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Apple (NASDAQ: AAPL) today celebrates 30 years since the first Macintosh was introduced. Apple spent $500 to produce its first Mac and sold it for $2495, setting the precedent for its premium product approach that has since minted billions of dollars for the company. This approach has allowed the company to charter its unprecedented growth trajectory. Today, Apple is more valuable than Microsoft and Amazon combined.

Activist investor Carl Icahn believes that Apple’s growth narrative will stretch out into the future. Icahn, through his company Icahn Capital Management, bought Apple in August 2013 with the intent of swaying the management, CEO Tim Cook in particular, to offer higher buybacks. Although Cook has not yet heeded his call, Icahn is not giving up. As we reported Wednesday, Icahn purchased $500 million more of Apple shares, pushing his investment in the smartphone maker above the $3 billion mark. Again, he called for Cook to give his higher buyback and dividend call more attention. On Thursday Icahn announced via Twitter, spending an additional $500 million on Apple shares.

Bought another $500mil of $AAPL tday, bringing our total to $3.6 billion. If board doesn’t see AAPL’s ‘no brainer’ value we sure do.

— Carl Icahn (@Carl_C_Icahn) January 23, 2014

Apple Has Great Upside

When Icahn first added Apple to his portfolio in August last year, the stock was trading at $468 a share. As of this writing, Apple is trading at around $556 a share. Clearly, Icahn’s investment has paid off as is. However, there is still more upside ahead and Icahn is keen on squeezing out these gains.

Here are Apple’s two triggers for growth going forward

1. Bigger screen iPhone

A recent report on the Wall Street Journal says that a bigger screen iPhone is on the way. Citing people familiar with the matter, the report identifies increased competition as one of the key informants to this decision.

A larger screen iPhone will allow Apple to capture the lucrative Chinese market. Even after Apple inked a deal with China Mobile, analysts were still skeptical about the iPhone, citing its screen size as a possible deal breaker in the Chinese market. China has an undisguised slant toward larger screens.

2. Samsung woes provide leeway

Another possible trigger for Apple’s growth is the fact that Samsung’s phone business is showing slower growth. Profits were flat in the fourth quarter in Samsung’s smartphone and tablet business, despite an uptick in sales. Margins were squeezed in part by the company’s higher spend on marketing over the holiday shopping period. Also, legal costs, brought about by constant fights with Apple, are hurting Samsung’s phone profits.

While one data point can’t be used to write Samsung off, the company’s flat profit growth suggests that it will either have to slash costs or raise prices. Either way, corrective actions could disrupt its sales momentarily, giving Apple’s iPhone a leeway.

Along with this, there is still some upside ahead of Apple and more notably, more zeros to add to Icahn’s bank account balance.

Buyback And Dividend Increase A Stretch

As they say, you can’t have your cake and eat it. Icahn may gain from Apple’s continued share price appreciation, but his call for increased buybacks and dividends may have to wait a little longer. Undoubtedly, Icahn has a huge investment in Apple. However, his current stake isn’t even 1 percent of Apple. The reality is that he doesn’t (as of yet) have the sway to influence Apple’s policies.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

The post Icahn’s Apple Investment May Pay Off, Buyback Call Probably Not appeared first on Wall Street Insanity.

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Microsoft (NASDAQ: MSFT) is set to announce its fiscal Q2 2014 financial results after the market closes Thursday, January 23 (today). The Wall Street consensus expectation is for Microsoft to post earnings of 67 cents a share on a top line of $23.5 billion.

Whether or not Microsoft misses or hits the estimate, the stock is unlikely to experience major swings. Most investors are more concerned on who will succeed CEO Steve Ballmer, and more notably, the strategies that Microsoft will use to navigate the current competitive tech market.

Meanwhile, Microsoft has made a move that has the potential to lift its enterprise business. This move will allow it to maximize its strength in the enterprise market at a time when the consumer market presents continued uncertainty. Microsoft General Counsel Brad Smith in a Wednesday interview with the Financial Times at the World Economic Forum in Davos, Switzerland, said that Microsoft will let foreign customers to store data overseas.

