September 7, 2010 | In: Opinion

HP Sues Hurd For Joining Oracle

After two days of talks with Oracle, Hurd decided to join them as a board member, mainly overseeing acquisitions. It only took a few hours for HP to sue him, which is very logical, as Hurd must’ve signed an NDA with HP at one point or another, and in his current job, he will definitely use all the knowledge and expertise acquired in HP to serve his new employer, Oracle.

ORCL went up over 6% today on the news that Hurd is joining (Hurd is best known for tripling HP’s sales), and apparently it wasn’t affected by the lawsuit. It seems to me that Oracle is already prepared for such move by HP, and they probably have the legal response already canned.

Oracle is currently trading at $24.38, HPQ is currently trading at 39.95, down 1%.

Oracle is 31% larger than HP in market capitalization. This, is what I call, the clash of the titans.

I was just watching this video on the double dip stock, apparently the guy doesn’t believe that there will be a double dip recession (and neither do I), but in any case, he started recommending stocks that he thinks will go up in case of a double dip recession. His picks were, in my opinion, the most horrible and unethical stocks out there:

LPS: Lender Processing Services is a company that provides the technology to banks to process all refinances, foreclosures, etc… LPS is currently trading at $31.26, 10 x EPS. This is the least horrible company of the trio.

CSH: Cash America is more or less a loan shark, they give high interest loans by mortgaging a piece of gold (or other things of value), and if the person fails to pay the debt on time, then they keep the piece of gold, that may be worth 10 times the loan given. A very disgusting stock that I will never ever trade. CSH is currently trading at $3.24, 9 X EPS.

PRAA: Portfolio Recovery Associates is a debt collecting agency. They buy bad debts from banks at around 40 cents for the dollar, and then they try to collect them, by any means necessary (and by any means I mean any means). Clearly the ugliest of the 3, the stock is trading at $67.20, 19 X EPS. PRAA is trading at nearly an all time high (which, ironically, tells you something good about the economy, as this means that people are paying back their debts).

What a horrible way to make money…

It was expected, but not this week, I even talked about the Greek Factor yesterday, and said that it will probably affect the US markets next week, but apparently someone decided that it should be today that the US markets should remember the bad European economy, and the markets went down.

In these cases, financials are mostly affected, including C and BAC. The DOW is currently down 85 points, but call me an optimist, I think that the DOW will go up from here…

I was meant to happen anyway, the European debt crisis was just a pretext to get the markets down a bit so that large investment firms would make money shorting stocks. If you have enough money, you can change the market mood the way you want, regardless of the fundamentals and the facts.

I hope that tomorrow will be a better day.

I have written about PM before, and I labeled it as the “Ultimate Sin Stock” because of the ethical implications when trading this stock. Now I looked at PM again, purely from an investor’s perspective, and I can see that it’s almost at an all time high, apparently sin stocks always perform well. But to be honest, I was amazed that the stock is going up, amidst all the new regulations (banning smoking in almost any enclosed space, checking for IDs before selling to people who seem like minors, forcing tobacco companies to place scary health warnings on the box, etc…), and not only that, I do feel that smoking is no longer cool, which results in even less people smoking. BUT, look at these statistics, smoking started picking up again in 2008 (in the US) after a long, and constant decline, so it might be that smoking is also up in 2009, and 2010 (maybe people are reacting to the bad economy by just smoking). There is also an important factor, tobacco companies are marketing geniuses, they always try to make smoking seem like a rugged behavior (for men) or a classy habit (for women). Smoking also, is a great way to socialize:

- You go out and have smoke, another person goes out and have a smoke, and you meet, you talk, etc…
- You’re walking on the street and smoking, and someone just asks you for a lighter, and you may talk, and socialize…

Tobacco companies are also very good at expanding in emerging markets, which is probably why the stock is going up… I do think though that PM is now overpriced and I predict a correction to the $52 level soon.

PM is a buy below $50, and is a great buy below the $47 mark, if we’re ever to see this level again…

I was having another pass at the top losing stocks of Friday, and I found these:

CLDX (Celldex): A pharmaceutical company that reported a net loss of 30 cents per share on Friday morning. The stock dropped 26.15% on 20 times average volume. The stock went down to an all time low of $2.91 in the beginning of the trading, and then closed at $3.53. I would stay away from this stock, EPS is -$1.30, small company, scary, unless, of course, they get bought. The only attractive thing about this stock is that it reached an all time low on Friday, so maybe… But I will not touch it myself.

