January 25, 2012 | In: Technology

Is IMAX Overvalued?

One of the stocks that I made a lot of money with is IMAX. IMAX, in case you don’t know, is a Canadian company which provides a unique theatrical experience (I wasn’t impressed myself, and I thought watching an IMAX movie was painful, regardless on how good the movie was). IMAX gets a royalty from using its technology. IMAX is a solid company, but is it worth trading at a forward P/E ratio of 21? Let’s see.

As stated earlier, IMAX makes money from royalties on movies that are using its technology, which means, the more movies we have, the more money IMAX will make. Most, if not all, important movies use the IMAX technology. Now, the question is, how many good movies do we have in 2012? Unless I have been living under a rock for the last year or so, we have only one good movie, the hobbit, which is set to be display in theaters by the end of this year. We don’t really have blockbusters movies this year (unless you call the new Snow White and the Hunstman movie a blockbuster), unlike last year where we had 2 Harry Potters, 1 Pirates of the Caribbean, and a Transformers movie. This mean that there is no way that IMAX will be able to make the same amount of money this year as last year (IMAX is one of the easiest stocks to predict, just know how many blockbusters there are and you will know the direction of the stock).

I’m not sure if good movies will be scarce in 2013 as well (well, IMAX must pay J.K.Rowling a huge sum of money to come up with the next Harry Potter series), but it seems that the whole movie business is in a decline state, at least from my perspective (maybe I’m wrong, but think about it, can you think of any unforgettable movie that you have watched lately?).

So what does that mean? It means that IMAX will disappoint investors another time (in a big way) this year (the latest big disappointment was back in June, 2011 – when IMAX had better movies). Any investor worth his salt should avoid this stock until after June of this year. The results will most likely be terrible, to say the least. In the extreme, I expect IMAX to trade in the single digit, but don’t expect IMAX to remain above the $20 past the summer – in fact, I consider it as an achievement if IMAX sustains the $15 level.

By the way, to add more to the problem, IMAX is expanding rapidly, and that expansion comes at a hefty cost. IMAX will feel it – and will make sure that its investors feel it – next June.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

It’s that time of the year again, where everyone is closing the previous year (financially) and preparing for the tax season. As stock investors, we know that we have to pay taxes on our capital gains from our stock trading. In this post, I will explain for first time stock traders how much taxes they should pay on their profits, and when they have to pay taxes on their stock gains…

Let me first start by debunking a very common myth (or belief) that seems to worry many first time investors: “I have to pay taxes on my gains, regardless if I sell my shares or not, once the year is over”. Most first time traders think this way: If they bought, let’s say, 1000 shares of AAPL in the beginning of 2011 at around $350 a share, then in their tax return of 2011 (that is done in early 2012), they have to pay taxes on their gains (that amount to around $75,000 if we assume that AAPL last close price in 2011 was $425). This is incorrect, you only have to pay taxes on your stock gains if you sell your stocks. So, if you don’t sell these AAPL shares in 2011, you don’t have to pay a dime in taxes. The only thing that you have to pay taxes for is dividends (you should note that sometimes, taxes are deducted by your broker – think like “deduction at source” – when it comes to dividends). Now, let’s say that you sell only half your position in AAPL, and your profit from that sale is $37,500. This means that you only have to pay money on the gains from the sold portion of your shares, which is $37,500.

Now, let’s say that you have purchased 100 shares of NFLX at $300 each. When the stock hit $100 a few months ago, you felt frustrated, and you sold half your position, for a total loss of $10,000 (50 shares x $200 loss/share). This means that you can claim $10,000 as a capital loss on your tax return. You can’t claim capital loss for the unsold portion of your shares.

So, in other words, you only have to care about the sold portion of your portfolio when it comes to taxes (whether you’re declaring capital gains or you’re claiming capital losses).

Now, how much taxes do you pay on your capital gains from the stock market?

Now that we have established when you have to pay taxes on your capital gains from the stock market, let’s discuss how much taxes you should pay…

In order to know how much you should pay, you should ask yourself, am I a long term investor or a short term investor? This question is crucial as the IRS classifies investors as short term or long term investors and taxes them on their capital gains accordingly. Long term investors pay considerably less taxes than short term investors (it seems that the IRS want taxpayers to be long term investors): long term investors don’t pay any taxes if they fall in the 15% tax bracket (or lower), and they pay a flat tax rate of 15% if they’re anywhere above the 15% tax bracket. So, if you’re a long term investor, and you have sold shares for a total profit of $20,000, and your tax bracket is 35%, then you will only pay 15% of your capital gains on stocks, which is $3,000.

