After reporting on the Burger King takeover rumor, I can confirm right now that it’s no longer a rumor. Apparently 3G Capital, an investment firm, is currently in talks with BK to buy the famous (and worldwide) food chain. It’s not known yet how much 3G Capital is willing to pay for the sale, but BK market capitalization is currently $2.56 billion. My opinion (again) is that 20 times EPS is a fair price for the food chain, which makes the total amount to be paid to buy BK is: $1.36 x 20 x 135.88 million shares = $3.7 billion. Anything above $3.5 billion is actually good.

The lowest ball offer is probably 17 times EPS (which is McDonald’s P/E), which is about $3.14 billion (or $23/share).

BKC is currently trading at $18.88, down from $19 an hour ago, even after the rumor has been confirmed.

September 1, 2010 | In: Services

Burger King Takeover Rumor

BKC has jumped 15.50% to $19.00 so far today. Apparently there is a buyout rumor spreading.

Burger King is not a bad company but I personally don’t like it and I don’t believe in it, especially in the past couple of years. The Burger King ads are almost non-existent nowadays, there are no new products/recipes, which hints that the marketing department currently in charge of BK is extremely weak.

Until now nobody know if the rumor is true or not, and maybe we will not know in weeks (the last takeover rumor reported on this website last week is still to be confirmed or denied).

BKC has dropped slightly to $18.90 while I’m writing this post. BKC has an EPS of $1.36 (a number that is relatively higher than that of MCD, which is an excellent stock). BKC is trading a P/E of 13.95, is bearish on the medium and the long term, and has an RSI of 42.15.

If the rumor is true, then the stock may very well go up to a level 20 times its current EPS, which is 20 x 1.36 = $27.4 (44% higher than the current price). Of course, the stock can touch the $30 level when all the “leechers” jump in for a quick profit.

If the rumor is false, then expect the stock to around $17.50, as many speculators will hold on to their stocks for a while.

One thing remains, who’s rumored to buy this stock? Apparently a few private equity firms are interested in buying Burger King (are we going to have another bidding war involving two or more parties? If this happens then expect the stock to jump much much higher).

My own feeling is that this stock is too risky at this price, but if you know something I don’t about this, then go ahead, buy it!

September 1, 2010 | In: Financial

CVBF Rebounding

Finally, CVBF has started the rebound, it was bound to happen, as the stock has been trading at a very low P/E and very close to the book value (which is $6.33).

The stock is currently trading at $7.13 up 32 cents from yesterday. Apparently the stock is changing direction from the downward trend. A highly recommended buy, the stock may be trading at $7.50 by the end of the day.

CVBF is a solid and a very old bank, and a couple of lawsuits here and there shouldn’t really affect the stock.

Note: The stock is now trading at $7.15. What are you waiting for? No, make that $7.16.

September 1, 2010 | In: Services

DGIT: A Stock That is Rebounding

2 days ago, DGIT dropped to $15.02, a 3 year low, even after the company exceeded expectations. However, 2 things weighed greatly on the stock: A lowered guidance, and a possible lawsuit.

Now I have seen this many times, a lowered guidance will beat the stock to near death (remember GOOG), and then sound investors wake up, and start buying the stock. Yesterday the stock started its rebound and went up 4%. Today in the pre-market is the stock is up about 2%. I think the stock will close at $17 today.

A class action lawsuit, IF it materializes, is a totally different story, but until then, the stock is still largely undervalued, and even $17 is an excellent entry point.

The company fundamentals are great, and the EPS is 1.25, which means that the P/E is 12.60 at the current stock price. The stock was trading at $27.15 last Friday. What are you waiting for? This is an excellent bargain!

Twitter is not a stock, but it’s a business that may be very well bought (It was rumored that Google once wanted to buy it), or even go for its own IPO (although I find it hard for the current business model to justify an IPO).

Let’s talk about the Twitter revenue stream, it is, with all due respect to Twitter’s executives, negligible. Twitter is so famous yet so poor. Twitter has been burning through venture funds for years now, even adding more employees, but apparently nobody cares.

People using the Twitter platform are making money (through as spammy model called sponsored tweets), but Twitter, in and for itself, makes none (Twitter though has since promoted its own version of the sponsored tweets, the promoted tweets). There is no advertising at all on Twitter, save for the fact that the trending topics are sometimes manipulated by Twitter’s engineers to inflate a new product/movie/etc.., for example, Avatar (although I’m not sure if Twitter gets paid for this or not).

