The Proficient Investor

There’s an article over at The Motley Fool today about the lackluster sales and marketing Blu-Ray and HD-DVD have had in the general public.

Initial high prices and competing formats have kept sales low and the fact that the Playstation 3 uses Blu-Ray hasn’t helped any mainly because older games aren’t guaranteed to play on the new system.  At some point one of these technologies is going to become the de-facto standard and one will go the way of the betamax, but which?

It’s too early to tell right now, but I think a major push by computer manufacturers like Dell, HP and IBM would help.  Consumers don’t like changing technologies unless they are gradual.  This isn’t gradual.  Both technologies hit the market and immediately there was a blitz of marketing and then silence.  Right now DVD sales are still strong and the new formats are reserved for the well-to-do and tech savvy geeks who need the latest and greatest.

Once a cheaper consumer model, around $250-$300 is released you will start seeing an increase in sales of both players.  Until then, I’ll keep renting my DVDs from Netflix.

George Gutowski posted on his blog Financial Skeptic that the appointment by Microsoft to add Reed Hastings to the board of directors signals a possible move by the Windows maker to integrate or at least adopt Netflix’s streaming/downloading technology.

He also mentions the investment into Netflix may not be as good a long term investment as it sounds due to the fact that there has been some inside selling by Hastings himself.

Although I agree there may be bigger things happening here, I don’t agree that Netflix is a bad buy. Look at the numbers. One argument I read elsewhere cited the growing cost of shipping dvds. Where does that come from? The cost is the same as it has been, Netflix pays for a bulk mailing price and they have yet to raise their fees. In fact, they have done just the opposite in the past year by lowering their fees and making sure their titles have shipped on time.

Netflix is still a growing company and the appointment of Hastings to Microsoft’s board of directors only strengthens my belief in the company.

In this article, quoted from Dow Jones’ Tomorrow’s News Today, the author talks about online video and it’s implication on broadcast television.

Online video is getting a lot of hype these days, but it’s not
clear how companies will make money off such sites, a new
study from Convergence Consulting finds.
“As it was a decade ago, the Internet is once again being
positioned as taking over the content universe…but there are a
number of cold, hard realities” that prevent broadcasters and
cable networks from moving away from TV, the report states.
One such reality is advertising. Online advertising rates can
command high prices, but online viewership is still considerably
smaller than TV. Broadcasters that put their TV shows online
have seen about 5% of their TV base watching the online
streams; cable networks such as MTV see about 15% of its
audience watching shows online. Given the audience size, there
is no assurance of similar advertising returns from online video.
The report from the Toronto-based research and consulting
firm calculates that average U.S. households spend about 20
cents an hour to watch TV, but broadcasters would have to
charge a lot per download in order to compensate for what they
get in advertising revenue for an average TV episode. For cable
networks, there’s an added disincentive to move to online distribution
because the networks get about half their revenue
from carriage deals with cable and satellite companies.

Some of the points here are valid, but I think the bigger picture (no pun intended) is being missed. As companies like Google, AOL and Time Warner and News Corp. begin swallowing up digital distribution channels, the shift from broadcast television to online delivery is going to happen more rapidly. Already networks like ABC and FOX are showing their prime time shows online. FOX’s 24 has found a home on the social networking site “MySpace” where you can watch every hair raising episode. ABC is also showing popular shows like “Greys Anatomy” and “Lost” with limited commercial interruptions.

This is, I think the selling point for consumers. The ability to watch a network show without having to sit through throngs of annoying commercials and interruptions is a welcome change. Even with devices like TiVO and PVRs, one still has to pause the show long enough to be able to skip those pesky ads. So why do online ads work better? For one thing, a viewer has to sit through only one ad every 10 minutes or so. The second reason is targeted traffic. Broadcast television tries to reach the demographic it believes it is hitting by the type of show and time of night. Online ads are targeted by content. The actual content of a written piece determines the ad that shows. At least this is how Google’s popular Adsense works.

Using the internet, broadcasters can reach billions of eyeballs instead of millions…the math seems simple enough to me. Now it’s just a matter of acceptance by the networks and smoothing out the interfaces to offer a better experience to viewers.

I talk about this a lot here at The Proficient Investor.  How do you choose a stock and more importantly how do you choose one that is going to grow.  I’ll quote Jim Cramer and say that “I don’t care where a stock has been, I care where it is going”.

This is a great point because so many people I talk to mention the chart.  Look at the history of the stock.  Well to be honest I could care less, with a few exceptions.  One is if the stock has had a sudden and large decline in price.  The second is if the PE has changed dramatically for no apparent reason.

In this Stockpickr article, James Altucher talks about a couple of stocks with terrific earnings and strong growth.  Stockpickr is a great site to find out about stocks that are owned by individuals, institutions, professional investors and hedge funds.

Jim Cramer talks about making changes at the top in regards to Citigroup in this Wall Street Confidential clip from The Street.com.

In an article today at thestreet.com it was mentioned that poor housing data from the government has led to a slide in stock prices today.

