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Amazon.com (AMZN) Valuation Defies Gravity

Amazon (AMZN) is up 21% since we argued that its shares were overvalued when compared to a range of tech and retail comparables.

At yesterday’s closing price, AMZN was trading at a shockingly high 18.9x EBITDA compared to an average of only 7.9x for the tech and retailer comparabales.  SEE ANALYIS BELOW

Once we get past this deep recession, Amazon is sure to be in an even stronger competitive positon in the retailing space, and will resume its strong revenue, earning and cash flow growth.  But, the same can be said of Google.  For some reason, analysis and the market is willing to look past the next 12-18 mo nths when it comes to Amazon, but not for other long-time market leaders.

**Full Disclosure: I own the AMZN Dec 40 Puts (ZQNXH.X)

Posted in business, investing, stocks, tech.

Amazon.com Still Overvalued (AMZN)

Even though it is off 57% from its 52-week high ($97.43), Amazon.com (AMZN) is still overvalued.  It is trading at a lofty 28x the average analyst estimate for 2009 earnings (a PE/Growth that’s 20% higher than its comps) and an even more outlandish 15.3x enterprise value to EBITDA (double its comps). SEE COMPARABLE ANALYSIS BELOW

Sure, Amazon is by far the dominant online retailer.  But, the consumer is getting crushed right now and will continue to hurt well into 2009.  This will put a signifant drag on the margin-improvement story that had driven much of Amazon’s run-up during 2007 and early 2008.

Buy Januray puts now.  We would recommend the Jan 30’s trading at $1.95 (ZQNMF.X)

AMZN comps

Posted in business, investing, stocks, tech.

Blodget Must Be Short Research in Motion (RIMM)

Henry Blodget must be short RIMM.  What other explanation can there be for his grossly distorted take on WSJ’s glowing review of the new BlackBerry Bold.

BlackBerry Bold 

Blodget sifted every negative fleck from Katherine Boehret’s review in order to concoct a blog post that would neatly fit his sensationalist, deceptive headline: “Mossberg Pees On BlackBerry Bold: Bulky, Heavy, Expensive”

First, Blodget chooses to ignore the critical point made by Boehret that the Bold was not intended to be an iPhone competitor (that’s left to RIMM’s forthcoming Storm, which will almost certainly be reviewed by Mossberg himself), and instead is designed to be an evolution of the BlackBerry 8800 series devices, which are popular with corporations because they focus on functionality over style.  This point, made by Boehert in paragraph two, places the entire review in a proper context.

Blodget, as any good yellow journalist would do, takes everything out of context.

Now, here are my takeways from Boehret’s review:

“The BlackBerry Bold has a bright, beautiful screen and one of the most comfortable keyboards I’ve used on a mobile device. It has a speedy processor that handles email, Web browsing and video playback with ease.”

“The Bold’s large size affords mobile extravagances like a keyboard I could use without looking down.”

“Emailing on the BlackBerry Bold was a breeze. I grew so fond of its keyboard…that I found myself touch typing without looking down after only three days of use.”

“The Bold opened Web addresses and videos with no problem, whether I was on AT&T’s 3G network or Wi-Fi in my home or office.”

“I found the BlackBerry Bold to be a huge asset for on-the-go productivity”

“Users won’t mind this mobile device’s large build and higher price because of its luxuriously comfortable features.”

“The Bold is definitely worth a look.”

Posted in business, investing, stocks, tech.

BlackBerry On Sale (RIMM)

RIMM was hit with two negative analyst calls yesterday and the stock traded off (down 8.6% on a day when the NASD was up 3.4%) as if it still carried a 40x multiple.  But it doesn’t.  At about $53 per share, RIMM is trading at 16x even the most conservative analyst estimates for FY2010 ($3.33 per share).  This, despite the fact that RIMM is still generally expected to deliver 40%+ revenue growth and 30%+ earnings growth next year.  And, let’s not forget that RIMM has more than $1.5 billion of cash on its balance sheet and virtually no debt.

Sure, RIMM is experiencing some delays in getting the Bold (AT&T) to market and is supposedly seeing less-then-stellar uptake on its new flip phone (T-Mobile) based on VERY early indications.  But, initial reviews of BlackBerry’s Storm (Verizon) touch-screen device have been surprisingly strong - even giving its touch-screen an edge over the iPhone’s.

Bottom line: RIMM just may be one of the most undervalued names out there right now.

Posted in business, investing, stocks.

Cash is King (AAPL) (GOOG) (CSCO)

While everyone else seems to be scrambling for cash to maintain operations, keep in mind… 

Apple (AAPL) is sitting on $20 billion of cash and has no debt.  That equates to about $23.50 per share in cash, or about 27% of its current stock price ($88.00).

Google (GOOG) is sittiing on $13 billion of cash and has no debt.  That equates to about $40.50 per share in cash, or about 12% of its current stock price ($328.00).

Cisco (CSCO) is sittiing on $26 billion of cash and has about $7 billion of debt.  That equates to about $3.25 per share in net cash, or about 19% of its current stock price ($17.21).

Posted in business, investing, stocks.