Short term investors, on the other hand, pay taxes according to their tax bracket. For example, if a short term investor falls in the 35% tax bracket, and has made $10,000 in capital gains from the stock market in 2011, then he has to pay $3,500. (notice that you are paying more taxes than what a long term stock investor is paying for double your capital gains)

Now, you might be wondering by now who is a short term investor and who is a long term investor? Well, a short term investor (from IRS perspective) is one who holds a stock for less than a year, and a long term investor is someone who holds a stock for more than a year. For example, someone who bought shares on October 15th, 2010 and then sold them on July 15th, 2011 is considered to be a short term investor. Now if someone bought shares on December 10th, 2010 and then sold them on December 28th, 2011, he is considered to be a long term investor.

To sum it all, if you are a short term investor, then you pay taxes according to your tax bracket, if you are a long term investor, then you don’t pay any taxes if you fall in the 15% or below tax bracket, and you only pay 15% on your capital gains if you belong to anything above the 15% tax bracket.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

January 23, 2012 | In: Financial

Beware Bank of America

Unless you are still in holiday mood, you would have probably noticed that Bank of America’s stock has skyrocketed since the beginning of the year. BAC is up about 31% this year so far and the month of January is not even over yet. So, what’s the deal? And should investors jump in to buy shares in this bank?

Well, let’s first remember that it’s January, and we all know of the January Effect in the Stock Market. BAC is a stock that is known to have a very healthy January, simply because it consistently have had bad years. 2011 was no different for BAC. In fact BAC’s stock lost about 60% of its value in 2011, where it started trading at $15.25 and ended the year at almost $5 (briefly touching $4.92 back in December). What is happening right now is that all these small investors who sold their positions in BAC back in December of 2011 for tax reasons (to claim their loss on the stock as capital loss) are now re-buying their positions, simply because they are very hopeful (or simply because they are greedy and they don’t accept that losing is part of the stock trading game).

The point here is that nothing has changed in the fundamentals of Bank of America for the stock to go up dramatically (the management is still the same – and will most likely not change in 2012). But, when will the bullish trend stop? Well, as soon as we hear some bad news about Bank of America or Europe, which shouldn’t take a long time to happen. The situation in Europe is worsening everyday and officials there are using duct tape for quick fixes – which is not a long term solution.

We all know that 2012 is a very bad year for banks, but it seems that we never learn, and nor do we care to learn…

Beware Bank of America, as you will lose more money on this stock than you can ever imagine, especially if you were suckered into buying this stock near the end of the January Effect. Wait until the beginning of March to get into BAC if you really want to, but even then you will still lose money, as the stock will continue its decline throughout the year (but your losses will be much lower than if you buy the stock today, for example).

In my opinion, BAC will try to test the $10 by mid-February, only to become a penny stock sometime this year. A BAC reverse split is imminent this year, for it is not in the interest of management to see the stock price drop lower than $5 for a long time. We all know though that reverse splits carry a curse: any stock that is reverse splitted once will be reverse splitted forever (or the company will just go bankrupt).

By the way, some investors claim that BAC will no longer exist by the end of the year. And I’m talking about investors who predicted the fall of very large financial institutions, long before anyone imagined that these institutions would actually fall.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

Now that Android has the lion’s share in the smartphone market, I think a very valid question for any investor would be “Does Google charge for Android?”, “And if it does, how much?”

Clearly, the reason why an investor would want to know if Google charges for Android (and how much) is to know what can Android do to Google’s revenue. The answer to this question is zero, zilch, nothing… Google doesn’t charge a penny for the use of its Android on smartphones. Google gets no money whatsoever, whether direct or indirect, from anyone buying a smartphone.

But Google is a business, and all businesses do something for a reason, am I wrong?

No you’re not wrong. Google is there for the money. But let me tell you something before answering how Google expects to make money. Google’s original idea with Android was to create Android phones and give them for free to people, like literally for free – without them paying any dime and without them subscribing to a blood sucking plan. It might’ve been some investor backlash (or the fact that mobile operators – that Google really needed back then – did not like the idea of a free smartphone while they were offering garbage phones at exorbitant prices and that are tied to overpriced plans) but Google then tamed its enthusiasm and then wanted to offer the phone for a nominal (below cost) price, which was something like a $100. Again, the market was against it (including mobile operators), and then Google dropped this philanthropic concept altogether… So, not only Google was accepting the fact that it will not directly make money with Android, but it was also literally eager to lose a lot of money for Android. But why is that? Well, there are many reasons:

  • Google wants to assume control of the smartphone market: Google was aware several years ago of what everyone else knows now, the future is mobile! Google knows that in order to remain competitive in the Internet market, it needs to control or at least have a substantial market share in the mobile sector. By offering a free OS (and free phones, according to the original idea) Google is able to attract a lot of customers, including some of its competitors. These “competitors” are now only Apple, since Blackberry is dead.
  • Google wants to kill Microsoft: Microsoft is an aging company, but it’s not a dead cow yet, and it was already eying the smartphone market before Google even joined the game. By making the OS free, Google ensured that Microsoft would not be able to make serious cash from the smartphone business (as it currently does with laptops – laptops would be at least a $100 cheaper if it weren’t for Microsoft), which will make this whole endeavor not worth it for Microsoft, which will mean the death of Microsoft on the long term. Now Microsoft was passive in its response to Google’s aggressive marketing strategies for a long time, although lately, it seems that Microsoft, through its recent alliances (with Nokia, for example) is now rethinking its smartphone strategy, and wants its place in this competitive, claiming that now it’s a three horse race (Android, iOS, and Windows).