ZQK (QuickSilver): First I want to give my personal opinion about this apparel brand, I really hate it. Now let’s go back to the stock, it dropped 11.5% on 6 times the average volume after the company lowered its forecast for the fourth quarter. EPS is -8 cents, the stock has still room to drop. I would stay away. ZQK looks very similar to APP, in my opinion.

AVNR (Avanir Pharmaceuticals): Another horrible pharmaceuticals company that is losing money (EPS is -29 cents). Stock dropped 7% on 2.5 times the average volume to $2.71, after traders noticed a high put activity on this stock. This stock, in my opinion, is the worst in this list, and it has room to drop below a buck. I would definitely stay away.

September 6, 2010 | In: Opinion, Technology

Is It Wise to Buy MSFT?

Let’s face it, Microsoft is the biggest dinosaur in the corporate world and this shows very clearly in their stock, their products, and on their website.

Let’s first start by their website, take a look at it, could you think of a more hideous website, disgusting, and unusable website. Even Bill Gates admitted it back in 2003 (and trust me, the website hasn’t changed to the better since then). Remember, their website is the website of a company that has a market capitalization of over $200 billion. Their gray menu looks like it was done in MS Frontpage, and their favicon has nothing to do with their corporate logo (except, of course, the letter M). It has a very unintuitive interface when someone wants to really find something, and of course, it uses the most horrible search engine in the world.

Of course, judging a corporation by its website is not fair, but Microsoft, is after all, the biggest software developer in the world, so you really expect something more.

Now let’s move to the products. Microsoft’s huge economy depends on two things: MS Windows, MS Office. The rest is peanuts, including the XBOX 360, and its upcoming project natal technology (or whatever the current name is). It is safe to say that developed economies and most emerging economies are saturated with these 2 products, and the growth in this area is now flat. See I think that Microsoft shares the same problem with Google: Both have produced their biggest cash cow a long time ago, and the only thing that they seem to do right (most of the time) is enhancing this product, the new products they come up with are mostly flops. They’re just unable to maintain the growth and the high expectations, and they’re most likely infested by bureaucracy (you can see an example of Microsoft’s bureaucracy here).

Now let’s talk about the stock, MSFT, like most technology companies, suffered a major correction blow back in 2000, and the stock never really recovered to that level (it is trading at less than half the peak of early 2000). MSFT also suffered a major blow in April and it still hasn’t recovered (probably it’ll take a lot of time and a lot of inflation for the stock to recover to even the April level). Some say that it’s Steve Ballmer, this is a good theory, but let’s face it, MSFT hasn’t been doing great for a long long time, and it’s been trading more or less flat since 2001 (hovering between $23 and $30, with a slight peak in 2007, and a drop to $19 during the credit crunch effect in 2008).

But the nice thing about MSFT is that it’s a steady and predictable stock, if it goes down 4 or 5%, then this almost certainly means that the stock will go up the 4 or 5% in the next week or so. It’s a mature stock, that shouldn’t be traded for a long position at all (they yield, if any, will be very low).

MSFT is always a buy below $24.

September 6, 2010 | In: Opinion

Let’s Not Forget About Greece

I think we still have a week or so with this bullish momentum until everyone starts remembering Greece. I am reading more and more articles about Greece every day now. It seems that this will be another major issue in a week or two that will adversely affect world markets.

Here’s what I remarked about Greeks in general:

1- They’re the funnest and most lively people on this planet.
2- They hate taxes (and try their best to evade it).
3- They hate their government, and they don’t trust it.
4- They love their country.
5- They don’t want anyone meddling with their own affairs (that includes you Germany).
6- They love their lifestyle, and they would do anything to maintain it.
7- They can’t be labeled as Europeans if it’s up to Germany to define who’s European and who’s not, they have a different and unique identity. I’m just one of those who don’t buy into this whole European “citizenship”, where countries lose their identities in favor of a bigger, more general identity (that is really more or less a mixture of the German identity financially and the French identity politically).