Riding On The Anti-Spying Wave

Microsoft’s new position comes at a time when the populist call is that of anti-espionage. Technology companies have had issues reassuring customers over the safety of their data following revelations by former NSA contractor Edward Snowden regarding the extent of NSA spying.

Smith said that while other companies may stand opposed to the idea of letting customers store their data overseas, Microsoft would reconsider its stance following the Snowden incident. “We have never turned over to any government any information that belongs to another business, another government or an NGO,” he stressed. “It is not our right, no one elected us, to simply decide to turn over someone’s information,” he added.

As we discussed (in part) in a separate story on BlackBerry, the ‘Snowden effect’ is informing a lot of decisions by tech companies. Basically, a new wave of courageous probes into how private information is treated is sweeping through. In view of this, it is in the best interest of tech companies to display their commitment to protecting private data from the prying eyes of the government.

Partial Lift

However, Microsoft’s change of strategy with its enterprise clients will only provide a temporary lift for its enterprise business.

Investors should instead look at today’s earnings and thrash out sales figures for Microsoft powered tablets, both the Surface 2 and Surface 2 Pro. These figures will be indicative of the extent to which enterprise clients are accommodating of the Windows platform.

Over the holiday season, both tablets reportedly sold out at Microsoft’s online store, Walmart’s online store and a number of Best Buys. Today’s earnings may reveal whether this was artificially created shortage or an indication that Microsoft is getting back on track despite the continued freefall in PC sales.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted

The post Microsoft Banking On Populist Groundswell To Lift Enterprise Business appeared first on Wall Street Insanity.

Blackberry

BlackBerry (NASDAQ: BBRY) seems to have hit the overdrive button with regard to its turnaround efforts. The battered smartphone maker wants to reverse its tumultuous run and get back in Wall Street’s good graces. BlackBerry announced Tuesday that it would sell its commercial real estate holdings in Canada. In total, the company intends to sell more than three million square feet.

BlackBerry will divest its real estate holdings through a combination of vacant sales and sale-lease back arrangements. Although BlackBerry has not commented on the exact value of this particular undertaking, it previously raked in $41 million from a separate sale of five buildings and land to the University of Waterloo in December.

Essentially, divesting real estate assets frees up BlackBerry’s cash, presenting much-needed flexibility at a time when the company needs to turn ship. “This initiative will further enhance BlackBerry’s financial flexibility, and will provide additional resources to support our operations as our business continues to evolve,” said CEO and executive chairman John Chen.

In addition to freeing up its assets, BlackBerry also inked a five-year partnership deal with a Taiwanese company in December. Under the agreement, BlackBerry will offload most of its manufacturing operations to the Taiwanese company, preserving its cash flows.

Cost Cutting Will Ease Transition

In December, BlackBerry announced that it would relocate its efforts away from the high-end smartphone market to the lower end of the market. CEO Chen also suggested that the company would increase its exposure to the enterprise market.

By focusing on low-end phones, BlackBerry will minimize production costs. This approach, coupled with continued cost cutting efforts, will prevent cash flow shocks, allowing BlackBerry to provide a continual stream of cash for its promising enterprise business.

Enterprise Business Receives Boost

The US Department of Defense announced last week that it would bring in thousands of mobile devices for its employees over the next year, majority of them being smartphones from BlackBerry. In comparison to 1,800 devices from other manufacturers, BlackBerry will supply 80,000 devices.

In a memo published in December, BlackBerry CEO Chen pointed out that many regulated industries with stringent security needs solely depend on BlackBerry to secure their mobile infrastructure. He iterated that BlackBerry was the only provider to obtain “Authority to operate” on US Department of Defense networks. This essentially means that the DoD is only allowed to use BlackBerry. Admittedly, a compelling section of IT mangers believe that BlackBerry is still the way to go in terms of network security.

BlackBerry’s comeback in the enterprise market is staged against the backdrop of the ‘Snowden effect’; which essentially means former security barriers are being torn down and journalists, along with other groups, are becoming increasingly courageous in their attempts to pry into classified databases. For this reason, network security has taken top priority among enterprise clients. BlackBerry is in a unique position to leverage its reputation for providing reliable network security to ink more lucrative enterprise contracts going forward.