  • Google wants to make up for the potential loss in web traffic: At one point, Facebook posed a real threat to Google as a business. Facebook had everything: The loyal userbase, the real information about each and every user, the love of the media – literally everything a social website can dream of. The problem is, Facebook’s search engine sucks, since it relies on Bing, a search engine that welcomes spam, and that uses the same Google algorithm that was used almost 10 years ago. Now Google was really afraid that Bing’s search will get better with time, which will make Google obsolete. Thankfully for all of us, Bing’s search still sucks, and it will suck probably forever. So that shouldn’t be a major worry for Google, as people using Facebook will still have to use Google.

Now, of course, the above reasons are all valid to sustain Google as a business for a long term, but how will it make extra revenue from Android? Is such a thing even possible?

Well, by controlling Android, Google will control the Internet traffic from mobile devices (all Android devices default their searches to Google) – and guess what traffic means for Google? Revenue, advertising revenue. Additionally, Google makes other revenue from the use of applications that are sponsored by advertisements – Facebook is still light years away from being able to use apps as an advertising platform. This is like a cat and mouse game between Facebook and Google: Facebook was on the way to dethrone Google in becoming a better medium for advertising, but the latter was very dynamic and proactive, and expanded into another market (the mobile market) while strengthening its PC based search (and traffic). Add to that that Google is now very, very aggressively pushing the Google+, which directly competes with Facebook.

So, the short answer to this question, Google does not and will not charge for Android, neither directly nor indirectly. But that doesn’t mean that it won’t make money from this free OS. In fact, Android will probably be Google’s best cash cow for the long term.

Now, how does this relate to the stock market? Imagine Google increasing its revenue by 50%, what will that mean to its stock? I’ll tell you what it mean, it’ll mean a stock that is worth at least $1,000. GOOG is not doing well now (in fact today it performed horribly as it missed estimates), but that won’t be the case forever. Google has a great potential especially when the iPhone dies, and it will die! Apple simple cannot keep up with the unrealistic expectations that both the investors and the users have from it as a company.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I think whoever is going to read this article is going to immediately ask 2 questions:

  • How can this have anything to do with stocks?
  • Huh?

The answer to the first question that while on the short term it has nothing to do with stocks, on the long term it does, and here’s how: Wikipedia is one of the world’s most visited websites, it is #6 according to Alexa (worldwide) and it is #7 in the US, according to compete.com. As we all know, Wikipedia does not allow advertising on its main website or its network of websites, and rather prefers to beg from its users to cover its expenses. It is easy for Wikipedia (including its network of websites) to make at least $100 million in advertising a year if it places Google ads on its website. So, what if Google diverts the traffic from Wikipedia to other websites (that will most likely will have ads) if Wikipedia continues to have intentional blackouts? This means that Google’s revenue will increase (Google revenue will increase by at least 2 times the amount that Wikipedia will get), which means that Google’s stock, GOOG, will increase in price (the increase will be about 3% for the $200 million in extra revenue).

Now, before answering the second question, let me explain. Apparently Wikipedia is having a blackout today (January 18th, 2012) to protest a decision that will (according to them) limit the freedom of the Internet. The decision is to be approved by the US congress (but it still to be approved). Wikipedia is using its weight as an extremely important website to bring attention to this matter. Wikipedia can afford to do this because it doesn’t have any stockholders. Google, Yahoo, and others, who are also protesting the decision, cannot afford to make a blackout decision for even an hour (they will paralyze the whole Internet and their stockholders will be wrathful).

Now why am I saying that Wikipedia should be penalized by Google. Well, here’s why… Google’s golden rule for websites that every webmaster worth his salt knows is that you cannot display information to visitors other than that fed to search engines. Now, when you visit Wikipedia, you will see this page:

Wikipedia Blackout – January 18, 2012

However, further examination of the code reveals that the blackout screen is done through JavaScript. Disable JavaScript code on your browser, and try to visit Wikipedia, you will be able to see it normally. But why is Wikipedia doing it this way, instead of doing at the web server level (redirecting to a static blackout page). Well, if it does in a different way other than using CSS or JS, then all of its pages will be most likely marked as unavailable for Google (Google is very fast at indexing Wikipedia, so it might catch the difference instantly and apply it to its indexes), and then traffic will suffer for a while.

In my opinion, Wikipedia should be penalized for displaying different information for users and for search engines. It should also be penalized for the blackout (as a blackmail concept) as well. Holding back public information just to push your political agenda should not go unpunished.

