The Proficient Investor

It would seem the credit crunch and housing market woes haven’t subsided as much as investors would have liked. Major financials slide as continued sentiment in the housing market and overall performance of financials comes in below targets.

Goldman Sachs, which was at a 52 week high on October 9th at $239.70 slid 4.46% to $217.69 on Friday. Goldman, which has had a great run from a 52 week low in August couldn’t keep the momentum going last week and has been declining ever since hitting the new high. Seeing the writing on the wall, I sold my shares at $235 last week (if you had been a subscriber you would have had advance notice of this trade) .

Wells Fargo also reported lowered earnings due to mortgage problems as did E*Trade earlier this week.

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As my readers here know, I have been a long time supporter of Netflix, not just as a subscriber but also as a stockholder. This evening however, my faith in the company was completely solidified.

The only viewing market is in its infancy and yet Netflix isn’t sitting on its laurels here. Most of us are fairly busy day to day and even forget to Tivo or record our favorite programs from time to time and end up watching them on the broadcast network website a day or more after the episodes air.

Tonight, I was pleasantly surprised to see Netflix had NBCs “Heroes” Season 2 already available online. Normally you have to wait for the dvd box set of a season to be available in order to watch the episodes online with a service like Netflix, yet here they are. This is revolutionary.

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Looks like we had a nice end of week rally.  EMC spiked 2.72 percent despite the announcement of the CEO planning the sale of 440,000 shares of company stock through the third and fourth quarters.

Stocks across the board seemed to rally after a rough week of ups and downs.

The Dow closed up 142.99 points, the NASDAQ was up 34.99 by the close.

In my portfolio, nearly all stocks were in positive territory ending a brutal decline over the summer so far.

Arch Coal (ACI) closed up 1.74% at $30.46.  Quiksilver (ZQK) closed up .38% or at $13.24 a share. Canadian mining company Crystallex (KRY) closed at $2.99 up .67%. Goldman Sachs which has been hammered of late ended the day up 1.26% at $179.73. Ameritrade (AMTD) which has been in merger talks with E*Trade rose 3.19% to close at $17.80 on the day.

Overall it looked like a good recovery for a major correction recently.  Talk on the street has been that this 10% correction we have seen may likely be over.  The bears of course feel this is just a stopping point for investors to catch their breath.

The rally may have been in no small part due to the data from the Commerce Department stating new home sales were up an unexpected 2.8%.  As we are all aware, the recent credit crunch and subsequent meltdown in the sub-prime sector sent the market reeling and closed numerous hedge-funds and institutional players leaving the individual investor hanging out to dry.

What’s an investor to do in these volitile times?  Buy and Homework, Cramer says and put your money into solid performers like Apple (AAPL).

Jim Cramer just can’t seem to win. Bears hate him because when he’s right it usually means it cost them thousands. Analysts hate him because they think he’s reckless and the Fed hates him because he was doggone right about the discount rate needing adjustment. What happened 3 days later? The Fed came in and dropped rates by 50 basis points from 5.75 to 5.25 thus stemming an open wound on Wall Street that has had sub-prime lenders running for the hills.

Then comes this article from Barron’s slamming Cramer’s Mad Money show which airs on CNBC nightly.

The article effectively says that over the last 2 years, Jim Cramer’s picks have failed to outperform the market compared to the S&P 500 and DOW at only 12% gain while the S&P 500 and DOW gained 16% and 22% respectively.

My problem with the article is the kind of research that was done for it and the wholly negative slant it takes against Jim Cramer’s Mad Money show. Read the rest of this entry »

Blockbuster Inc. (BBI) announced today it was buying the online movie download service Movielink.  Movielink was created by 5 studios in 2002 but has struggled to gain popularity primarily because the software is only available on systems running Microsoft Windows.

Blockbuster feels this is a move in the right direction to compete with Netflix (NFLX) and it’s online service called Watch Now.

Watch Now allows Netflix users to watch movies directly through an internet browser and includes an hour for each dollar you pay for the service.  For example if you are on the $17.99 plan you are allowed 17 hours of viewing time using Watch Now.

While I have used Movielink in the past, I think Netflix’s service has better quality and a much broader library as well as being able to watch the movies much quicker.  I think the next move for Netflix is to buy GameFly.  If Netflix owned that service they would be able to offer much more than just DVD rentals and be able to diversify their offerings which will make them much more competitive with Blockbuster.

Los Gatos based Netflix (NFLX) announced today a deal between cable channel Showtime and itself that will air the pilot episode of “Californication” starring David Duchovny (X-Files) and Natascha McElhone that centers around Hank Moody, a substance abusing writer trying to rekindle his career in Hollywood while dealing with his pre-teen daughter and ex-girlfriend who is now engaged to be married to another man.

Netflix will showcase the pilot using the “Watch it Now” feature as well as making it available for rental through the online DVD service. This marks a first in offering content well before it airs on cable.

The pilot began showing on Netflix’s online service July 24 and will run until it debuts on Showtime on August 13th.

Shares of Netflix (NFLX) closed at $17.39 gaining $.29 or 1.70% on the day. Rival rental service Blockbuster (BBI) gained $.24 or 5.63% to close at $4.50.