It might be time for short-sellers to retreat; BlackBerry’s stock could be set for an iconic rebound.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted

The post Why Investors Might Want To Bet On BlackBerry’s Turnaround Prospects appeared first on Wall Street Insanity.

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E-commerce giant eBay (NASDAQ:EBAY) is scheduled to release its fourth quarter and full year results for fiscal 2013 on Wednesday, Jan 22 (tomorrow). In the past four quarters, eBay has beaten analysts’ estimates three times. While this presents the perfect backdrop for continued impressive results, investors need to move beyond the typical Wall Street rhetoric (impressive growth, good margins) and look deeper.

Moving Past The ‘Catch-Up Narrative’

It is no secret that eBay’s business is growing. More notably, the e-commerce bigwig is recording growth in the areas that matter. In the third quarter of 2013, for instance, mobile enabled commerce volume jumped 75 percent, bringing the wider mobile strategy to greater focus.

However, all the gains that eBay has made in the past add on to the ‘catch-up narrative’, which simply stacks eBay against leading online retailer Amazon (NASDAQ: AMZN) and explains how the former is filling the competitive gap. Admittedly, eBay is gaining ground compared with Amazon. Its eBay shopping.com website, for instance, challenges Amazon’s comparison-shopping services. Just like Amazon has same-day deliveries, eBay also has its own similar service offered through the e-Bay Now app. In fact, e-Bay’s same-day delivery service (e-Bay Now) was free during the holiday season.

Although staying competitive is a plus, it only presents incremental growth. And this doesn’t offer any incentive in today’s choppy markets. Given the current valuations, investors are looking for companies that can deliver exponential, rather than incremental, growth.

The Numbers That Really Matter

When eBay announces its earnings tomorrow, investors should go beyond the typically top line/bottom line analysis and look at how eBay’s cash flows and debt levels are fairing. Why is this important? eBay has the potential to unlock great growth (the exponential growth we are talking about) with its interactive shopping screens (which I will explain in a bit). However, to achieve this, it needs to have high cash flows and low debt levels. This is because the whole interactive shopping screen concept requires heavy capital investments.

Just to establish some context, the interactive shopping screen concept involves eBay partnering with retailers and brick-and-mortar stores to build large screens in malls that allow users to actively engage with a virtual storefront, select items they want to shop and pay via mobile. Already, eBay has partnered with Sony, Tom’s and Rebecca Minkoff.

Digital storefront in the Westfield shopping mall in San Francisco/via ebayenterprise.com

As eBay’s Vice President of innovation and New Ventures Steve Yankovich reveals in an exclusive interview with Bloomberg, eBay is currently working with leading manufacturer of glass used in consumer tech devices, Corning Inc.

Essentially, there are technologies in the pipeline that can turn any glass surface-from furniture, to even your oven door- into a touch screen interface. The scale on which this technology can be implemented presents a huge opportunity for eBay as it reinvents the whole idea of mobile shopping. In addition, increased interactivity allows eBay to build data bases that can be used to develop a personalized system, potentially opening up a realm of personalized services (that warrant premium prices) and even advertising opportunities.

Clearly, the interactive shopping screen concept has the potential to unlock exponential growth for eBay. However, it requires heavy capital investment. Lower debt levels therefore allow eBay to comfortably take on more debt in the future to support such expensive innovations. High cash flows similarly present an opportunity for eBay to support its investments more evenly (equity, cash, debt). This allows eBay to actively control debt levels and utilize shareholder equity, thereby minimizing stock volatility.

Takeaway

In the past three years, eBay’s cash and cash equivalents have been somewhat inconsistent; increasing about $2.1 billion between 2011 and 2012, having decreased by around $886 million between 2010 and 2011. All along however, liabilities have steadily increased, for instance, rising from $9.3 billion in 2011 to $16.2 billion in 2012. In tomorrow’s earnings, investors should look out for eBay’s cash flows and debt position as these two measures have the ability to greatly impact its long-term growth.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

The post What To Look Out For In eBay’s Earnings appeared first on Wall Street Insanity.