That’s my opinion, and I know that many will disagree, but I least I have expressed myself honestly and transparently…

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

As Canadian consultants, it is fact of life for our main income to come from the US. Of course, there are many ways that our US clients can use to pay for our services/products (but, as you can see from the below, the only ideal way to get money is through Interac E-Transfer, which is still not available between the US and Canada):

Wire Transfer

Our American customers can pay us by wire transfer, which is a fast and efficient way to receive money, but can be inconvenient.

Advantages of using wire transfer as a payment method

  • The money will be received within 24 business hours to our bank account.
  • It is very reliable.
  • There are no chargebacks.

Disadvantages of using wire transfer as a payment method

  • The sender will incur a relatively hefty fee, which is at least $15. That’s why smaller US customers may not accept to send us money by wire transfer.
  • It is inconvenient as the sender may have to make a physical trip to the bank to send us the money (business accounts can wire money using online banking).
  • We need to give our full bank information to our customers.
  • We are dinged a processing fee when we receive the money. This fee is about $5 + a commission fee based on the total amount of the transfer.

Credit Card

Almost all Americans (as well as Canadians) have credit cards, and they can pay us by credit card by using a credit card payment processor such as 2checkout. This is a very convenient way of accepting money but we do incur a lot of fees.

Advantages of accepting credit cards as a payment method

  • The money will be received in our account instantly.
  • It is very convenient for our customers as they all have credit cards.
  • Our customers are not charged a fee for paying us using a credit card.

Disadvantages of accepting credit cards as a payment method

  • We are exposed to chargebacks.
  • We incur a lot of fees for accepting credit card payments, usually around 30 cents a transaction + anywhere between 2.2% and 3% of the total order.
  • We may need to move the money from our account with the payment processor to our bank, and we may incur a transfer fee when we do that.


PayPal, as they say, is the most loved way of paying and getting paid. What’s nice about it is that you get paid instantly, but the negative when it comes to PayPal payments is that you are skinned alive on commission (and other) fees.

Advantages of receiving money through PayPal

  • The money will be received instantly on our end.
  • No one has a problem paying on PayPal. It is probably the most trusted way to make payments on the internet.
  • Our customers are not charged a fee at all.

Disadvantages of receiving money through PayPal

  • The commission rate is 2.9% + 30 cents a transaction.
  • We are skinned alive on exchange rates, and as a Canadian, you are forced to exchange money from one currency to the other since they force you to link your account to a Canadian account in Canadian currency. So, let’s say you are receiving $300 from someone in the US, the money received to your account after the fees is $291. Now, when you want to transfer money to your bank account, you will incur a crazy exchange rate, which is usually 3% higher than the current exchange rate. So, the USD $291 will be exchanged to CAD $288 even though the current USD/CAD exchange rate is 1.02 (each USD $1 buys you CAD $1.02).
  • We have to pay 50 cents to transfer money that is less than $150 to our bank account.
  • We are still not protected against chargebacks (although PayPal does fight the chargeback on our behalf).


The good old checks! We all love to receive a check, even though we still have to make a trip to the bank to deposit it. The nice thing about it is that there are no fees for depositing checks, but on the flip side, we need to wait for it to arrive by mail and it can bounce!

Advantages of getting paid by checks

  • No fees on the sender or on the receiver. The only fee to be paid is the postage to send the check.
  • The money may be deposited immediately into your account.
  • The money can be in any currency.

Disadvantages of getting paid by checks

  • A check may bounce, and when it does, you are charged an NSF fee of at least $20. (not to mention that you won’t get paid the original amount)
  • Checks may be lost in the email – or better yet – you may get a customer who claims that he sent the check while he didn’t really send it.
  • The bank may hold the check for 10 business days until it clears (although we all know that a US check clears within 24 business hours).

Now, there must be a better method for our clients to pay us, a method where we receive the money instantly and we don’t incur any fees. Well, such a method exists, but unfortunately, and until this very moment, it is only restricted to our Canadian customers (who are clients of the Big 5 Banks: BMO, CIBC, RBC, Scotia, and TD). This method is called Interac E-Transfer (it was formerly called Interac Email Transfer).

The only disadvantage of Interac Email Transfer is that it cannot be used to send money from the US to Canada (and vice versa).

The advantages are many, including:

  • Very low fees. The only fee paid is by the sender, and it is merely $1.50, regardless of the total amount.
  • Super fast and convenient. It takes 2 minutes to send the money and about 30 minutes for the order to be “processed” and “accepted”, and once it is, the receiver will get an email containing a link to claim his money. Once the link is clicked, the receiver will be prompted for a password (which is supposedly communicated to him by the sender). Now after the password is successfully entered (the receiver has 3 chances before the transfer is blocked), the receiver will be asked to choose an account where to place his money, and voila, the money is there!
  • No chargebacks, no bounces, nothing! Once the money is in your account, it’s in your account!