Netflix(NFLX) today announced they are lowering the price on their two most popular rental programs on Monday.  The first program which allows 3 DVDs and 18 hours of viewing time for their “watch it now” feature will be reduced from $17.99 a month to $16.99.  The plan that allows 1 DVD and 9 hours “watch it now” movies will be cut to $8.99 from $9.99.

Analysts are going to be coming out of the woodwork on this one.  Every analyst out there thinks they know the answers and know what Netflix is going to say when they report earnings today. I think they are going to be dead wrong.  In the short term, yes Netflix has seen some adverse reaction to Blockbuster’s “Total Access” campaign, but I still believe it is goint to be short lived.  Look at Blockbuster’s stock.  It hasn’t broken the $5.00 mark since April and has been on a downward slide ever since. On March 12, 2007 BBI was at a 52 week high of $7.30 while today in intraday trading is at $4.21.

Netflix is still the premiere brand here.  They still command a greater online presence than Blockbuster and I think the price cuts are going to help.  Analysts will point to revenue suffering as a result of the cuts, but I think it’s going to be beneficial in the long run as they gain subscribers and people upgrade from the lower plans to the higher ones.  “Watch It Now” is also going to get better as they bring more of their library online, something Blockbuster doesn’t even have in the works.   Netflix will continue innovating in the field of online movie delivery and I wouldn’t be surprised to see Hollywood studios lining up to release first run films soon simultaneously with theatrical releases using something like what Netflix has now.

I don’t think we see a turn around in Blockbuster until December when current CEO John Antioco steps down and hands the reigns over.  Until then, bide your time and use this opportunity to pick up more NFLX on the cheap.

As we head into the summer months and reports are coming in for Q2, investors are finding slumps in the overall market. Stocks aren’t performing at the same levels they have been over the past few months. This is fairly normal for the time of year mainly because a lot of traders go on vacation and in general people aren’t as focused on investing during the summer months.

There are pockets of positive territory, however it just takes a little tenacity to find them. Defense is still a good sector to be watching and I have mentioned Lockheed-Martin on this blog before. I also like Northrup Grumman.

In Tech you should be betting on Google and Apple. On Aron Tasks’s The Real Story podcast one of his guests mentioned he believes over the next couple years Apple goes to $200. That seems like a very bullish outlook, but remember when Google was at $100 and everyone thought it was ridiculous to think they could go to $200 let alone $500? I liked Apple at $90…and I like it even here at $132. Buy one share or two shares. It’s worth it.

As far as energy stocks go, investors will want to concentrate on land drillers like Nabors and Schlumberger. Energy prices are showing no signs of slowing as long as we are still at war in Iraq and Afghanistan.

For those interested in retail, I’ll mention best of breed Sears but I also like a small gamble here as I speculate on Bluefly (BFLY).

There won’t be much action for the next couple months so if you are long, stay long and don’t panic into a sell. My timeline as always is 6-18 months. This gives the market enough time to correct and gives the individual investor time to buy more of a stock they like at a cheaper price.

At the time of this publication, I owned shares of Bluefly (BFLY) but no other stock.

The environmental permit requirements for the Las Cristinas mine owned by Canadian mining company Crystallex International (KRY) has been met according to the company.

Venezuelan president Hugo Chavez has mandated national resources from the country stay owned by the country, but this may turn into “a state-dominated joint venture company.” according to Venezuelan officials.

The stock has been hovering around the $4 mark for some time as investors have been waiting for news on the opening of the mine. Speculation on this stock has been building ever since Jim Cramer mentioned it on his show last year. Since then it has seen a run up to nearly $6 and back down to $3. Should the mine open, we could see the stock go as high as $10 in a very short time.

Shares of Crystallex (KRY) were up $.60 at $4.51 in intraday trading.

At the time of publication, I was long KRY

Shares of online rental service Netflix are down $1.81 as I write this.  An analyst at JP Morgan panned Netflix citing improving service and prices at Blockbuster for their money-losing Total Access plan.  Total Access allows Blockbuster subscribers to exchange DVDs in-store for a free rental.

I feel like a broken record saying this almost every week, but I have always said this was the wrong way for Blockbuster to play this.  Getting movies from either service isn’t about “the wait” for the discs to arrive in the mail.  It’s always been about convenience.   Blockbuster’s Total Access service has a couple major flaws if you look at it from a convenience standpoint.

First, if you turn in a DVD at the store to trade in for a free rental, the system doesn’t remove your queued online movie for the one you rented in store, you still must login and remove it from your queue manually.  Secondly you then have a movie you have to return to the store and doesn’t that defeat the purpose of having a mailed DVD system in the first place?

The only real benefit Blockbuster has over Netflix is their offering of video games for rent, at least in stores.  This is the only reason a friend of mine even has a Blockbuster account (he cancelled his Total Access membership by the way) because he rents video games for his six year old son.

I believe Blockbuster is a dying brand that is attempting to resurrect itself with only moderate success.  The stock still can’t find double digits and after the poor last quarter and even worse guidance, why are analysts still pumping this dog?

In the long run I think Netflix comes out on top because of their superior ratings and recommendation system and their speedy delivery service as well as having a trusted brand.  With their online movie watching service we may also see Netflix become a trusted source for Hollywood First-Run films.  If Netflix really wants to get an edge over Blockbuster they should consider purchasing a company like Gamefly which would allow them to rent Video Games and integrate their ratings and recommendations into that service.  Since Netflix is a 1.6 billion dollar company now I don’t even see why this should be a challenge.