a company that sells sales leads and marketing lists, I guess. But I digress. Further research indicated that Chairman and CEO Vin Gupta operated a travesty of an annual meeting in the summer of 2007 and (in addition to off-color SuperBowl ads) seems to enjoy floating company cash to hobnob with the who's who of American politics. The company, the more I researched, seemed to ooze sleeziness.

And in crept the fear. These guys can't be trusted with my money, I thought. And, as quickly as the thought had come to me, I decided I'd put infoUSA down for the time being. Perhaps, if management can promote a sense of competency, I will review this case in the near future.

Let's Get Digital

2008-02-02T14:23:00.000-06:00

How often does a company with $160 million in debt and nearly $17 million in losses in fiscal year 2006 capture my attention? Rather infrequently I must confess. However, the IMAX corportation has achieved the status of an exemption. IMAX controls a niche in the specialty exhibition business, and they may finally be leveraging that status into prolonged profitability and growth.

In December, IMAX announced a deal with AMC Entertainment to install 100 digital projection systems in theatres in 33 American markets. In July of 2008 the company will roll out the first 50 units. In January they followed this pact with the announcement of 12 more screens in China and the Phillipines. This deal increases the IMAX footprint by nearly 40%. And certainly caught my attention. But as I thought about the IMAX story further I came to a couple of conclusions.

For some time the motion picture industry has been struggling to attract viewers to theatres. Over time, and you can really go back decades, film attendance has been trending downward. There's perhaps a myriad of reasons for this from competition from television and the internet to increasing sophistication of in home entertainment systems. However, IMAX, by the nature of 40 by 75 foot screens, provides an experience that can not be replicated in the home. It provides a unique experience for the consumer and it's larger-life-life nature compliments the blockbuster film, both live action and animation. Evidently, moviegoers agree.

IMAX recently announced that box office receipts for 2007 topped $145 million, up from $8 million just five years before. Hollywood studios are increasingly incorporating IMAX exhibition into their broader release plans for their largest, most commercial offerings. Five of the ten highest grossing motion pictures of 2007 were also released in the IMAX format, with up to 13% of the total box office originating from IMAX exhibition. This seems likely to continue as IMAX continues to expand operations worldwide.

Disclosure: I do not own shares in any company mentioned.

It's a Land Grab

2008-02-01T07:15:00.000-06:00

I subscribed to a newsletter from the Motley Fool not too long ago and received a copy of their Stocks 2007 publication. One of the companies highlighted, Marchex, purchased more than 100,000 domain names in 2006 for over $150 million. After this purchase, the company owned well over 200,000 unique URLs on the this world wide web.

Well, this got me to thinking, as there are only so many usable configurations of letters and numbers that might be suitable for such a thing. I wondered, how much can a portfolio of 200,000 domains be worth?

We'll get to that in a moment. For the time being, Marchex has parked the vast majority of their sites and littered them with some pay-per-click ads. To be sure they're not the most appealing destinations. But so what. They have 200,000 of them. Try lasvegasvacations.com or airbag.com to get an idea.

So, as is rather a lot like me, I wondered further: If Marchex paid $155 million for about 100,000 URLs and their current inventory numbers around 200,000 is it fair to reasonably infer that the entire portfolio could be currently valued at around $350 million? Seems reasonable. And the company holds $37 million in cash in its deposits. And the market cap of the entire enterprise? $325 Million.

So the land (so to speak) is worth $350 million and the $35 million in cash is good for, well, $35 million but the company as a whole is valued at $325 million? Plus there's a 1% yield and revenue for 2006 clocked in at $127.8 million... Hmm... These numbers indicate there could be some room for upwards growth.

Consider my interest piqued in the Marchex story.

Disclosure: I do not own shares in any company mentioned.

Underfollowed Metretek Merits Monitoring

2007-03-03T19:46:00.000-06:00

Can Metretek (MEK), a small cap ($190 million) provider of gas and electric energy measurement products, services and systems continue to obliterate analysts projections? The company has substantially bested estimates for the last two quarters (by 39% and 112% respectively) and is expected to post Q4 earnings of $0.22 a share on Tuesday, March 13. The company, which is only followed by only a couple of firms, provided full year guidance of $0.68 to $0.72 per share for fiscal 2006.

I expect MEK to also issue further guidance for 2007. In the Q3 conference call the company offered preliminary guidance of $15.5 million in income, $137 million in revenue, and $0.89 a share in earnings. If Metretek can deliver on these numbers, year over year earnings would see 29% growth. Not too shabby for a company trading at 13 times forward earnings.

