Author Tiernan Ray writes an important article for anyone following technology companies as a possible investment. On Friday (October 26) Microsoft (ticker: MSFT) is expected to roll out its long-awaited Windows 8 operating system, specially geared to capture a slice of the smartphone market (from Google's Android, Apple and RIMM's Blackberry). It is not clear to Ray (nor to me) what will happen (I presume to MSFT), but he writes that tech investors may be disappointed.
He then goes on to write that there will be winners, losers and companies whose fates are not clear (Intel (INTC) and Oracle (ORCL)). he does not discuss IBM, which even though it is not in the PC-space, it IS a player in "The Cloud".
Most of us have been following at least some of this rather amazing technological transition, from PCs connecting up with the Internet to the rise of tablets (really, small PCs) as well as the smartphones (Apple and Android). For example, all three of us in my family own a smartphone, and our daughter owns an iPad. She does not even have a telephone landline, like many of her generation.
Mr. Ray produces two graphs, the one of greater interest is the value of smartphones, PCs and tablets sold over the past few years. Eyeballing the graph I see that in 2011 smartphone dollar value sales for the first time equaled PCs, which have been holding relatively flat (at approximately $220 billion). In 2012, smartphone sales volume is expected to grow well past PC dollar volume. Tablet sales (mostly iPads and Samsung tablets) are expected to grow to almost half of PC sales this year (vs. essentially ZERO in 2009).
He is careful to write about some newcomers to The Cloud, who may have great influence later but not now (he mentions Qlik Technologies (QLIK), Splunk (SPLK) and Workday (WDAY) as all having potential later on), but I will not examine these, as I know nothing about them. In any case, he is bearish (short-term anyway) on those three companies. Ray then goes on to produce this table of tech companies and their prospects:
Stock
|
|||
Company
|
Ticker
|
Outlook
|
Comment
|
Adv. Micro Devices
|
AMD
|
down
|
Failed to grasp decline of PC
|
Amazon.com
|
AMZN
|
down
|
High PE vs. their cloud opportunity
|
Apple
|
APPL
|
up
|
Cheap shares, more innovation
|
Dell
|
DELL
|
down
|
Enterprise promise, PC peril
|
EMC
|
EMC
|
up
|
Big Cloud player
|
Facebook
|
FB
|
down
|
Make mobile pay off?
|
Google
|
GOOG
|
up
|
Smartphones & The Cloud
|
Hewlett-Packard
|
HPQ
|
down
|
Long restructuring ahead
|
Intel
|
INTC
|
neutral
|
Smartphones up, PCs down
|
Microsoft
|
MSFT
|
down
|
Depends on success of Win. 8
|
Oracle
|
ORCL
|
neutral
|
Data opportunity vs data challenge
|
Rackspace Hostg.
|
RAX
|
down
|
PE too high, risky
|
Salesforce.com
|
CRM
|
down
|
Workday could get them…
|
Samsung Electr.
|
*
|
up
|
Smartphones, tablets, low PE
|
* Samsung Electronics' ticker is 005930.Korea, your broker can probably get it if you want it.
[Ed. note: I do not know if he wrote his article before Google's disappointing earnings (and 68 point stock drop), but with that drop it may be a good time to look at buying it... Of course CNBC had a recent guest on who said Google might not even EXIST in five years...]
Tiernan Ray is a well connected guy in tech-land, a writing pro and been at this a long time. I cannot argue with any of his comments re the above comments nor the main points in his article. Furthermore, if you are interested in technology, this article is worth the $5.00...
***
Alan Abelson starts his weekly column with a reference to Google's and earnings (and so its big price drop), but before going too deeply into the subject of disappointing tech earnings he had this little gem from his reader Edd McDermott:
"Always go to other people's funerals. Otherwise, they won't come to yours."
Hah!
Abelson advises that the markets are uncertain... He then notes that investor surveys indicate that the spread between bulls (more) and bears is narrowing, so we may not be approaching Armageddon...
Abelson then goes on to write that David Levy (who has apparently been right about lowered gains in corporate earnings this year) who is worried about 2013 (and who isn't?). The USA has been really the only major player not to plunge back into recession [yet]. Levy thinks the world has many challenges (that will hurt us too, at least in the short-term) such as high energy prices, high food prices, continuing unemployment, political instability, etc. But, Levy ends positive at the end re the USA: that we have withstood all kinds of challenges without collapsing or losing our free markets and culture of innovation.