Now the question, when are we going to get this kind of flexibility in transferring money between the two countries that are each other’s largest trade partners? When are we getting Interac E-Transfer between the US and Canada? I personally don’t think we’re ever going to have it, not because of the logistics involved to implement such a system (I’m sure it’s very easy to do), but because such a system of transferring money (which is better and safer than sending actual cash) will kill all the above ways of making payments!

Interac E-Transfer between the US and Canada is a far fetched dream, and it will remain a dream, at least for the foreseeable future!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

January 15, 2012 | In: General

Top 5 Worst CEOs of 2011

2011 has ended, and many companies that were good are now bad – really, really bad! Now we all know the main reason of why good companies go bad: incompetent management, and by management here I mean top level executives, as in CEOs. But who were the worst CEOs of 2011? Well, here they are:

Mike Lazaridis and Jim Balsillie: If there is a gold medal for the worst CEO, then this medal should go to these two people: Mike Lazaridis and Jim Balsillie. Although these two gentlemen are geniuses when it comes to technology, they have the mind of a 5 year old kid when it comes to corporate vision and management. RIM (Canadian Research In Motion) used to be the leader a couple of years ago in the smartphone area. Now I realize that this is now a very competitive market, but not to the point where a company loses at least 1% of its market share (and subsequently the stock losing 6-7% of its value) every month. Mike and Jim have went into great trouble to making the wrong decisions all the times. They have stopped listening to their customers, they have stopped listening to the market, and they have stopped listening to their investors. The only thing that Mike and Jim needed (I’m using the past tense because the redemption ship has already sailed – a few months ago) to do to keep the company on track was to change the design of their phones and enhance their OS to remain competitive in the market. Instead, they stuck with the original ugly design of the blackberry, and, instead of enhancing their OS, they made it worse. Not only that, the blackberry email service is set to become completely obsolete in a few months from now, and they’re not even noticing. A lot of blackberry users are users that don’t care about security, they just want a cheap and more convenient alternative to messaging, and now there are many, many apps out there on every platform (including the blackberry) to do so (WhatsApp and the likes). Oh, and in case you didn’t remember, the blackberry service went down a few months ago for a few days, and all what RIM had to offer its annoyed subscribers was credit to buy worthless applications. It was probably better if they didn’t offer anything.

For the above reasons and many, many others, I declare Mike Lazaridis and Jim Balsillie the worst CEOs of the year! If RIM has still any sanity left, it should make sure that both of these

Reed Hastings: In close second comes Reed Hastings, Netflix’s CEO. Reed apparently was treating his customers as both lab rats and cash cows. Here’s what he did: He increased the Netflix’s subscription rate for the first time. His customers were annoyed but digested the increase. He thought to himself: “Hmmmmm… These lab rats didn’t die from this, and as cash cows, we are milking them more than before, which is what we need to do in order to create a strong foothold overseas.” So he did it again, but to his surprise, the lab rats/cash cows revolted against him, and his company, by telling him “You know what, we just discovered that your service is something that we may want, but we do not really need. We’re unsubscribing”. Google, Apple, and other vultures closely watched the drama as it unfolded, and we’re all sure that they are preparing strategies to absorb the huge churn that Netflix is experiencing. NFLX reached a high of $304 in the summer of 2011 (just after the first increase), and then it fell to about $62, making this stock one of the most hated stocks. Right now NFLX is experiencing a January Effect, but wait a bit, it will continue its decline, and that’s because: 1) Hasting is still the CEO (I’m amazed that he wasn’t ousted yet), and 2) NFLX should be trading at no more than 10 x EPS, which is about $44.

Brian Moynihan: Brian Moynihan, CEO of Bank of America, is working very, very hard so that BAC can reach the official status of a penny stock (or maybe he’s just itching for a BAC reverse split). Brian has made sure to pass the bad news about BAC to the market gradually, in order not to “shock” the stock. But the stock did get shocked, and it went down from $15.25 to less than $5 in a year. It seems that every day we wake up and hear more bad news about Bank of America. Why can’t Brian be transparent about the status of his bank, for the sake of every investor that got burned by its stock? Brian should be ousted, but it seems that Bank of America’s top executives are in agreement with his performance: it’s either that the BAC board is full of executives who don’t really care about the future of the bank, or it might be that they are very scared from Brian. Have you not wondered how come no one has ever questioned his performance as a CEO? I did!

Antonio M. Pérez: As CEO of Kodak, Antonio Pérez did his best for Kodak to become obsolete in the market that it created over a hundred years ago: the mainstream camera market. Antonio apparently told his team to neglect this market and to focus on the more lucrative (add sarcasm here) market of printers, so that he can compete with HP. Now why did Antonio make this very illogical decision? Well, rumor says that the whole thing is a personal vendetta against HP. For those who don’t know, Antonio used to work with HP before working with Kodak, and as soon as he moved to Kodak, his main obsession was beating HP in the printer market, which is kind of a crazy obsession if you ask me: Kodak, at its best (under his leadership – which is not really saying much), was 50 times smaller than HP. I believe America and the rest of the world should thank Antonio for shattering a company that is more than a century old, and that everybody loved. EK is now a penny stock and Kodak is set to declare bankruptcy very soon. Thanks Antonio, you’re the best, no one would have done it better!