However, it is significant to note that the company derives a major percentage of its revenue from a single contract, with supermarket chain Publix. This, in and of itself, is a bit of a red flag. Though MEK did recently announced the finalization of at least five new contracts with utility companies worth around $11 million in revenue.

Management has steadily maintained its guidance for fiscal 2006 over the past few months. In the past, MEK has been able to blow by its own numbers, as management's numbers pretty much serve as the street's numbers. This leads me to believe that the company has been rather conservative in its estimates, allowing it to overdeliver and beat quite handily. It will be interesting to see if Metretek can outperform its own guidance once again.

I'll be tuning in, that much is certain.

Disclosure: I do not own shares in any company mentioned.

optionsXpress: Making a Name in the Options Game

2007-03-03T16:58:00.000-06:00

Over the past few years equity options have emerged as a "viable" investment vehicle shedding their previous label as a gimmick best suited to gamblers. A beneficiary of this new mentality has been online broker optionsXpress (OXPS) which now accounts for nearly 3 percent of all options trades in the United States.

OptionsXpress, which raised its dividend by 25% on Friday, operates exclusively online without cumbersome retail locations to maintain. Without brick-and-mortar branches it has implemented an easy-to-use platform and sports top-notch customer service. I recently opened an account and found it to be the easiest process I've ever encountered for an online service company. They even provided a printable FedEx mailing label so I could deliver a hard copy of my application easily and free of charge. Needless to say, I was impressed. Evidently I am not alone on this count as the company was cited in 2006 by Barron's, for the fourth consecutive time, as well as Kiplinger's Personal Finance as the "Best Online Broker."

For the period ending December 31st, 2006, OXPS delivered some potent numbers to buttress its sterling reputation. Earnings increased 46% year over year with sales growing at a 45% clip. These numbers have not gone unnoticed by other online brokerage firms. Coming into 2007, only as estimated 10% of the thirty million online brokerage accounts were approved for options trading. However, due to the success of OXPS, other online brokerages have ramped up their efforts to bring options accounts to their firms. Even sharebuilder.com, a company noted for its long term accumulation approach, has begun to offer options trading to its clients. In this more competitive environment can OXPS continue to maintain its torrid pace of growth? Wall Street isn't so sure, beating the stock down more than 30% off its highs in the low $30's.

As usual, it is likely that the Street has over-reacted. To continue to attract new clients OXPS launched a more proactive marketing campaign, in an attempt to build its name recognition to compete with the Charles Schwab's of the world. The company currently sponsors CNBC's well-publicized Million Dollar Portfolio Challenge, a promotion in line with their goal of targeting customers both experienced in options and, more significantly, those looking for a provider with which to get their feet wet in the options game. It's too early to pronounce their current marketing efforts a success, however I think it's absolutely the right strategy to pursue. I believe this new focus on inexperienced options traders will bear fruit considering the companies dedication to educating new traders. This emphasis on education gives OXPS a foot up on their competitors whose sites are geared towards equity and mutual fund education and training. As a result of this strategy I expect new accounts to perk up in 2007, somewhat reversing the trend of the last few months.

OptionsXpress is well on its way to becoming the leading broker serving the online derivatives market. While the company accounted for nearly 3% of all the options trading of the past year, that's still only 3%. There is plenty of room for growth here, and it's a story that definitely merits watching. OXPS will need to continue to build its brand, but I believe its attempts to emphasize the full service (stocks, funds, etc.) capability of its operation will continue to add value to the company. Sporting a market cap just under $1.5 billion, optionsXpress looks like it has plenty of room to grow, or attract a potential buyer at a premium price. Keep your eye on this story going forward.

Disclosure: I own shares of OXPS.

Losing OUT?

2007-02-26T18:14:00.000-06:00

Here's a story for you: An integrated publishing (both print and interactive) and lifestyle company creates a dominant brand catering to a hungry, relatively affluent, and otherwise neglected clientele. Better still the company is small ($70 million market cap) with plenty of room to grow and owns properties, online and off, that dominate their respective niches. Sounds pretty nice, no? I thought so, for the reasons mentioned above, when I first stumbled onto PlanetOut Inc. (LGBT) the preeminent supplier of content and entertainment services targeted to the lesbian, gay, bisexual and transgender community.

(Note: I may lose some of you right at the first mention of "lesbian..." The fact that this company operates in "alternative" territory is bound to turn off some potential investors. Myself, folks are folks and money is green. But that's just me. I do, however, respect your trepidation should you possess any... Okay back to regularly scheduled programming.)

The company consists of four divisions: online properties (inlcuding Gay.com and PlanetOut.com), magazines, (The Advocate, and Out), travel (themed cruises) and special events. Each is a leader in its respective category. Particularly appealing, is LGBT's control of Gay.com, clearly a landmark piece of cyber real estate, and a jewel in the crown of this prospective investment.

