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I wrote about FSLR's overvaluation prior to their last earnings release, and the results disappointed the street, leading to share price decline.
During the last conference call, management cited economic headwinds and increased competition as risks to future performance. I don't think either of those threats decreased materially over the past quarter, and I expect both to continue into the future.
The general business environment may improve as the world economy recovers and developed nations continue to become "greener," but FSLR's competition gets stiffer by the day. Solar has become commoditized, and both traditional silicon-based panels and other thin-film competitors will continue to erode demand for FSLR products.
The share price will likely be very volitile after this earnings release; a plesasant surprise will send shares skyward, while continued disappointment will drive shares lower. FSLR still trades at a premium valuation, and I believe that shares have plenty of room to fall.
Wednesday, April 29, 2009
TheNoBuyList.com
To make life easier for you, the valued reader, you can now access this blog at TheNoBuyList.com.
Tuesday, April 28, 2009
Do Not Buy VMWare
From Zachstocks:
Though VMWare (VMW) is a profitable, growing company, shares still appear overvalued. The company recently reported earnings of $.25/share during the most recent quarter, which was impressive considering current economic conditions. However, management predicted that revenue over the next quarter(s) will be about flat compared to last year. At the same time, margins are under pressure, meaning that VMW shares will probably continue to be under pressure.
VMWare provides many different corporate IT solutions (cloud computing, virtualization, etc.) but also seems to be hoping to lure in comsomuers with other offerings: I have also seen ads on Facebook for VMWare software that allows Windows and Apple apps to run side-by-side on a Mac.
VMWare's solutions will be in demand as they are cost-effective solutions for businesses, but as the revenue and profit growth stagnates, shares will too.
Read the full article "VMWare Cloud Computing Casts a Shadow" at Zachstocks.
Though VMWare (VMW) is a profitable, growing company, shares still appear overvalued. The company recently reported earnings of $.25/share during the most recent quarter, which was impressive considering current economic conditions. However, management predicted that revenue over the next quarter(s) will be about flat compared to last year. At the same time, margins are under pressure, meaning that VMW shares will probably continue to be under pressure.
VMWare provides many different corporate IT solutions (cloud computing, virtualization, etc.) but also seems to be hoping to lure in comsomuers with other offerings: I have also seen ads on Facebook for VMWare software that allows Windows and Apple apps to run side-by-side on a Mac.
VMWare's solutions will be in demand as they are cost-effective solutions for businesses, but as the revenue and profit growth stagnates, shares will too.
Read the full article "VMWare Cloud Computing Casts a Shadow" at Zachstocks.
Do Not Buy Swine Flu Stocks Follow-up
This morning, I wrote about huge daily declines in share prices of companies that have exposure to any business that may be adversely affected by the swine flu (or simply a reluctance to travel/go out because of fear of it). Shares of such companies continued to fall throughout the day:
The pace of new developments in this swine flu saga seems to be slowing, pointing to a possible end of such knee-jerk declines. However, some entities continue to escalate their reactions: Russia has temporarily banned meat imports from Mexico and a few US states, and more recently announced that it will begin checking planes arriving from the Americas. The World Health Organization has also raised its alertness level, and new cases are continuing to pop up in different corners of the globe.
So how does swine flu relate to stocks right now? I would not yet dabble in companies and industries (travel, meat, etc.) that are effected (actually or psychologically) from this swine flu concern. If and when the panic blows over, investors that jumped in at the right time will realize healthy gains from stocks like CCL. However, it is too soon to discern the extent of this swine flu problem, so prudent investors should avoid buying any affected companies in the immediate future.
- Carnival Corp. (CCL), -13.5%
- Royal Caribbean (RCL), -16.3%
- Southwest Airlines (LUV), - 9.4%
- US Airways (LCC), -17.4%
- Smithfield Foods (SFD), -12.4%
The pace of new developments in this swine flu saga seems to be slowing, pointing to a possible end of such knee-jerk declines. However, some entities continue to escalate their reactions: Russia has temporarily banned meat imports from Mexico and a few US states, and more recently announced that it will begin checking planes arriving from the Americas. The World Health Organization has also raised its alertness level, and new cases are continuing to pop up in different corners of the globe.