Steve Ballmer: Steve Ballmer took over Microsoft as CEO back in 2000 (the title was bestowed upon him by none other than Bill Gates). Let’s first take a look at MSFT before and after Ballmer took over:

MSFT: 10 years before Steve Ballmer was CEO, and 10 years after he was CEO

As you can clearly see, the stock suddenly dropped shortly after he took over (which is to be fair is not related to him – it was the NASDAQ crash) – however, the stock remained almost flat with a slight downward trend ever since. The market is appreciating Microsoft at only 10 times its earnings, which shouldn’t be the case had the market trusted Ballmer as a good leader for one of the most important companies in the world. Ballmer has never pushed the company forward, and instead of focusing on growth, he was focusing on maintaining the current status quo and belittling heavy weight competitors such as Google and Apple. By the way, it is because of Ballmer that Google, and not Microsoft, is in control of the Internet today. Microsoft changed the world before (it’s a fact that nobody can deny) and it still has the potential to change it yet another time, but not under this leadership. Ballmer needs to be ousted by Microsoft’s board (by the way, 12 years is a long time for someone, anyone, to remain as a CEO for any company). I understand that there is now a lot of bureaucracy in Microsoft but if Microsoft doesn’t put its act together, then it may very well lose its dominance in the operating system market (we all know that the future is in the tablets, where Microsoft has little presence, and its only response to this is a shaky deal with Nokia). Oh, and by the way, Google and Apple are both fighting very hard to dethrone Microsoft.

Ballmer should just leave and Bill Gates should take over Microsoft again, for the sake of Microsoft.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

January 13, 2012 | In: Technology

Will Kodak Go Bankrupt?

After my post yesterday on Kodak’s reverse split, I made a huge research on Kodak as a company to see if it the third option in my post (Kodak to declare bankruptcy) is a possibility. To my horror, I discovered that it’s not only a possibility, it’s inevitable, and it will happen very soon. In fact, just yesterday Kodak was in talks with Citigroup about financing options for its bankruptcy. This is sad news for America, and the world as a whole. Kodak used to be one of the most respected company in the world, and its products were light years ahead of their competitors. It is thanks to Kodak that cameras and photography became mainstream, but I’m sure no one knows/remembers that anymore. It is thanks to the hard work of Kodak workers that the photography industry advanced so much in the previous decades. I’m sure no one, with the exception of its workers, will shed a tear for this company, although it deserves all the tears in the world.

Kodak reminds me of my childhood, when my mother used to take pictures of us with her Kodak camera (it was a thin, rectangular camera with a big flash) when we went for a picnic or something. I have many memories kept alive thanks to Kodak. I’m sure I’m not alone in my sentimental feelings towards Kodak, a company that signified happiness, friendship, and family bonds (Kodak moment?).

But why am I so confident that Kodak will go bankrupt? Well, there are so many reasons:

  • Kodak’s EPS (Earnings Per share) is -4.59 (that’s a minus in front of the 4.59). This means that Kodak’s total losses per year are $1.2 billion, that’s 7 times its market capitalization.
  • Kodak cannot sustain the annual losses anymore. No sane bank would finance Kodak for future projects.

  • At this very second, EK is trading at almost 50 cents, down 23% from yesterday, but up 36% for the week. (this kind of fluctuation is normal with stocks that are rumored to go bankrupt).

  • Kodak is now officially talking with banks about its bankruptcy logistics.

  • Kodak has nothing, absolutely nothing, to offer for the market (when was the last time anyone felt that a Kodak product is a need rather than a want).

  • Kodak is now selling its patents (or attempting to sell its patents), as a pathetic and last resort measure to save itself.

But what happened to Kodak, a once successful and thriving business, to reach this point? Let’s see…

  • Kodak’s management is the most horrible management any company can wish for. Almost all the top executives in Kodak are pre-HP workers. HP is the main competitor to Kodak in the printer area. Do I smell an inside conspiracy? Maybe. What if those executives still had some hidden ties with HP. Kodak has had problems for years now, since at least 2005. By the way, 2005 was the year that the current CEO, Antonio M. Pérez, assumed his current role – in May 2005, the month when Antonio took power, the stock dropped from $35 to $25 (almost 30%). I think that was a sign that investors didn’t want this person and didn’t like him. The only thing that this CEO did was changing the logo back in 2006 – and that was it!
  • Kodak all of a sudden stopped being innovative. Nothing new comes out of the Kodak doors anymore, and this has been the case for a long time now.