However, despite the gloss on the cover, this story contains more than its fair share of holes. Stated flatly, the company can't seem to get its operations together. In four of the last five quarters, LGBT has significantly missed analyst's projections. In fiscal 2006 it lost $1.4 million on EBITDA numbers that checked in 36% lower than those of 2005. In another sobering note, the company announced in its recent conference call that, for the year, subscribers at Gay.com are down and page impressions are flat. Furthermore, increased competition has resulted in a lack of premium advertisers, leaving one to wonder whether their niche is being absorbed into the mainstream.

One caveat: New CEO Karen Magee has been at the helm for only seven months and has already initiated a significant restructuring. And not all the news was bad. Revenue rose to $68.6 million, up 93% from the previous year, with online revenue rising by 26%. However, the revenue gains did not translate to the bottom line.

For a company with a competitive advantage in its market one wonders why they've been so inept at building their properties out to profitability. Unfortunately, analysts expect the company to remain in the red for the foreseeable future. Thus LGBT might fairly be categorized as purely speculative at this juncture. Nevertheless perhaps this is the darkest hour, the one right before the dawn. After all, the story is fantastic. It's a shame really that a company that has the story all right absolutely has the fundamentals all wrong.

Disclosure: I do not own shares in any security discussed.

Does Myspace Make News Corp a Buy?

2007-02-24T13:07:00.000-06:00

Recently I found myself in the all-too-familiar lengthy line at my bank. As I bid my time thinking about the latest Celtics game, I overheard a conversation between two twenty-somethings just in front of me.

"I can't stand my job right now. They changed the network so we can't get on Myspace anymore. Can you believe that?!? I spent, like, four hours a day on Myspace," gasped one gal.

"Oh my God, what are you goin' do?" was her friends astonished response.

My ears shot up. Not being a Myspacer myself, I wasn't exceedingly familiar with the social networking site. I had seen the Newsweek cover and the frequent news stories on the the site's popularity, but I didn't grasp "it" until that moment in the bank. Suddenly I realized the profit potential of the Myspace phenomenon. This young woman *needed* myspace, like I need basketball -- or a normal person needs oxygen.

As web 2.0 unfolds, more people are living their lives on the web and Myspace, currently the 6th most visited site in cyberspace, is the planet on which their lives play out. Owning Myspace is like owning Earth! That's the type of story I want in my portfolio.

Unfortunately one can not directly invest in Myspace. It was purchased in 2005 for $580 million by the international media conglomerate News Corp (NWS-A). Does that make News Corp a buy? Let's dig into the numbers.

Myspace is the crown jewel in News Corp's interactive division. In June 2006 the site collected 30 billion page views, second only to Yahoo! (YHOO) and boasts more than 100 million registered users, mostly in the United States. However, News Corp's interactive division accounted for only about 5-6% of the companies total revenues in fiscal 2006. Myspace itself generated some $200 million in revenue during that year, a small slice of News Corp's take of $25 billion. On the surface it seems like one would be buying 99% News Corp and 1% Myspace. But this may be a little misleading.

A new deal with Google to provide advertising on the Myspace network was recently inked and will bring in nearly $1 billion in revenue. The company also expects Myspace revenue to increase 100% in fiscal 2007. Furthermore, News Corp. is investing in the infrastructure to make their online businesses a more significant factor to the bottom line. In 2006 the Myspace sales team was increased by 300% and the company will roll out new Myspace portals in nine new countries this year.

The real value of Myspace remains in the traffic it generates. One hundred million users is nothing to sneeze at, and the company should continue to find interesting ways to create revenue from these users. In fact, Mr. Murdoch recently proclaimed that Myspace would fetch $6 billion if he were to place it on the open market today. That may or may not be true. However, what is clear is that News Corp is committed to increasing it's interactive presence and that MySpace will continue to be the driver in that area.

So do I want to own Myspace? Absolutely. This is the type of story that makes investors a fortune. But do I want to own News Corp? Maybe, maybe not. The future is the key to this story. Certainly the interactive element of News Corp is growing. But questions remain. Can this media behemoth become an online giant anchored by Myspace? Only time will tell.

In the meantime, if one believes the Myspace phenomenon has staying power, News Corp is a company that must merit serious consideration for inclusion in a diversified portfolio.

Disclosure: I do not own any shares in any company mentioned.