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Ever since Yahoo Inc. CEO Marissa Mayer took over the reins in mid 2012, the internet company has gone through major changes. Not only has she acquired a slew of startups (more than twenty), but she has also shaken things up within the company, including prompting a change in the organizational culture and more recently, giving marching orders to her second in command, Chief Operating Officer Henrique de Castro.

However, the hallmarks of Marissa Mayer’s leadership so far do not include de Castro, or the debate of his hefty send out package- which is well over $100 million. The real headline in the Marissa Mayer narrative is how under her leadership, Yahoo’s stock has gained. Currently trading at around $40 a share, the stock has progressively gained from lows of around $15 a share in mid 2012, the time Mayer took over.

While Yahoo’s share price appreciation was in part boosted by the $7.6 billion Alibaba deal, the stocks resilience has been cemented by Mayer’s renewed focus on the ad business. At the recent annual Consumer Electronics Show (CES) in Las Vegas, the internet company unveiled a spate of new products. While these products boast different features and target diverse markets, one thing remains unmistakably clear; Yahoo’s plan to create a personalized web is coming into greater focus. This has the potential resuscitate its ad business and unlock more upside for its stock.

Chance To Rope In Deep Pocketed Advertisers

Yahoo unveiled Yahoo Food and Yahoo Tech at CES. These new digital magazines not only target niche audiences, but are also tailored for tablets and phones. Niche targeting is the way to go as it allows a content publisher like Yahoo to build more genuine and interactive relationships with users. This presents an opportunity for Yahoo to gain more meaningful insights from its users. The fact that Yahoo Food and Yahoo Tech are also tailored for tablets and phones also allows the internet bigwig to drive its mobile strategy.

Yahoo also unveiled Yahoo Smart TV at CES. The product concept draws heavily the company’s existing Connected TV platform, which is already in use in millions of households today. However, Yahoo Smart TV goes a step further and presents personalized programming with features such as complementary content related to the user’s show. So for instance if you are watching a baseball game, player statistics, club history or even player salaries can stream in concurrently, establishing greater context around users’ interests.

While we can’t go into the details of every product that Yahoo unveiled at CES, it remains signally clear that Yahoo’s new products are built around creating greater context around users’ interest and more notably, encouraging interactivity. This approach presents a chance for Yahoo to rope in deep-pocketed advertisers; advertisers who are willing to accept premium charges in return for precise targeting and continued relationships with their prospects. Already, Yahoo has unveiled Yahoo Audience Ads, which allows advertisers to buy ads targeted to specific audiences. This new platform delivers the right messages to the right users across Yahoo and other high-quality sites.

There is still a lot of potential bubbling beneath Yahoo’s ad business. As Mayer’s ad business strategy continue to come to greater focus, Yahoo’s share price may continue in its upward movement. The stock could be a good long-term buy.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

The post Yahoo’s Ad Business Could Unlock Great Upside appeared first on Wall Street Insanity.

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United Parcel Service Inc. (NYSE: UPS) announced Friday reduced fourth quarter preliminary earnings. In addition, it also cut the guidance for 2013 full year results. Before, it had estimated that it would earn between $4.65 a share and $4.85 a share in 2013. However, it has now revised this estimate downward and expects a profit of $4.57 a share for 2013.

The world’s number 1 package delivery company argued that the fewer shopping days during the holiday season prompted a surge in last-minute orders, forcing the company to take extraordinary measures, including hiring 30,000 more temporary workers and deploying additional equipment. These unforeseen costs coupled with inevitable delays hurt 4Q profit. “U.S. results were negatively impacted by the challenges of the compressed peak season coupled with an unprecedented level of online shopping that included a surge of last-minute orders,” the company said in statements.

As expected the reduced guidance sent ripples down the stock market. Although its shares are as of this writing trading intimately close to $100 a share, they had earlier dipped to lows of around $97 a share on news that earnings would be lower than expected.

UPS will report actual results on Jan 30. Till then, investors are likely to have one foot in and the other out. This presents a unique opportunity to establish a position in the stock.

Long-Term Future Bright

UPS’s business performance largely depends on the wider economy. As such, continued improvements in key areas of the economy will translate into improved business for UPS going forward. In the holiday season, for instance, the company delivered more than 31 million packages on December 23, its greatest record yet. This unprecedented surge in deliveries underscores the economic gains recorded in December. The Consumer Price Index rose 0.3 percent in December, the largest gain in six months, according to figures from the Labor Department in Washington.