GOOG is a Steal

At $470 a share, Google is one of the cheapest ”best-in-class” stocks out there.  Its PEG ratio (P/E relative to growth rate) is 0.85.  Keep in mind, with GOOG, you’re not only getting the present value of the future cash flows from their existing stellar search ad business, you are also effectively getting a call option on YouTube, Android, any penetration of the non-online ad industry that Google’s been dabbling in (90% of the entire $280 billion ad industry), etc

If you believe the U.S. and European economies will turn around within the 12-18 months and you can hold Google for at least that long you will see GOOG back to at least $600 during that time (a 27% return).

Posted in business, investing, stocks.

Dipping a Toe into Shark Infested Waters

Just picked up some Google (GOOG) at $496.50, some FedEx (FDX) at $79.28 and some Amdocs (DOX) at $29.38.

On Google: picking up the preeminent company in its space at less than 1x growth is a no brainer.  Sure, Google disappointed a bit, but it still had gross revenue growth of 39% (organic revenue growth of 34%) and GAAP EPS growth of 35% (non-GAAP growth of 30%).  GOOG is expected to generate 2009 GAAP EPS just north of $20.00.  So, at $496, GOOG is trading at around 25x earnings (about 30x 2008 projected GAAP EPS of $16.60). Oh, and did I mention that Google’s sitting on $12 billion of cash and has no debt?

On FEDEX: I’ve had this one on my watch list for several months (mentioned it in my previous post).  This is a great company that’s simply facing a cyclical downturn.  FEDEX will be one of the first companies to rebound strongly as we come out of the recession.  You want to get in before things start to look rosy - by then you’ll have missed a 20% move up.

On Amdocs: DOX is a leading global provider of services and software to the communications industry (wireless and wireline).  I owned the stock earlier in the decade (got in just after the tech/telecom bust) and did quite well with it.   The stock is trading back down to about where it was just prior to announcing strong 1Q numbers in April.  I wanted to get in before the company announced 2Q numbers next week.

 

Posted in business, investing, stocks.

Stocks on My Watch List: Update

In a January 18 post I listed several stocks that I had on my watch list:

Akamai Technologies Inc (AKAM) - $26.64 (01/17/08 close)
Cisco Systems, Inc (CSCO) - $24.33
3M Co. (MMM) - $74.96
Intel Corp (INTC) - $19.33
McDonald’s Corp (MCD) - $51.98
General Motors Corporation (GM) - $22.84
Starbucks Corp (SBUX) - $19.05

I subsequently took long positions in five of these stocks:

AKAM purchased at $27.37 (on 01/22/08)
INTC purchased at $18.54 (01/22/08)
CSCO purchased at $23.44 (02/06/08)
MMM purchased at $73.65 (01/22/08) sold at $77.05 (04/25/08)
SBUX purchased at $16.48 (04/30/08)
Thankfully, I avoided GM.

Although not on my watch list, I also purchased shares of Transocean (RIG) at $162.07 on 05/20/08). This is a great way to play the supply constraints with crude oil, as Transocean is one of the largest providers of offshore contract drilling services for oil and gas wells, particularly in deepwater and harsh environments.

Today, I have my eyes on FedEx (FDX), currently trading at about $79.25 and Ford (F) currently trading at about $5.35.

Posted in business, investing, stocks.

Akamai (AKAM) Is Looking Cheap Again

Not sure what the catalyst is, but AKAM is down about 20% over the past month - this, since rebounding 35% from the near-52 week low of $25.88 it hit back in mid-January.

We recommended taking a close look at AKAM back on January 18th, when the stock was at $26.64, and we do so again today.

* full disclosure: i own shares of AKAM (purchased shortly after my Jan 18 recommendation)

 

Posted in business, investing, stocks.

Stocks on My Watch List

The following stocks are approaching valuation levels that I believe would make them highly attractive long term (more than one year) buying opportunities.  All of them have come down significantly from their 52-week highs (some, such as Akamai - down 55%, more than others).

Most of these companies are leaders in their field with strong balance sheets and cash flow.  Others, such as General Motors, have a significant turnaround opportunity ahead of them (strong slate of new car models - Malibu, Enclave, etc., substantial declines in labor costs) once we get beyond the current economic malaise.  And, most have strong international exposure (geographic diversification) and overseas growth opportunities.

Akamai is probably the riskiest bet of the bunch (although some might argue that GM is even riskier), yet, its core business of speeding the delivery of content around the web offers the best opportunities for continued long-term growth.

The best way to play GM, may be to purchase long-term options (the Jan 09 $25’s are currently going for $4.30 and the Jan 10 $25’s are going for $5.90).  This is a great bet if you believe GM will turn itself around even modorately and the econimc downturn will be relativelty short-lived.

 

Akamai Technologies Inc (AKAM) - $26.64 (01/17/08 close)

Cisco Systems, Inc (CSCO) - $24.33

3M Co. (MMM) - $74.96

Intel Corp (INTC) - $19.33

McDonald’s Corp (MCD) - $51.98

General Motors Corporation (GM) - $22.84

Starbucks Corp (SBUX) - $19.05

Posted in business, investing, stocks.