Abelson, then mentions that David Levy's father, S. Jay Levy, recently died after a long career following the markets for decades. A talented family!
***
Kopin Tan writes this weekend's "Streetwise" column and suggests getting OUT of telecom. Telecom companies (ATT, Verizon, and of course other minor players) have racked up BIG valuations (PE ratio gorwth), yet will likely not grow much.
***
"Review & Preview" this weekend features a short column on THREE separate views on bonds: one very bearish and two, well neutral outlooks (latter includes David Rosenberg of Gluskin Sheff, I would have guessed he would have been bearish).
"She Said":
Citigroup's "bad performance and an underperforming CEO -- those are the kinds of situations that lead to a change."
Former FDIC Chief Sheila Bair on Citi CEO Vikram Pandit's "resignation"
William Waitzman writes a short piece saying that HSBC says that 40% of the world's population (mostly in the merging world) will join the middle class. The bank expects that countries like China, India, the Philippines, Peru and Russia should see annual growth in real incomes of 4% (while the developed world sees less than 2% growth). Well, we'll see!
***
Sandra Ward writes a bullish piece on Texas Industries, the last "pure play" on cement in the USA. She sees good prospects ahead, and maybe a buyout (by France's Lafarge or Colombia's Cementos Argos), as TXI is rather small. She sees increased housing demand (?) and a better economy (as well as TXI's main markets of California (?) and Texas getting better) helping the stock.
[Ed. note: I remember reading an article in "The Economist" some 12 years ago saying that the cement industry and the bearing industries were the most boring of all industries...]
***
Jack Hough writes an article on a subject getting near & dear to my heart: dividends! He suggests that instead of chasing high-yielding stocks (dangerous -- crowded trade!) that stocks yielding in the 1.6% - 2.1% range BUT that likely will raise dividends in the years to come as good picks. He selects four companies with good prospects of dividend hikes by 2014:
Associated Banc-Corp (ASBC), projected 2014 yield: 2.4% (now 1.6%)
Coca-Cola Entreprises (CCE), projected 2014 yiled: 2.7% (now (2.1%)
IBM (IBM), projected 2014 yield: 1.9% (now 1.8%) (???, big deal...)
Stryker (SYK), projected 2014 yield: 2.0% (now 1.6%)
Part of his argument for stocks like these is that as the share prices move up, the increased dividend yields bring MORE total return in. Worth thinking about...
***
Christoper C. Williams writes a bullish piece on National Oilwell Varco (NOV), the country's largest maker of equipment for oil & gas drilling rigs (which I already knew) and a strong presence in deep water offshore drilling (which I did not know) will likely lead to great results in the future irresepctive of who wins the election (both guys said we need more drilling...).
NOV has a lower PE than some its smaller competitors.
Disclosure: I own NOV, and I am NOT letting my position go!
***
Economist Gene Epstein ("Economic Beat") laments that neither Obama nor Romney seem to have a good grasp of free-market economics... Both of them are beating up on China (true). Epstein has proven to me over the years to be pretty much a free-markets guy.
Both candidates are pandering as well re green energy jobs in Iowa and Colorado (undecided states, see realclearpolitics.com)...
Epstein backs up his words with books by Adam Smith, Bjorn Lomborg, Diana Furchtgott-Roth and an essay by Frederic Bastiat... All are heavy hitters.
But, politics is politics...
***
Barron's DC pro Jim McTague writes on yet another cliffhanger (above and beyond the election and the the "Fiscal Cliff"), namely that of onerous EPA regulation being proposed. There are about 620 of these in the pipeline (50% more than at the same last year of George Bush) and that some of these are extreme: one would essentially close off large swaths of the USA for new business (I presume he means new industry or other large users of energy).
While the Congress can stop these EPA decrees, they need a steep 51 votes to do so... McTague finishes:
"If the Senate remains split after Nov. 6, as it is today, then brace for a fall in the value of your stocks."
Uh oh.
***
Lawrence C. Strauss interviews Michael Hasenstab (Portfolio Manager, Templeton Global Bond Fund).