Based on the brightened consumer sentiment, and the fact that the Fed is actually pulling down its pillars of support, we can comfortably say that the US economic recovery has taken form. This presents the perfect backdrop for continued prosperity for UPS.

In addition, UPS has previously hinted that it is exploring drones to capitalize the prevalent same-day delivery fad. “We certainly have had, in our technology steering committee, presentations from drone vendors,” said UPS Chief Sales and Marketing Officer Alan Gershenhorn in a recent interview published on Business Week. “The commercial use of drones is certainly an interesting technology and we’ll evaluate it ongoing,” he added. Achieving same-day sales will greatly increase turnaround, allowing the company to make more deliveries and to charge premiums.

In the past five years, UPS has gained close to 80 percent on the stock market. The current 1 year target estimate is $109.21. This presents a close to 10 percent upside (at current price). This is a comfortable margin for a stock with strong fundamentals and a proven track record. UPS is a stock that long-term investors should consider adding to their portfolios.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

The post As UPS Announces Projected Earnings Below Expectations, Opportunity May Be Knocking appeared first on Wall Street Insanity.

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Since the financial crisis, US banks have groaned under the weight of increased scrutiny. However, it appears as if banks may finally be putting the crisis behind them. Not only is the negative sentiment fading away, but banks continue to show strong commitment to reversing their fortunes. These efforts have been felt on the stock market. Wells Fargo (NYSE:WFC), for instance, has gained more than 50 percent on the stock market since the beginning of 2009. Bank of America (NYSE:BAC) gained 34.6 percent in 2013, outpacing the broader market.

Cost Cutting Drives Banks’ Earnings

Bank of America announced Wednesday that its profit rose from $367 million in Q4 2012 to $3.18 billion in fourth quarter of 2013. The positive earnings were staged against the backdrop of continued cost cutting at the bank. Brian Moynihan, the bank CEO, seems to be making headway with his 2010 plan to save the bank $8 billion per year. Along with this, operating costs in the fourth quarter fell by 6 percent to $17.3 billion. Likewise, credit costs continue to shrink. Over the quarter, the bank reserved $336 million to cover bad loans. This pales in comparison to the $2.2 billion that was set aside for the same purpose a year earlier.

Interestingly, Wells Fargo, which also recently reported Q4 earnings, similarly increased its margins through cost cutting.

Wells Fargo, which earned $5.61 billion in Q4 2013, up from $5.09 billion a year earlier, improved its efficiency ratio, the measure that places costs as a percentage of revenue. The efficiency ratio improved to 58.6 percent from 59.1 percent in the third quarter. However small the improvement might seem, it translates into continued profitability.

Cost Cutting Will Cushion Banks From Mortgage Losses

Although cost cutting doesn’t do anything to highlight banks’ long-term strategies for sustainable growth, they are very much needed at this time.

Ever since the Federal Reserve broke news of plans to unwind the stimulus program, interest rates have increased, suppressing mortgage demand and bringing an end to the refinancing frenzy that was previously prompted by low interest rates. Freddie Mac says that rates on 30-year mortgages, for instance, averaged 4.51 percent last week, up from 3.35 percent in early May 2013.

As the Fed continues to taper bond buying, interest rates will continue to rise. This will effectively reduce demand for mortgages. As is, the effects are already being felt by banks.  Wells Fargo, for instance, in its recent earnings, revealed that applications fell by half from year-ago levels and 23 percent on a quarterly basis.

Cost cutting by banks thereby presents an opportunity to mitigate the effects of waning mortgage demand. It will allow banks to get past this phase and reestablish strong growth pillars for future business. Investors should rethink their stance on banks and add them to their portfolios. There could be great upside potential.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

The post Is It Time To Add U.S. Banks To Your Portfolio? appeared first on Wall Street Insanity.

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Target (NYSE: TGT) continues to be the subject of scrutiny following a major data breach that occurred in December 2013. Earlier in December, the retailer announced that about 40 million debit and credit cards had been compromised by a massive security breach. It has since been confirmed that the data breach, which happened between Nov. 27 and Dec. 15, affected some 70 million customers. In addition to credit card information, personal data-including names, telephone numbers, mailing addresses- was also stolen.