With no further explanation, and judging from the above (especially 2, 3, 5, and 6) I find it hard to believe that the current Greek government will be able to meet its obligations. I believe that the best thing that the Greek Government can do is to get out of the Eurozone, or risk a potential deeper crisis. No one can tell for sure how Greeks can tolerate these austerity measures that resulted from the death warrant that Greece signed when it decided to become part of the Eurozone. Had the Greeks been using the Drachma, it would’ve been much easier for them to just inflate their currency and print money, but then again, most of the Greek debt is external, and it is over half a trillion dollars, so I’m not sure investors would like to get worthless Drachmas for their dollars. So, if Greece leaves the Eurozone, converts to Drachmas, and starts printing money, then investors will have zero trust in Greece for a very, very long time, and this would isolate Greece economically and politically, at least from the developed nations. Rapidly developing nations, on the other hand, might not have a problem to embrace Greece as their poster child, and this is probably Greece’s strength and pressure point on the EU.

The EU (and subsequently, the Euro) is under a real threat right now, Greece is the second smallest country (after Portugal) of the so called PIIGS nations (Portugal, Ireland, Italy, Greece, and Spain), and they all have huge problems. Germany does not understand that it cannot dictate its frugal lifestyle and its economy on these countries (where people really like to live). This may be tolerated for a few months, but not for years.

The problem right now is that world economies are so interconnected that we will feel something every now and often from this huge mess, as Obama stated.

Either way, the DOW can’t continue to go up 500 points every week, so someone, somewhere, must find a reason that will drag the DOW lower 500 points, not next week, but maybe the week after. And what better reason there is other than Greece…

September 6, 2010 | In: Opinion, Technology

A New Era For Oracle?

Mark Hurd, the former HP CEO who resigned (or got fired) after a scandal that wasn’t really as scandal, is currently in talks with Oracle, where he may assume a top position.

This man, no matter how you see it, is a genius. HP was a failing company with a bad business model. Under his guidance, the company assumed total control of home and small business printers and became the #1 laptop seller as of 2006, and the #1 desktop seller as of 2007.

When Hurd became the CEO, HPQ was trading at around $30, and when he left, it was trading at $47 (with a peak of $54.75 back in April ’10). The stock stock dropped to $37 since Hurd resigned, and is currently trading at around $40, making his resignation probably the most costly ever, with HP losing $14 billion in market capitalization.

I’m skeptical about HP’s future, but I think they’re still doing well, and they will still do well for the next year or so. After that, the new CEO will start driving the company, and who knows in what direction…

Hurd is a personal friend of Larry Ellisson, Oracle’s CEO, who’s probably vouching for him in the Oracle’s board. Oracle, in my opinion, is not doing as well as it was doing back in the late 90′s and early 2000′s. It’s not aggressive anymore, and it’s not gaining more market share. This could change with a fresh vision of the company from Hurd. I have to say though that if Hurd joins Oracle, then Oracle employees should be afraid, very afraid

ORCL is currently trading at $22.92, 19 times EPS. ORCL is very comparable in growth to MSFT and HPQ (peaking in 2000 with a huge drop after the NASDAQ crash, and now trading at more or less half the 2000 peak).

In order to examine this topic, let us see the process of how a bank is created in the US:

Uncle Joe: Them banks make a lot of money.
Uncle Joe’s friend: Yup.
Uncle Joe: I want to make a bank and start making money myself.
Uncle Joe’s friend: Great idea! I’m in! What should we call this new bank?
Uncle Joe: How about “Uncle Joe’s Bank”…
Uncle Joe’s friend: Wow!

The conversation might be longer, but you get the drift. These kinds of conversations were the reasons why the US has so many what I like to call “Bugs Bunny Banks” that were one of the main reasons behind the subprime mortgage crisis that lead to the recession of 2008-2009.

The conversation above, however, does not apply to creating Canadian banks, because the requirements are much steeper in Canada. Because of that, the total number of Canadian banks is less than 20, and the number of Canadian banks where most people deposit their money is five.