Since Twitter is a website, let us examine its traffic:

As you can see from the above graph, Twitter’s traffic has been increasing steadily for the past few months (notice the huge spike between February and March of 2010, hmmm…)

So as a website, Twitter is interesting to its users, but as a business, it is, to this moment, a complete flop, and I’m not sure when and how will the investors react. Twitter can make money using ads (even using the Google ads), but probably the Twitter people think (and rightly so, imagine seeing this tweet surrounded by ads) that the public will perceive the website as spammy. After all, the longest paragraph on the website is a 140 characters.

There must be a business model, but until now, I can’t figure it out, and for that matter, nor does anyone at Twitter. Which explains why Twitter didn’t get bought yet, no one, including potential buyers, can think of a sustainable business model that can make this website profitable.

But Twitter has its own problems. How many times/day do you see the large whale being carried by birds or the robot saying that there is something technically wrong. At peak times, I see the whale 30 to 50% of the times, and the robot once a day. Even after years in the business, Twitter still doesn’t have a reliable infrastructure in place. I don’t know for how long people will tolerate this.

Twitter is not a website that can disappear in a week, but unless they start thinking about a serious business model and expand their infrastructure to support the growing needs, they may very well end up like myspace, losing a considerable amount of traffic every month. Twitter is very easy to mimic, but it has succeeded in branding itself (Google tried to destroy it with Buzz but they failed).

The only logical and happy ending for Twitter is to get bought fast by Google or Microsoft who will probably exploit it to increase traffic to their websites. Even media giants such as Newscorp and Time Warner can see value in this website. Twitter doesn’t have all the time in the world like facebook, it must be sold as soon as possible, or face dire consequences such as serious competition (remember how people flocked from myspace to facebook), and perhaps obsolescence (after all, Twitter is a technology, and technologies become obsolete very fast).

One day after I’ve written about RIM’s arrogance, RIMM has plunged 4% to over a 4 year low of $43.42 (the stock will probably close below $43) on high volume (the volume by the end of the day will probably be about 24 million), which is an indication that some investors are jumping ship. RIMM’s decline even weighed heavily on the NASDAQ and curbed its gains, in what was going to be a good day.

RIMM’s uncertainty in emerging economies is putting a lot of pressure on the stock. Although I hate RIMM on the long run, I do think that the stock is currently way undervalued (I already expressed that I thought it was undervalued at $46.50), but I do believe that there will be a better entry point by the end of the day to buy the stock. RIMM’s lowest support level was $47.43, and it was broken two days ago. The stock is currently in a free fall.

If I want to buy the stock I’d wait for a pullback below $40 to buy, or a sign that the stock has stopped the downtrend (moving up on volume).

RIMM has fallen another 14 cents while I was writing this article, and is currently trading at $43.29, make that $43.28!

August 31, 2010 | In: Financial

Is There A Gold Bubble?

Almost everyone these days is recommending buying gold as a gold hedge, except for one person. George Soros is recommending investors to sell gold (or stay away from it), insisting that we are experiencing a gold bubble that will burst, sooner or later. But since he only sold 6% of his GLD shares, he probably thinks it’s later.

George Soros is not someone to be taken lightly, and he nearly always predicts the future when it comes to the financial world. One of the most famous stories about this person is when he nearly bankrupted the Bank of England after shorting $10 billion worth of pounds sterling. The Bank of England was forced to devalue its currency, and Soros made a billion dollars. Not too bad for just a Wednesday’s work.

Just over 2 years ago (in April of 2008) when the barrel of oil was trading at $110, I remember watching a very interesting interview with Charlie Rose. Soros said that there was an oil bubble. Oil reached an all time high of $145 in July, and then tumbled to $37 by the end of 2008. Oil is trading at at $73 at the moment.

I think gold has still room for another 15%, after that it will collapse, and unlike oil, it will never go up again. Gold is not something we desperately need to survive, oil, on the other hand, is.