The news on the data breach spooked shoppers, leading to lower than expected sales in the second half of December. Along with this, Target cut its earnings estimates for Q4 2013. It now expects its U.S. business to earn between $1.20 a share and $1.30 a share during the fourth quarter, down from prior guidance of $1.50 a share to $1.60 a share.

Interestingly, however, Wall Street seems unmoved by Target’s security breach. The nation’s second largest retailer’s stock has held its ground, trading between $61 a share and $63 a share ever since the data breach was first announced.

Investors view the negativity as a unique ‘buy’ opportunity, with analysts arguing that the stock presents significant upside should Target get through the dark phase. Despite this compelling argument, however, investors need to rethink their stance. Target’s credit card debacle could have hit the company harder than imagined.

Broken Value Chain And Bungled Strategy Are Red Flags

Target’s unprecedented security breach has far reaching effects. It is now apparent that the retailer’s payment partners could face fines. The companies that help Target process payments could be hit with fines running into millions of dollars.

Boston attorney Cynthia Larose of Mintz Levin remarked that Target would likely seek to add its partners as defendants to lawsuits already filed over the breach. “These class-action lawsuits start to bring everyone in at some point,” she pointed out. If and when this happens, Target will have to go a long way to repair relationships with partners in its value chain, which is the chain of activities a firm goes through in order to deliver a product or service. This could attract huge costs, putting a drag on future earnings and more notably, limiting upward movement in the stock market.

The security breach also reduces Target’s strategic edge. Online shopping is currently in the vogue and research from multiple sources show that online retail sales will continue to gain traction in the coming years, ultimately eclipsing physical shopping. In light of this, retailers need detailed personal information on shoppers in order to present unique online shopping experiences. Target’s data breach, however, compromised shoppers’ personal information (telephone, address). This could negatively impact consumers’ propensity to fill in forms or participate in online surveys, limiting the amount of personal information that Target acquires on its customers. Furthermore, Target will have to spend more money reassuring consumers in the future that their personal information is safe. These added costs could yet again impact earnings growth, leading to limited upward movement on the stock market.

Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

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As Wall Street Insanity reported on Friday, data from the IDC indicates that Android tablets outstripped Apple’s iPad in the global tablet market for the first time ever in the third quarter. This maiden defeat signals the traction that Google (NASDAQ:GOOG) is gaining in the mobile segment, a strategic segment as far as the future of tech goes.

Just as a recap, data from the third quarter indicates that Android tablets made up for a large share of the market in terms of revenue. Android tablets staked out 46.2 percent of revenue compared with iPad’s share of 45 percent. The margin was even more visible when it came to unit market share where Android devices came ahead of Apple with a market share of 66.7 percent, having gained from 40.2 percent in the year-ago quarter.

IDC analysts however say that Google’s victory could be short-lived in view of the expected momentum that Apple’s new iPad Air and iPad mini are expected to generate this holiday season. Nonetheless, this is not a huge concern for Google. Why is this so?

Google Is More Concerned About User Engagement

Google’s underlying strategy is not as monumental as its rally on the stock market. If anything, it is just about the simplest strategy a tech company of its size can have.

Step one is to increase user engagement on all Google platforms (Android, Google, Gmail, YouTube, G+) , step two is to glean insights from data provided by users, and step three is to improve ad targeting through these said insights.

This strategy is very important in light of the impact that mobile ads are having on the digital ad business. A report in the New York Times indicates that mobile ads on average cost half to two-thirds as much as desktop ads. Seeing that mobile is becoming the dominant platform, Google’s strategy is instrumental in averting a fate that many will, and are already falling into; suppressed margins.

Through gaining deep insights on consumers, Google will be able to improve targeting to the extent that its ads will merit premium payments. And although investors will not see the rabbit being smuggled into the hat, the prospect of premium ads is gathering on the horizon. Other than increased engagement on Android tablets and smartphones, a recent study on 4014 teens by futures company DNAINDIA indicates that YouTube is now more popular than Facebook (NASDAQ: FB) among teens. 50 percent of the teens surveyed preferred YouTube relative to 45.2 percent who preferred Facebook.