So how does swine flu relate to stocks right now? I would not yet dabble in companies and industries (travel, meat, etc.) that are effected (actually or psychologically) from this swine flu concern. If and when the panic blows over, investors that jumped in at the right time will realize healthy gains from stocks like CCL. However, it is too soon to discern the extent of this swine flu problem, so prudent investors should avoid buying any affected companies in the immediate future.
Do Not Buy... into New Accounting Rules
Because of relevance to my probable future career and potential to impact the stock markets, I am directing attention to Mark Sunshine's article "M2M Accounting Still out of Control" at Seeking Alpha.
The author describes how new accounting rules skew results for financial companies in unrealistic ways. He writes:
He then cites another rule (which despite his degree, professional and academic experience in accounting, cannot understand) which would extend similar valuation methods to traditional industries.
There is no clear "Do Not Buy Security ___" in this article, rather, it is a look into the growing complexity of corporate earnings because of changing rules and regulations. The Citi and Morgan Stanley example is a perfect one - it shows how these new rules affect results in illogical ways. (Yes, some companies may buy back some debt when the price is attractive, but marking that value to market each quarter for companies like C and MS is unrealistic.) The charges or gains from this accounting may only end up as a footnote on some companies' financial statements, but it may add to uncertainty and volitility as companies report earnings. Analysts and investors will have to start looking at the changes in debt valuations over the previous quarter to figure out whether companies will book a gain or take a hit.
There is one plus to the growing complexity of corporate accounting - it should mean more jobs for freshly-minted accountants (like me, in 2011), which is something that I cannot complain about.
The author describes how new accounting rules skew results for financial companies in unrealistic ways. He writes:
As an example, if a fictitious company called “Sunshine Inc.” were to borrow $100 in the public debt markets and the trading price of this debt were to decline to $80 then Sunshine Inc. would recognize a $20 gain on its liabilities as if it had repurchased them in the market. It doesn’t make a difference if Sunshine Inc. actually has the cash or intent to retire its liabilities, merely its debt trading at $80 is enough to trigger a gain.
That is what Citigroup did in the first quarter. Its liabilities traded at a discount and it recognized a gain of about $2.5 billion in a quarter when, on a consolidated basis, the whole company earned about $1.5 billion. That means, without the make believe of fair value accounting, Citigroup lost a lot of money in the first quarter.
On the other hand, if the debts of Sunshine Inc. were to magically trade up in the market then Sunshine Inc. would record a hit to earnings. And, that is what happened to Morgan Stanley; they previous recognized valuation allowances on its liabilities and, much to its surprise, the trading price of its debt went up. As a result, Morgan Stanley’s first quarter earnings were trashed when it recognized a $1.5 billion hit to revenue. Because of fair value accounting Morgan Stanley reported a loss of $177 million for the first quarter.
He then cites another rule (which despite his degree, professional and academic experience in accounting, cannot understand) which would extend similar valuation methods to traditional industries.
There is no clear "Do Not Buy Security ___" in this article, rather, it is a look into the growing complexity of corporate earnings because of changing rules and regulations. The Citi and Morgan Stanley example is a perfect one - it shows how these new rules affect results in illogical ways. (Yes, some companies may buy back some debt when the price is attractive, but marking that value to market each quarter for companies like C and MS is unrealistic.) The charges or gains from this accounting may only end up as a footnote on some companies' financial statements, but it may add to uncertainty and volitility as companies report earnings. Analysts and investors will have to start looking at the changes in debt valuations over the previous quarter to figure out whether companies will book a gain or take a hit.
There is one plus to the growing complexity of corporate accounting - it should mean more jobs for freshly-minted accountants (like me, in 2011), which is something that I cannot complain about.
Monday, April 27, 2009
Do Not Buy Swine Flu-Related Stocks
As the world is freaking out about a possible swine flu pandemic, travel related stocks are being sold off. The damage that swine flu will inflict on airlines and cruise companies is likely (much) more psychological than tangible, but I would still avoid buying any travel-related stocks until this swine flu hype (hopefully) blows over.