His views on the various regions and countries of the world were interesting. He LIKES (bond investments) in Ireland, the USA, many emerging markets and parts of Eastern Europe and Asia.
He does not like Japan or Europe.
***
CEO Spotlight features Graham Mackay, CEO of SABMiller, the second largest beer maker. It is headquartered in South Africa (and a few years ago took over Miller of the USA).
Mackay started out as an engineer by training and came to SAB to help better integrate their IT systems. As CEO, he now tells us that getting beer to taste "just right" is a big challenge (I ad once read a similar comment re Budweiser, and how German, yes, GERMAN, brewers would come to Budweiser to learn the secrets of keeping a mass-produced beer tasting EXACTLY the same). SABMiller (SAB.UK) is now Number One in Africa, the world's fastest growing beer market. SABMiller's stock price has approximately quintupled since Mackay took the reins (1999), way outperforming most stocks.
***
There is an interesting essay in the occasional Barron's "The Long View", essays on business history.
Starting in the mid-15th century, European ships got big enough so that they could travel long distances and carry a lot of goods for far cheaper than land transport. Historian John Steel Gordon traces changes in the technology of sailing ships. more interesting than I had expected! Highly recommended!
***
Editor Thomas Donlan appears to have great fun going after the latest recipient of the Nobel Peace Prize: The European Union. Donlan lists a few dubious prior winners: Barack Obama, Al Gore, Henry Kissinger, Yasser Arafat and Mohamed El-Baradei...
He then goes on to review Europe's recent (post WWII) history of an ever closer union, which started out well. But, since the Euro currency experiment, a lot has gone wrong.
Maybe as ANY country becomes wealthy, there is a lot of pressure to "spread the wealth around" (B. Obama, 2008)
***
In the Market Week Section, Vito Racanelli notes the 25th Anniversary of the 1987 market crash, a day vividly remember. Fortunately, FRiday's drop in stocks was nowhere nearly so dramatic...
"European Trader" author Jonathan Buck suggests that Italian stocks might be ready to rally. Ahh, no thanks!
"Asian Trader" author Assif Shameen writes about Masayoshi Son (briefly famous) and his company Softbank's proposed acquisition of Sprint Nextel. Masayoshi SOn was briefly the world's second richest man. He is making a risky bet, Shameen writes, but perhaps one should never count Mr. Son out...
Reshma Kapadia ("Emerging Markets") suggests that Chinese consumers might drive certain stocks. Most US multinationals sell some, but on the whole not much, in China. This seems to be so for a lot of other well known Western companies. It turns out that only about 11% of the Chinese stock market is in CONSUMER stocks, most is in materials, energy and finance. It has become a near mantra (my words) that China needs to focus on internal consumption to better grow their economy and keep their people satisfied. She names three companies (Baidu (BIDU), Tencent Holdings (TCEHY) and Tsingtao Brewery (TSGTF)) as candidates for stocks re Chinese consumption as well as some ETFs.
Michael Aneiro ("Current Yield") writes that lower yields are a hazard (as one would expect) when the time comes that higher-yielding old debt expires. Average junk-bond yields hit a record low 6.19% last week, while the 10 year Treasury moved UP in yield to 1.766%, thus tightening that spread. I would not be in the junk-bond markets unless you have PLENTY of other safer investments to balance out that risk... But, hey, that's just me...!
I pay attention when Tayana Shumsky writes the "Commodity Corner" column. She writes about different plays on agriculture. She discusses fertilizer companies, John Deere (DE), and AGCO (AGCO). There are also ETFs that invest in the agricultural sector (Market Vectors Agribusiness: MOO). What interested me the most was her description of a Luxembourg based company called Adeco-agro (AGRO) which owns and operates about 740,000 acres of farm and ranch land in South America... One of George Soros' companies owns about 21% of this one... Hmm....
Kohl's (KSS) was really the only company that had BIG insider selling this week (almost $48 million).
I am going to make a change in my Barron's reviews from here on out. Much as I like tracking the Peruvian Sol (which declined a tiny bit this week), I am not sure if there is much value to be added by including this information. Reader comment is welcome! Of course, I will follow and comment on the Sol periodically, but not probably not every week from now on.
Verdict: Yes! An excellent issue! Feel free to buy it!
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