I find it worrisome that one sector of the market can have such a dramatic effect on the market as a whole. We saw this happen in 2000 with the dot coms and although this isn’t as extreme, it stands to reason that too many people have too much invested in this sector. There are definitely bigger things going on here than just a decline in the sales of new homes.

We are now in the 5th year of the (illegal) war against Iraq and I believe it is wearing us down. The general sentiment now is that we should get out and get out fast. Hundreds of billions of dollars have been spent on this war and we have yet to see any positive results. Couple this with the continuous rise in the price of light sweet crude oil and you have an economic disaster waiting to happen. US dependence on foreign oil is still too high and not enough money and research are being spent on alternatives. Instead, that money is being sent to foreign soil to fight an enemy we can’t defeat.

I’ve digressed a bit here, but the point is not everything can be blamed on housing. Tech stocks are also affecting the market and there is genuine hesitation happening in retail, finance and of course the slumping subprime sector. I’m still going to go with my favorites here right now and given the slight downturn, you can get these a little cheaper.

Bullish: NFLX, BFLY, ACI, KRY, ZL, ZQK, DEO, SBUX, GS

There’s a good article today at Seeking Alpha about Starbucks, which further supports my position of a buy on the coffee maker.

Recent news by the company points to steady sales and growth, repeat customers and a brand that is still desirable. Starbucks is still the hangout for writers, businessmen and college students looking for a place for decent atmosphere and social gathering.

This article originally appeared in The Proficient Investor Alerts and is being reprinted for the benefit of all PI readers.

After the recent acquisition of WebEx by Cisco(CSCO), should investors be looking to buy the networking giant?

Well, here’s my analysis. I do this sort of analysis for any stock I am interested in buying. Currently I do not own any Cisco. You can see my portfolio at http://www.stockpickr.com just search for James Wilcox.

So here it is:

Cisco has forward growth of 17% which is pretty good. Above 10% is good. That gives us a forward PE of 34 assuming large investors, hedgefunds and the like are willing to pay premium prices for this stock. Taking that forward PE and comparing to the current PE which is 24 tells us Cisco is a possible buy because it’s too cheap at this price. So to figure out fair value multiply the forward PE to the current EPS (earnings per share) of 1.04 which gives us a fair value price of around $35. You can be more conservative with your numbers if you multiply the forward growth by only 1.5 instead of 2.

Now since Cisco is at 25.81 currently it’s a buy in my book, but also because analysts don’t like it or have it at “hold”. I always like the out of favor stocks because it means the downward move is usually pretty close to being done and the upside is near.

Cisco isn’t the only game in town though.

When it comes to investing, there are quite a few options, with ETFs and other vehicles out there. But if you want to invest in stocks it takes some homework. I started by just finding things I thought were good ideas that might be ready to break out. However, here’s a few that I think are worth looking into.

Netflix (NFLX) which I own
Bluefly (BFLY) which I own
Starbucks (SBUX) I don’t own it but it’s looking really good right here.
Wells Fargo (WFC) I own shares in my 401k
Goldman Sachs (GS) I don’t own it but wish I had about 4 months ago.
Sears Holdings (SHLD) I don’t own this but it’s a really solid performer.

You want 3-5 stocks to diversify. One financial, one retail, one energy, one tech, and one speculative. That way you have a broad exposure to the market and no one move in any sector is going to take down your whole portfolio. Bluefly for me is a speculative stock, it’s around a dollar and I have bought and sold it around that position for a 30% gain in the past year. Doesn’t seem like a lot, but if you consider a $1000.00 investment and a 30% gain on that in 6 months…that’s $300.00

Get more information like this by subscribing to The Proficient Investor Alerts. At the time of publication, Mr. Wilcox had no position in Cisco or WebEx and all other positions are as stated.

I am recommending a buy on Microsoft right here, right now. It’s up $1 from yesterday where Jim Cramer recommended it and I just read an article that confirms my position.

Microsoft announced Games for Windows - Live which will connect PC users to XBOX 360 users over their live gaming service. The bonus to this is Microsoft is releasing a version of Halo 2 for Vista, their new operating system. The capabilities and technology behind Vista explains the delay in releasing the popular title.

Halo is not only one of the best-selling all time video games, it also earned a star on the “Walk of Game” at San Francisco’s Metreon. The Walk of Game showcases games and game makers who have been integral to the industry. Among others honored are Zelda, Everquest and the creators of those games.

Halo 2 being released for the PC is going to be a boon for Microsoft because if it only plays on Vista, then users are going to upgrade to the new OS as well. Halo 3 will be coming out for the XBOX 360 which should be an even better selling point for Microsoft.

With the stock being shot down 6 straight points, there’s a good buy in here and at 27, its just above where I recommended it in the first place last year.

There’s a good article over at TheStreet.com talking about recent Blockbuster (BBI) and Netflix (NFLX) news.  In this round, the weakness in Blockbuster, IMO is really exposed.

Two things stand out.  One, they are deciding if they should raise their subscirption fees (big mistake) and two, their software is not only buggy but delays the shipping of titles to customers.

Netflix’s supposed “throttling” has brought on a lawsuit all it’s own, but I personally have never experienced this.  I don’t rent DVDs and return them fast enough to bring this on I suppose.