For example, Carnival Cruise Lines (CCL) shares are down 10% as of 10 AM Monday, and its main competitor, Royal Carribean (RCL) is down 15%. Airlines are taking a beating too - Southwest (LUV) is down about 9%, while US Air (LCC), which was also downgraded by UBS this morning, is trading down 15%. Here is a little article on MarketWatch showing the price declines of airline stocks. Meat companies such as Tyson Foods and Smithfield are also down much more than the general market.
Actual bookings for things like cruises and flights may decline if this fear doesn't pass over quickly. But the market will continue to sell these stocks as long as the swine flu scare is making news. Eventually, there will be a buying opportunity after the fear subsides, but I would not be buying any of these stocks today.
For example, Carnival Cruise Lines (CCL) shares are down 10% as of 10 AM Monday, and its main competitor, Royal Carribean (RCL) is down 15%. Airlines are taking a beating too - Southwest (LUV) is down about 9%, while US Air (LCC), which was also downgraded by UBS this morning, is trading down 15%. Here is a little article on MarketWatch showing the price declines of airline stocks. Meat companies such as Tyson Foods and Smithfield are also down much more than the general market.
Actual bookings for things like cruises and flights may decline if this fear doesn't pass over quickly. But the market will continue to sell these stocks as long as the swine flu scare is making news. Eventually, there will be a buying opportunity after the fear subsides, but I would not be buying any of these stocks today.
Sunday, April 26, 2009
Do Not Buy New York Times (Shares)
As reported by the Jacksonville Business Journal, a Barclays analyst thinks that shares of the New York Times Co. are still grossly overvalued despite their already-depressed prices.
Though the New York Times Co will receive an estimated ~$150 million for their 17.75% stake in the Boston Red Sox, even that glut of cash still doesn't do enough to stop the money-hemorrhaging.
Read the full article here (featuring more hard numbers and facts from the Barclays analyst) at the Jacksonville Business Journal.
Though the New York Times Co will receive an estimated ~$150 million for their 17.75% stake in the Boston Red Sox, even that glut of cash still doesn't do enough to stop the money-hemorrhaging.
Read the full article here (featuring more hard numbers and facts from the Barclays analyst) at the Jacksonville Business Journal.
Friday, April 24, 2009
Do Not Buy GM
Andy Kern writes at Seeking Alpha that GM shares are very cheap, but for good reason. He argues that even at the current $1.70/share price, the company is still overvalued for various economic, fundimental, and technical reasons.
Read "GM is Cheap for a Reason" at Seeking Alpha
Read "GM is Cheap for a Reason" at Seeking Alpha
Thursday, April 23, 2009
What To Short when the Rally Dies
Written by Todd Sullivan and posted at Seeking Alpha, the author describes his current holdings and what he plans on shorting as this (perceived) bear-market rally loses steam.
Click to read "What To Short when the Rally Dies"
Click to read "What To Short when the Rally Dies"
Do Not Buy Amazon, Volume 2
Mark Kreiger writes at Seeking Alpha that expectations and valuations are too high for Amazon.com (AMZN) as the company prepares to report earnings after the bell today.
Do Not Buy Netflix
As published at ZachStocks:
Netflix shares have recently outperformed the general market (and most other stocks) as shares have rallied 150% from November lows. Stockholders to have reason to be enthusiastic, as subscribers, revenues, and earnings continue to grow, while some competitors (primarily Blockbuster) continue to weaken.
However, shares now trade at a premium multiple that may be too rich for the actual expected earnings growth. Zachary admits that shorting NFLX would be a very risky trade, but it may pay off richly as the current euphoria has inflated the shares beyond reasonable valuation.
The full article is available on ZachStocks: "Netflix: High Flyer or Falling Star"
Netflix shares have recently outperformed the general market (and most other stocks) as shares have rallied 150% from November lows. Stockholders to have reason to be enthusiastic, as subscribers, revenues, and earnings continue to grow, while some competitors (primarily Blockbuster) continue to weaken.