  • Kodak marketing sucks. Other than the phenomenal change that the Kodak logo experienced back in 2006, marketing has been non-existent. I was going to buy my sister a camera a couple of years ago, and I was lost between a Panasonic (Lumix) and a Kodak camera, and I eventually chose the Lumix one. The reason for my choice was that the Kodak camera came in a plastic wrapping (you know, these wrappings that are used for disposable cameras). I mean, what kind of moron would choose this packaging for a camera?

  • The company works in silos. As someone with management experience, I can tell you with confidence that silos in companies are the opposite of productivity and efficiency.

So, does Kodak have a chance? I’m afraid not – The next move will be either a reverse split (and then declaring bankruptcy) or it will be just filing for Chapter 11.

I wonder where Antonio and his cronies will go next. I just hope it’s not Apple, Google, or the likes.

By the way, you might find the below chart (courtesy of Google Finance) interesting:

EK (Eastman Kodak) for the last 15 years – This chart represents Kodak from its might in 1997 (where EK was trading at $90, meaning Kodak had a market cap back then of about $23 billion – pretty impressive considering Apple back then had a market cap of only $3 billion. Even Microsoft’s market cap was only $150 billion at that time) and its gradual fall ever since, until it became a penny stock a month ago.

Quick update – Kodak lately did some restructuring by splitting the business into two parts:

  • The consumer business: Which is the bleeding business of Kodak, and it consists of the cameras, the printers, and the likes that are sold to consumers.
  • The commercial business: Which consists of products/services sold commercially, such as commercial scanners and document imaging (which generates about 25% to 30% of Kodak’s revenue). Kodak’s commercial business has been profitable for the last couple of years.

The re-structuring of the business is a normal step that companies take prior to declaring bankruptcy.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I have a friend who works with Kodak, and he tells me that the only thing that is keeping Kodak alive is the service/consultancy business. The product business is very bad and is making Kodak lose a lot of money. Obviously, this is not classified information as the market is not easy on EK (Kodak’s stock, the E stands for Eastman, the last name of Kodak’s founder, in case you want to know), which is now literally a penny stocks. I have classified EK as one of the most hated stocks in the American markets.

Now, since EK is now trading at below $1 for over a month now (it is currently trading at $0.70, so $700 will get you a thousand EK shares – if you want them!), it is at risk of getting booted out of the NYSE, because if a stock trades below $1 for more than 30 consecutive business days, it will receive a warning from the NYSE to rectify the situation within 6 months, or it will get delisted. I’m sure that it’s only a matter of days before Kodak receives this warning. Now Kodak has 3 options:

  • Artificially increase the price of the stock by buying its shares back
  • Do a 1:10 reverse split (meaning that 1 EK stock after the reverse split will be worth 10 EK stocks before the reverse split)
  • Announce bankruptcy

Judging by the financial situation of Kodak (they can’t buy back the stock) and the stubbornness of Antonio M. Perez, Kodak’s CEO (a man that would never admit defeat, even though it’s crystal clear – so there’s no way Kodak will announce bankruptcy), I think they will go with the second option (they might even go with with a 1:100 reverse split, which will make their stock worth $70)

So what will happen to the stock when they do a 1:10 reverse split (and they will):

  • The stock price will be $7.
  • The stock daily fluctuation will not longer be susceptible to high manipulation. Everyday EK goes up or down by at least 10%.
  • The number of shares will be about 27 million shares.

Of course, the reverse split will not stop the slide, and I expect Kodak will need another reverse split by the end of the year as well.

It’s really sad to see companies, that were icons at one point in time, becoming this pathetic because of horrible management. I remember my mom’s first camera was Kodak. I still remember how it looks like.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

January 11, 2012 | In: Lists

The Most Hated Stocks

In this article, I will list the top 10 most hated stocks in American markets, and why they’re hated… The list is ordered alphabatecially, and not by the hate level.

1. AIG: AIG is the most treacherous stock every. You follow the trend and you buy it, and then it goes down immediately. You sell it to cut your losses, and then it goes up. If you don’t believe me, try it! This stock is programmed to not only make you lose money, but to make you feel stupid, and ultimately to hate yourself. AIG will destroy your health, your life, and your soul. A P/E ratio of 2.51 is a solid proof that there are many, many investors out there who wouldn’t touch this stock, no matter how cheap or how attractive it is.

2. AMZN: If history teaches one thing in the stock market, it’s that very rare are those companies that last for 100 years or more. Apparently the market recently noticed that Amazon was expected to last more than 100 years, and that Amazon is merely a website (we don’t know if the whole concept of a website as a business will still exist in 2112). Ever since the market realized that back in October, Amazon is in a downtrend, and it will remain so until it’s back to its normal.

3. BAC: Bank Of America is one of the most hated stock ever. Show me an investor who claims he hasn’t lost money on Bank of America and I’ll show you a liar. Everyone who’s anyone (including Warren Buffet) bought BAC shares and lost a lot of money on them. Some say that Bank of America won’t even exist in a year from now, I say I don’t care, because I know I will never ever lay my hands on this sucker anymore. Of course, you might say that volume has increased year over year on BAC but this is mainly because you can now buy almost 3 BAC shares with the same amount of money that you used to spend to buy 1 BAC share with. BAC has lost almost 60% of its value last year. This year it’ll probably lose the same (I’m sure you won’t believe me now because BAC is up 21% so far this year, but remember, this is the January Effect).