The Story on The Street

2007-02-21T19:22:00.000-06:00

Sporting a market cap of just under $325 million, The Street.com (TSCM) is a small cap in a formerly hot sector, with a quality balance sheet, and a unique story to tell. In other words it's a trifecta! If I was to sum up the story of TSCM in one word, I'd have to say: Cramer. And -- this I hope is clear if you're reading this blog -- I'm not referring to the Seinfeld character.

Jim Cramer, the co-founder and largest individual shareholder of TSCM, has become a cottage industry unto himself. With two best-selling investment hardcovers and the immensely popular Mad Money program on CNBC, he has positioned himself as a major commodity. Millions of people love, listen, and invest along with Mr. Cramer. Love him or hate him, his persona shines so brightly it would be fair to say he's reached star status. And the beneficiaries of Mr. Cramer's luminescence will be the shareholders of the website where his online content resides exclusively.

I suspect that TSCM would have garnered several mentions as an uncovered investment possibility by Mr. Cramer already had he not been clearly excluded from "pumping" his company by his employers. It's a clear conflict of interest. So he can't mention the stock favorably. Unfortunate perhaps for his viewers as the shares have nearly doubled in the last 52 weeks and seem to still have a significant way to go. But while Mr. Cramer can not recommend TSCM formerly, he does mention the company quite frequently. His fan base knows that if you want to read him, you must visit TheStreet.com. And that fan base absolutely reads him. They're coming to TSCM in droves while the company reaps serious economic benefit from it's association with such a major media figure.

In last quarter's conference call, the company highlighted the fact that TSCM carries no significant debt, trades at under 20 times forward earnings, and is estimated by (no pun intended) "the street" to grow at 20% annually. Sounds pretty good to me. But many are unconvinced. I believe buyers are trepidatious due to the fact that the company was a high-flier in the bygone internet bubble days. And many got burned in the crash. In the aftermath, many aren't certain how to price a content-providing dotcom. In fact, they're underpricing it significantly. Meanwhile earnings growth is tremendous, and the site is leveraging the star power of Mr. Cramer quite effectively. In fact, the ubiquity of Mr. Cramer's presence on the TheStreet.com is one of the few negatives associated with this story. If he becomes overexposed the backbone of this thesis crumbles.

However, I believe it is far more likely that TSCM will continue to show solid growth, maintain (or eventually raise) its stabilizing dividend, and provide content for the Cramer-loving crowd. I think the stock is seriously undervalued at around $12. In fact, I'm already sold on the story and I think it's only a matter of time before the street comes around on TheStreet.com. There's a lot of upside in this puppy.

As Mr. Cramer might say, "Boooo-Yeahhhhh!!!"

Disclosure: I own shares of TSCM.

The Newsletter is FREE!

2007-02-18T19:57:00.000-06:00

The Story-Stock.com newsletter gives readers a fresh stock each month that I believe can deliver market beating returns over the long term. My stock picking history suggests the newsletter may outperform by a statistically significant margin. And it's yours to try free!

Each newsletter selection delivers a unique investment thesis, an irresistible story if you will. I comb through the equity universe and find the very best opportunities for your money. I deliver to you a thoroughly vetted investment thesis and you decide if a particular story makes sense for your portfolio.

Also, from time to time, guest analysts may make selections for the newsletter. Their choices will be tracked, just like mine, over time against the S&P 500. The results will be available for your perusal at any time.

Hopefully, this offer registers as a unique value proposition -- I've heard that phrase used by marketing types before and I think it's something to aspire to. I think it's a cant miss. The next few years offer a chance for amazing profits. I hope you come along for the ride.

To sign up use the form on the left. (You can opt out at any time and your information will not be shared with any third party sources.)

And, with that said, All aboard!

Welcome to Story-Stocks

2007-02-17T16:41:00.001-06:00

You've landed at story-stocks.com, my personal investment blog. And who am I? Well, my name is Bryan Stabile, and I'm an individual investor and stock picker. On story-stocks I'll be providing my personal takes on the market and highlighting individual companies whose "stories" are so compelling that I think their stock prices are bound to go higher. It's these high concept stocks that I'll be focusing on, partly because they tend to represent the most interesting companies, but mostly because I think they can be exorbinantly profitable.

Additionally, I will publish a monthly stock pick via my newsletter with the goal of significantly outperforming the S&P 500 over the long term. I'll track my results here for all to see. So check back often.

One final note: I subscribe to a get-rich-slow philosophy. In other words, I believe in buying and holding the best companies and letting the wonderous compound interest effect take care of the rest. I don't chase fads and I don't promise outlandish returns. I do, however, believe (and have personally demonstrated) that individual investors with calmness and patience can and do outperform their manic Wall Street counterparts. If that sounds like you, maybe you've found a site worth remembering.

And, with that said, we are off!