However, shares now trade at a premium multiple that may be too rich for the actual expected earnings growth. Zachary admits that shorting NFLX would be a very risky trade, but it may pay off richly as the current euphoria has inflated the shares beyond reasonable valuation.
The full article is available on ZachStocks: "Netflix: High Flyer or Falling Star"
Do Not Buy Green Mountain Coffee Roasters
From Zachary Scheidt of ZachStocks :
Green Mountain Coffee Roasters is a growing coffee company that sells the Keurig single-cup coffee brewer (along with related K-cups and whole bean coffees).
Shares of Green Mountain (GMCR) have nearly doubled in price from November lows, and Scheidt argues that they may be overvalued at current prices.
Read the full article "Green Mountain - Good Coffee, Peaking Chart" at ZachStocks.
Green Mountain Coffee Roasters is a growing coffee company that sells the Keurig single-cup coffee brewer (along with related K-cups and whole bean coffees).
Shares of Green Mountain (GMCR) have nearly doubled in price from November lows, and Scheidt argues that they may be overvalued at current prices.
Read the full article "Green Mountain - Good Coffee, Peaking Chart" at ZachStocks.
Wednesday, April 22, 2009
About The No Buy List
The No Buy List has been created to compile bearish analysis of individual stocks and the stock market. Wall Street's factories of analysts regularly churn out "buy" ratings at a mind-numbing pace; the number of buys is disproportional to underweight, hold, and sell ratings.
So The No Buy List aims to offer a conflicting opinion, where authors can post their opinions that may contradict the Street's view. The No Buy List accepts outside analytical contributions, so if you have material that you'd like to see posted, just email it to stevof@gmail.com .
Feel free to bookmark The No Buy List or subscribe to our feeds, and hopefully we'll supply you with some fresh, high-quality investment ideas.
So The No Buy List aims to offer a conflicting opinion, where authors can post their opinions that may contradict the Street's view. The No Buy List accepts outside analytical contributions, so if you have material that you'd like to see posted, just email it to stevof@gmail.com .
Feel free to bookmark The No Buy List or subscribe to our feeds, and hopefully we'll supply you with some fresh, high-quality investment ideas.
Do Not Buy Amazon.com
Amazon.com began as an internet book retailer and has expanded into sales of goods of all kinds. A consumer can now buy everything from groceries to the latest G-Unit CD on Amazon. Amazon's product offerings only continue to grow as they add more products to their site directly and invite outside sellers to sell through the Amazon portal. Amazon has even begun developing and selling its own products: the recently-introduced Kindle 2 created much buzz and will fluff Amazon's bottom line as they are the sole retailer of the high-margin product: "A teardown analysis of the Kindle 2 by market research firm iSuppli estimates the cost to build the device at $185.49, or about 52% of its retail price of $359" (Businessweek).
With other offerings like apparel, foodstuffs, and mp3 downloads, Amazon is attempting to diversify into a seller that can supply almost anything a consumer could want. The strategy does seem to be working, as revenue and profit keep increasing despite a sour economy. However, Amazon's weakness has always been tight margins, and margin expansion is unlikely. The internet is an ultra-competitive animal, as many websites (like SlickDeals.net) exist solely to alert consumers to good deals. Amazon's decision to allow outside sellers to sell products on the website (via the Fulfillment-by-Amazon program and the simpler Selling on Amazon option) allows sellers to attempt to match or undercut Amazon's prices, making it more difficult for Amazon to retain healthy markups (except on niche products like the Kindle).
When Amazon can't increase margins, they increase volume, which has worked thus far. I believe it will continue to work, as consumers will increasingly turn to Amazon to meet all of their discretionary needs, so I do believe that Amazon will continue to be a growing, healthy, and increasingly profitable company.