4. EK: Now a penny stock, EK has made sure that investors lose money every quarter, albeit giving them some hope for a couple of weeks every 2 months or so. The volume on this stock is less than it was a year ago, despite the fact that it is now trading at 1/7 of its price back then. This means that investors are deserting it, in masses, and those who have already deserted it have not looked back. But what’s happening to this stock anyway? Well, ask yourself, when was the last time you saw someone buying a Kodak camera? Not only Kodak is not innovative, it is also run by crazy management that is refusing to accept the fact that there is a problem in the company. Kodak’s EPS (Earnings Per Share) is -$4.59 (that’s negative $4.59 – which is almost 6 times the current stock price). Kodak may be delisted from the NYSE soon if it doesn’t go over a $1 or it may go for a reverse split (and we all know what a reverse split means).

5. GM: GM was listed on the stock market before its bailout by the US government, and it was really hated by investors then. And then, for obvious reasons, the stock got de-listed from the stock market (which was the right thing). The stock then was re-listed back in November 2010. The problem is, nothing has changed. It’s the same bad management and the same blood sucking and self-destroying union, and the same crazy strategy for selling cars for less their cost. I have warned about it even before it became public. It’s no wonder that real investors don’t touch this stock, unless they want to short it.

6. IRE: What do you call a stock that has to do a reverse split every once in a while in order to remain listed, and that has lost over 80% of its value in a year? I call it IRE. I think investors who are long on IRE (besides the Irish government) are dead (like literally dead, and that’s why they’re not selling), or extremely optimistic to the point of craziness. Alive and sane investors wouldn’t lay a hand on this stock, even if the PM of Ireland himself assures them that their investment will be safe, and we know how credible that assurance will be, considering the fact that the Irish government is the biggest investor in this bank.

7. LNKD: A very recent stock for a very young company (LinkedIn), LNKD quickly reduced the investors’ appetite for IPOs as it reminded them (thankfully before it’s too late) of the tech bubble 12 years ago. LNKD is a bad, bad stock. Probably the worst and the most overvalued in this list (P/E ratio is 1,200). The hate for this stock is growing every day, and it will grow even more when the stock will be worth less than a buck in a year or two. The business model that LinkedIn has just doesn’t work to payout investors. The money that the company got from the investors did not do anything to move it forward.

8. NFLX: I am quite sure that in a few years from now, Netflix will be a topic taught in marketing and investment classes at different universities on what a company should not do if it’s in the market to make money. Netflix made a fatal mistake back in 2011 when it treated its customers as cash cows, 2 times in a row. Many customers got really angry and deserted Netflix. The stock lost more than 60% of its value last year, and is set to lose more this year. Investors were literally in love with this stock, and all this love turned into hate when Netflix started doing nothing but the wrong thing to its customer base.

9. RIMM: What do you get when you have a company with no vision, that is led by the most stubborn people on planet Earth, that is losing market share every day, that is making ugly and buggy products (which are copycats of its competitors – Playbook, anyone?), that is offering a service that will become completely obsolete in a year from now (but there are still suckers using it though), that doesn’t listen to its users, and that doesn’t listen to its investors? I’ll tell you what you’ll get, you will get RIM! Canadian Research In Motion has made every step to make itself a redundant company in the technology sector by making all the wrong choices, all the time! RIMM, its stock that is listed on the NASDAQ, has lost 75% of its value in 2011, which means a loss of 1.5% every week or so! What’s not to like about this stock?

10. YOKU: This stock is not only hated, but it’s also loathed. Let’s forget about the fact that YOKU is a stock representing a Chinese website full of pirated movies. Let’s just forget about this for a second. Let’s assume that this stock is the stock of youtube.com. Now let’s go ask Google how much money it makes with YouTube, or how much money it will make in the future from the #4 website in the world. What nothing? Are you telling me that Google makes nothing on YouTube? OK, so let’s ask Google how much money it loses on YouTube? A lot? OK… So, after asking Google, we know that it loses money on YouTube, but the thing is, Google can afford it and it sees in YouTube a costly (but worthy) product for marketing and web presence expansion (or increase of web dominance). Now let’s go back to YOKU, so now we know that Youku.com can never make money, and since it’s not a part of a bigger company, then there is no reason for this website, and consequently its stock, to exist at all! YOKU is even worse than LNKD – at least LinkedIn is making money! Investors who are stuck in this stock and want to get out at the opportune moment are really miserable, because they know that this opportune moment will never come, they were suckered in and it was already too late when the discovered that! Hated stock? You bet!

Do you have any other stocks that you wish to add to this list? Please share!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.