August 30, 2010 | In: Opinion, Technology

On the Arrogance of RIM

I have never seen a more arrogant company than RIM, they think they want to make the world a better place, and they somehow are free to do whatever they think right in countries where they operate in. They think it’s within their rights to lecture these countries, and lie to them about what RIM can and can’t do. Here’s a little piece from a Bloomberg article:

RIM company maintains a “consistent global standard” for lawful access to its messaging system which “does not include special deals for specific countries,” the company said last week, reiterating an Aug. 4 statement. It also reaffirmed it can’t meet requests from governments for codes to users’ data because the BlackBerry corporate service was designed to prevent RIM, or anyone else, from being able to read encrypted information.

Let us dissect the above statement:

- “Consistent global standard”: Good luck with applying this concept. Ask Google how well this philosophy worked for them.
- “Lawful access”: As far as I know and so far, only countries have asked to have access to their own users’ data. Do the RIM people think that some countries are requesting unlawful access. And who defines unlawful access anyway? RIM? Has RIM become so strong and so big now that it thinks it has the right to act as a legal entity.
- “RIM unable to read users’ encrypted information”: As someone who has been programming all his life, I can safely tell you that this is a complete and utter lie. If you have the encrypted data of your OWN system, there is no way you’re unable to decrypt it. Think about it this way, at one point, the data has to be decrypted so that it can be read by the end user. It can be decrypted on the user’s blackberry and it can be very well decrypted on one of RIM’s servers. This is a rule: If you have the data, and if you’re the one who built the system (which is RIM’s case) you should be able to always find a way to decrypt it. Even if RIM claim that they don’t store encryption keys for users (which is something I don’t believe), they can start storing them as of this moment (the next time any user handshakes with their system).

RIM’s arrogance and stupidity are now at new lows, they don’t think about their investors, they think that they can challenge countries (hold on cowboys, even Google couldn’t do it, and lost it all to Baidu, and you’re still 15% of Google’s size), and they think they can get away with it as long as the Canadian government is behind them.

The stock has lost 18% of its value this month alone, and is poised to lose more, until RIM’s executive team is completely replaced with rational people. RIMM is trading in the pre-market at $46.29 down from around $57 the beginning of this month.

India will decide tomorrow on the fate of RIM’s operations, of course, had RIM been logical and flexible, we would have never been at this stage. India has a population of 1.14 billion (but apparently is not large enough to be taken seriously by RIM).

August 30, 2010 | In: Services

Revisiting BIOS

20 days ago, I have written a post about BIOS on why I think it’s a bargain stock. At that time, the stock was at a mere $4.54, rebounding from a low of $4.13. The stock closed on Friday at $5.11, and there is a huge potential that it will close this week up 20%, at more than $6.

Here’s my reasoning:

- The market has realized that this is not a bad company after all, when their EPS is $1.01, and their P/E is just over 5, which makes Bioscrip the most undervalued profitable pharmaceutical company in the market.
- The M&A spree is expanding into pharmaceuticals, as Sanofi has just made a bid for Genzyme. I believe this move alone will have a considerable positive effect on BIOS.
- Bioscrip executives are willing to buy back BIOS to maintain the price.
- BIOS is trading very close to the book value.

Usually I wait for a retreat before buying a stock, but this stock has already retreated a lot late July and now is rebounding. Highly recommended.

August 29, 2010 | In: Technology

What Is Netezza?

I was checking the stocks that soared on Friday, and I discovered a very interesting stock, NZ. Netezza closed at $20 in the after hours, up $5.08 from Thursday (about 34% higher) on 14 X the average volume.

What is this company and why did this happen?

Netezza produces data warehousing appliances, essentially providing a hardware storage with a built-in database and an application built on top of that database to facilitate storage. It does seem to allow ad-hoc reporting. Netezza has around 325 customers, including mega government agencies.

Of course, what Netezza provides is not nuclear science, and it’s been done by other companies.

This happened because Netezza announced better than expected financial results on Thursday afternoon, after the market closed, but in my opinion, the market overreacted, and the stock is way overvalued. The EPS was 0.09 cents, which makes the Netezza’s P/E over the 220 mark (this is one strong P/E!)

Netezza’s business can be classified in the same category of 3 PAR (PAR has quadrupled in price so far), so maybe investors are looking for another in the current M&A gold rush? And at a market capitalization of only $1.23 billion, Netezza might seem very cheap for a large company in need for its technology.

I would never ever buy this stock… Nor should anyone with his right mind, unless, of course, you’re someone who knows stuff before others do, and can make much more informed decisions than the rest of us.