Canada’s economy is highly dependent on resources (such as oil, gold, timber, etc…), and the world just can’t get enough of these resources nowadays because of the growing demand in emerging economies, so it is very hard for this economy to fail, which means that it is very hard for Canadian Banks to fail, at least under the current conditions. Not to mention, of course, that Canadian Banks use the soundest principles in the world.

Now that I have explained myself, take a look at RY and BMO, they released some less than expected results 1 week and 2 weeks ago, and their stocks fell immediately, but now, they’re both back to the pre-results level. It was an obvious buying opportunity when these stocks fell… I recommended RY two times last week, I wonder if anyone took the advice.

I like to trade these stocks, no make that “I love to trade these stocks”. Not only they go up shortly after I buy them, they also act as a hedge against currency inflation (I buy them in Canadian, so if the Canadian dollar falls, the stock goes up, which is great, because all of my other stocks are in USD).

RY (NYSE) is always a buy below $50, and BMO (NYSE) is always a buy below $55.

Now that the 3PAR war is over after DELL walked away from the bid, one has to wonder, who is the next 3PAR?

DELL really wanted 3PAR, that’s why they went through this bidding war with HP to buy this company, but they lost it, as I predicted it. So DELL now wants to buy a company that is similar to 3PAR, so who are the potential candidates in this area?

Some investors think it’s Quantum, but let’s be honest, although Quantum produce hard disks, their target markets are completely different than 3PAR’s: Quantum is focused on individuals, 3PAR is focused on enterprises. It might be that with tweaking the company would become another 3PAR, but I don’t think DELL wants to wait that long (otherwise it wouldn’t have fought for 3PAR). Western Digital and Seagate are the same story as Quantum, although they’re much more expensive.

So who else? 3PAR’s main competitors in the same niche are:

- EMC: Market Capitalization is $41 billion. Almost 2 times that of DELL. DELL has ti find a very big goldmine somewhere with gold already extracted and ready to be sold in order to buy EMC. So EMC is out of the question.
- IBM: IBM offers the whole solution, just like DELL, and is not really a company dedicated for storage. So, there is no way that this is an option (unless IBM goes insane), and of course, IBM is almost 7 times the size of DELL by market capitalization.
- Hitachi Data Systems: Now this is the most intriguing options. Hitachi Data Systems is privately held though, but for sure the sale of this component will prop up Hitachi’s stock.

Let us examine in more details the last option, Hitachi is a 100 year old Japanese company that is known for its appliances, but not very well known for its computer products. Now selling the data storage unit would make sense for Hitachi, and would also make sense for DELL. Hitachi’s data storage unit might be internally valued at around $300 million as the company’s whole market capitalization is $18.9 billion, and again, the data storage unit is not very well known, so this makes sense. In fact, Hitachi was a close watcher of the 3PAR fight, and it made an important decision based on that, which is taking its data storage unit public (they made this decision on September the 1st, one day before the bidding war between DELL and HP ended, what a coincidence!). Hitachi says that the emerging company should be valued for about $3 billion (10 times what I think the data storage is internally valued), claiming that this number is based on the revenue of its last 12 months, and the value of its competitors, Seagate and Western Digital. But we know that Seagate and Western Digital (market capitalization of $5.27 and $6.10, respectively) are not really Hitachi’s main competitors, but 3PAR is (or was). Not mentioning 3PAR as the main competitor is similar to Hitachi telling the world (or maybe just DELL): “Oh, we didn’t know 3PAR was bought by HP for $2.4 billion”. This is ridiculous, Hitachi knows that DELL would be surely after their data storage unit after they lost 3PAR, and now they want to make this part of their business look like it’s worth 10 times more than what it really is.

But DELL won’t pay $3 billion for Hitachi, nor $2 billion I think, probably $1.5 billion is an acceptable number.

Hitachi is trading at 37 times EPS, so if it’s valuing its data storage unit the same way it’s currently being valued, there is a problem…

There is one last factor that comes into play, which is that 3PAR now belongs to HP, so DELL might have a problem buying from 3PAR directly now, or 3PAR might have a problem selling to DELL…

I think DELL is now screwed in all cases, and has to either buy the unit from Hitachi at a highly inflated price, or make a deal with Hitachi to integrate their data storage solutions into DELL’s enterprise solutions…

HP really played it beautifully…