However, Amazon makes the Do Not Buy List due to an overly-rich current valuation. Amazon is expected to make $1.50 per share this year, slapping a price to earnings ratio of over 50 on shares. Even next year's earnings, currently estimated at $1.94, will maintain a P/E of over 40. Since I believe that Amazon will continue to perform well, I'll say that Amazon will make $2.75/share next year - even with such results, the shares would still trade at a 29 P/E. These ratios are much, much higher than competitors, and seem unsustainable despite recent enthusiasm.
eBay, Amazon's most comparable online competitor, trades at a P/E of just 10 (though that is partially attributable to problems with eBay's business). Wal-Mart, the diversified brick-and-mortar retailer, trades at a P/E of 15, while Target, Wal-Mart's smaller competitor, trades at a similar valuation. Best Buy, the electronics retailer, trades at roughly a 17 P/E.
Amazon's business model does differ from these retailers - Amazon is less of a pure-retail play with the addition of revenue streams like music sales, the Fulfillment by Amazon program, publishing, and more - but at its core, AMZN is a retailer. Amazon does have a world-class supply chain and does not have to pay for retail square footage like the aforementioned competitors do. But because a consumer can buy the same books, movies, and groceries from Target or Best Buy, Amazon's margins on such commoditized items will always remain slim.
The bottom line is that Amazon.com is a great company that trades at a somewhat-ridiculous valuation. AMZN will report earnings later this week, and I have a cannot believe that any news could propel shares much higher at this point. Therefore, Amazon will be placed on the Do Not Buy List for the short- to medium-term until margins show signs of improving, or earnings increase to a point where AMZN's P/E falls closer in line with competitors.
With other offerings like apparel, foodstuffs, and mp3 downloads, Amazon is attempting to diversify into a seller that can supply almost anything a consumer could want. The strategy does seem to be working, as revenue and profit keep increasing despite a sour economy. However, Amazon's weakness has always been tight margins, and margin expansion is unlikely. The internet is an ultra-competitive animal, as many websites (like SlickDeals.net) exist solely to alert consumers to good deals. Amazon's decision to allow outside sellers to sell products on the website (via the Fulfillment-by-Amazon program and the simpler Selling on Amazon option) allows sellers to attempt to match or undercut Amazon's prices, making it more difficult for Amazon to retain healthy markups (except on niche products like the Kindle).
When Amazon can't increase margins, they increase volume, which has worked thus far. I believe it will continue to work, as consumers will increasingly turn to Amazon to meet all of their discretionary needs, so I do believe that Amazon will continue to be a growing, healthy, and increasingly profitable company.
However, Amazon makes the Do Not Buy List due to an overly-rich current valuation. Amazon is expected to make $1.50 per share this year, slapping a price to earnings ratio of over 50 on shares. Even next year's earnings, currently estimated at $1.94, will maintain a P/E of over 40. Since I believe that Amazon will continue to perform well, I'll say that Amazon will make $2.75/share next year - even with such results, the shares would still trade at a 29 P/E. These ratios are much, much higher than competitors, and seem unsustainable despite recent enthusiasm.
eBay, Amazon's most comparable online competitor, trades at a P/E of just 10 (though that is partially attributable to problems with eBay's business). Wal-Mart, the diversified brick-and-mortar retailer, trades at a P/E of 15, while Target, Wal-Mart's smaller competitor, trades at a similar valuation. Best Buy, the electronics retailer, trades at roughly a 17 P/E.
Amazon's business model does differ from these retailers - Amazon is less of a pure-retail play with the addition of revenue streams like music sales, the Fulfillment by Amazon program, publishing, and more - but at its core, AMZN is a retailer. Amazon does have a world-class supply chain and does not have to pay for retail square footage like the aforementioned competitors do. But because a consumer can buy the same books, movies, and groceries from Target or Best Buy, Amazon's margins on such commoditized items will always remain slim.
The bottom line is that Amazon.com is a great company that trades at a somewhat-ridiculous valuation. AMZN will report earnings later this week, and I have a cannot believe that any news could propel shares much higher at this point. Therefore, Amazon will be placed on the Do Not Buy List for the short- to medium-term until margins show signs of improving, or earnings increase to a point where AMZN's P/E falls closer in line with competitors.
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