The Bigger They Are The Harder They Fall

In line with Paul Shea’s viewpoint in one of Wall Street Insanity’s previous reports on Google, the tech company’s size is an issue. Just to add on that, the Mountain View based tech heavyweight could become even bigger when its agenda for premium ads comes to greater focus. This could be a huge hindrance for individual investors. Not only will the share price, which is already high, be prohibitive, but volatility on the stock market will raise the risk profile.

What investors need to watch for going forward is not the growth prospects, but rather Google’s effort to control its size. It would be in order if Google did either of the following in the foreseeable future: (a) starts issuing dividends to rope in income oriented investors who do not trade on emotion (b) initiates share buybacks to reduce shares outstanding, raise EPS and retain unemotional investors or (c) considers a 2-for-1 stock split that reduces share price but maintains company value. Either way, Google needs to do something about its size.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

The post Why Google Could Be Its Own Worst Enemy appeared first on Wall Street Insanity.

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Starbucks Corporation (NASDAQ:SBUX), the world’s largest coffee company, is certainly a darling of Wall Street. At $80.94 a share, its stock is trading intimately close to its 52 week high of $82.50 a share, having gained from lows of $48.95 a share twelve months ago. To add icing to the cake, analysts have pegged a 1 year price target estimate of $89.12, signaling that there is still room for upward movement on the stock market.

Compelling Fundamentals Tell Only Half The Story

Starbucks’ bullish narrative is supported by its compelling fundamentals. In the fourth quarter of its fiscal year which ended in October, the coffee maker posted a 37 percent year-on-year uptick in earnings per share and beat estimates of $0.60 EPS to record actual EPS of $0.61. The bigwig’s revenue also gained 12.8 percent year-on-year. In line with this stellar performance, Starbucks stepped up its quarterly dividend to $0.26, signaling a 24 percent quarterly increase. This incremental increase in the Q4 dividend culminated into an annual yield of 1.28 percent. Ostensibly, this yield doesn’t pass by as a great bargain. However after considering that Starbucks started issuing dividends in 2010, the dividend yield is quite impressive. Moreover, dividend payments have been on a steady increase from 2010 through to 2013, having increased from $0.36 in 2010, $0.56 in 2011, $0.72 in 2012 and $0.86 in 2013.

Starbucks’ commitment to creating shareholder value, coupled with great underlying fundamentals, provides the perfect backdrop for an interesting growth narrative, and more importantly, strengthens the buy case. Surprisingly, there is an even greater reason why you should buy Starbucks stock for the long-term.

Strong Brand Promises Great Growth Going Forward

Businesses are the same; it is the brand that makes them different. This is conventional business wisdom. In line with this, Starbucks is going to great lengths to build the right brand; a brand that signals its ability to constantly deliver beyond its promise.

From a marketing standpoint, a great brand is not about everyone knowing you, but about everyone liking you. It is about what “they” say you are and not what you try to say you are through advertisement campaigns.

Starbucks recently announced that it would hire at least 10,000 veterans and military spouses over the next half decade. The world’s largest coffee maker will establish an internal infrastructure to pair the transferable skills of veterans and military spouses with specific talent across the company. This move comes amid a continued push from various pressure groups to avail work for veterans and military spouses, who for a long time have found it hard to get a job. Starbucks, which rolled out wireless charging in its stores, also announced that it would open community stores in San Antonio, Texas and Lakewood, Washington.

Earlier in the year, Starbucks came out to publicly support gay marriages. In a bold move during the company’s annual meeting, CEO Howard Schultz responded to a shareholder’s opposition to the company’s support for gay marriages by saying that it was a free country and that the shareholder in question, later identified as Tom Strobar, could sell his shares.

Takeaway

By sharing in the community’s problems, Starbucks not only shows that it cares, but that it is also part of the community and not just a business. This strategy continues to grow the brand; which in effect hedges against volatility in earnings and fuels growth on the stock market. Starbucks looks like it could be a good long-term buy.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

The post Starbucks’ Brand And Commitment To Shareholder Value Make It A Buy appeared first on Wall Street Insanity.