I’m sure you’ve noticed that we’re all being bombarded lately with news on how Windows Phones are the best thing since sliced bread, and how Microsoft is suddenly (and amazingly) doing the right thing despite its infamous reputation.

In case you were living under a rock for the past few weeks, let me explain… What is happening is that it seems that Microsoft has now the editors of most large websites (don’t want to name them – just do a little search on Google and you’ll know them) on the payroll. These editors are filling the Internet with trash articles on how it’s weird that Microsoft is doing the right thing for the first time (notice the pathetic strategy), and how Windows Phones are superior to other Smartphones (Android, iOS) but everyone out there is either too anti-Microsoft or has been drinking the Android/iPhone kool aid for a long time now to notice these superior Windows Phones.

Well, let me tell you why I’m confident that this is a paid hype:

  • Articles written about the Windows Phone seem to be timed with Microsoft’s announcement that it has entered the Smartphone market as the 3rd main player – the other two are Apple and Google/Android (Notice how Microsoft has completely ignored RIM).
  • All articles seem to be written in the same way: Microsoft always does the wrong thing but this time it is doing the right thing but nobody’s noticing or nobody cares.

  • All articles are focusing on the Mosaic like homepage on a Windows Phone (which, as we all know, is something that hasn’t been done before [add sarcasm here]) where you have the world at the palm of your hand (now where did we hear that before?).

  • None of these articles mention any serious drawbacks of Windows Phones, and are taking the best of Windows Phones (such as the Nokia Lumia) as an example.

  • None of these articles (not a single one of them) has mentioned the exorbitant price that one has to pay for a half-decent Android-comparable Windows Phone (that price can be as high as $800).

Now, of course, if you have been reading blogs for a long time, you know that the concept of paying an editor to say something good about a product or a service is not something new (in fact, most big blogs are mostly funded by bribes), but this time, it is done by a huge company that is not known to do that (is Microsoft learning these marketing strategies from Apple?). It is also done on a massive scale! Microsoft has a lot of money to throw and they are willing to throw billions (not just $30 million – if you know what I mean) as they know that winning the Smartphone war is crucial to their very existence in 10 years from now. We all know that the future is mobile, and so does the Microsoft.

But can Microsoft win this war? Although I think it’s too late for the party, I still believe Microsoft has a chance, if they do the following:

  • Continuing with the media bribing strategy, especially the online social media. It does work!
  • Forcing manufacturers to price their Windows powered smartphones reasonably – the prices now are just outrageous.

  • Re-thinking their strategy for charging a huge premium for their Windows certified devices.

  • Entering the tablet market – it is very important to do so as they need to complement their Smartphone business.

I think it’s possible that sometime in the future (I’m talking in a few years from now), that the Smartphone war will be solely between Google and Microsoft. I’m confident that Apple will drop the ball at one point or the other. So, the success of Microsoft is inversely proportional to that of Google (and we all know how easy it is for Google to fail – again, sarcasm).

I personally don’t care who wins the war, but I don’t want to overpay to buy a decent phone, and I certainly don’t want to see a bluescreen on my phone all of a sudden!

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 the logical continuation of my article how to tell if a stock is undervalued, is another one telling my readers how to tell if a stock is overvalued.
There are many signs to tell if a stock is overpriced, here are the top 10:

  1. Company is making money, but not enough to justify its current stock price: Take a look at LNKD for example. LinkedIn as a company has two revenue sources: Google advertisements and its subscription plans. Both of these revenue sources generate at best a few million dollars a month (of course, that’s raw revenue, net revenue is much less than that), and are not enough to justify its astronomical price to earnings ratio of about 1,200.
  2. Company cannot sustain growth without unsustainable marketing budgets: GRPN is a great example. Groupon, as a website, will lose much (if not all) of its growth without advertising. In addition, every investor who knows a thing or two about Groupon knows that it’s spending much more than it can for acquiring new subscribers. At one point Groupon has to either reduce or completely stop its advertisement to be able to balance its budget, and when that happens, then Groupon as a business will cease to grow, and investors will flee. Groupon is yet to make a net profit.
  3. Company has never made a profit before: When you invest in a company that has never made a profit, then you are really gambling. A company should make a profit before going public. In the good old days, going public was meant to expand the business in order to make more money. Bankrupt companies or companies that were not making money were not trusted by investors and didn’t bother to go public in the first place. Nowadays, it seems to me that stocks exchanges prohibit profitable companies to get listed (when was the last time you saw a profitable company going for an IPO), and only allow companies that are barely making money (but not profitable) to be listed.
  4. Going public is the end to a means and not the means to an end for the company: I dare you to take an honest look at the IPOs in the past couple of years, and tell me which one of these IPOs you really think existed for the long term benefit for the company, and not for the short term benefit of its major stockholders. When you invest in such IPOs, then we both know that you know that you are investing in an overpriced stock. But the question is, do you actually care?
  5. The company has lost its competitiveness: Let’s look at RIM. A few years ago RIM was the top smartphone producer in the world, and then Apple came, and stole the show, and then Android came, and stole the show, and then the Windows Phone came … (forget about the Windows Phone, Microsoft didn’t pay me yet to say nice things about it, but apparently they paid everyone else – don’t you think it’s ironic to read all these positive reviews about the Windows Phone by the same people that were bashing it a few weeks ago) In any case, the point is that RIM lost its competitiveness, and the moment a company loses its competitiveness, then investors should jump ship!
  6. The company is no longer innovative: Microsoft is one of the oldest and most respectable companies in the technology sector, and it will remain so for a long time. But, when was the last time that you saw a Microsoft product and you said WOW!? The last time I said Wow was back in 1996, when I used Encarta for the first time. Does that mean that MSFT is overpriced? Well, I’ll let you draw conclusions by yourself, but think of a scenario where everyone is using phones and tablets instead of PCs and where free Android is the #1 operating system. It might happen…soon…
  7. The company is doing its best to lose customers: How can you make your customers hate you and desert you? Ask Netflix, they are artists at doing so. I have been warning about Netflix since almost the beginning of this blog, but I’m not sure if anyone listened. The first time Netflix (mis)treated its customers as cash cows, it got away with it, not only that, its stock skyrocketed to just over $300 (investors thought that the company will now make more money). The second time it did that, well, we all know what happened. As we all know, fool me once, shame on you, fool me twice, shame on me! Investors long on NFLX should have picked the signals when they hiked/modified their subscription rate the first time.
  8. The company is no longer able to meet expectations: I’ve discussed last month how it’s now the beginning of the end for Apple, one of the reasons that I have mentioned proving that Apple’s demise is nigh is that it’s no longer able to meet expectations. People are just expecting too much from Apple in terms of innovation to the point that any product that Apple will release now, no matter how innovative it is, will be considered as ordinary. This has forced Apple to rename the iPhone 5 to iPhone 4S. So, does that mean that AAPL is overpriced? You bet!
  9. The company is consistently missing estimates: I’m always amazed on how the stock market punishes a company for missing one estimate, and yet turns a blind eye on a company that consistently misses estimates. Get away from a stock that is like that, it’s probably a pump and dump scheme.

And, last but certainly not least:

  1. The company is not a real business: There are many (Chinese?) companies that are listed in the American stock markets which are not real businesses, they are easy to spot if you look closely. The stocks issued by such companies are not only overpriced, but they’re literally junk (and not junk like bond junk, but real junk). They’re not even worth 1 cent!

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.

Some investors like to trade everyday, literally every day. They’re not satisfied with trading Mondays through Fridays, but they also want to do it on weekends (talk about complete obsession with stock trading). Other investors are just too busy working on their day job that they don’t have time to trade during regular trading days, so they are wondering whether it’s possible or not to trade on weekends.

Now, before answering this question, we need to differentiate between two things, buying stocks on weekends and trading stocks on weekends…

Buying Stocks on Weekends

Try to login to your investor’s account and try to buy, let’ say, a 100 shares of MCD (McDonald’s). At closing hour on Friday the stock was trading at $100.60. The first thing that you will notice is that the buying price will be much more than $100.60 (probably something like a $1 more or so) and the selling price will be much lower than that. In any case, let’s assume that you are insisting on buying the stock, even at this price. So you enter the number of shares (100) and you fill in the necessary information, and then you click on “Submit” to see if the order is going to be executed or not. Now, if you don’t have the heart to do this, let me tell you what will happen, the order will get executed (notice that I have used the word executed, and not another term). You will see that your account was actually properly debited.

Now the question is, are you now the proud owner of (another?) 100 shares of MCD?

Well not so fast, this is because, that while the order was executed, it was not filled, which will move us to the next topic in this discussion…

Trading Stocks on Weekends

As I have mentioned before, you were able to buy the stocks on a weekend, but your order was not filled, so the trade didn’t happen, as the system responsible for processing the trade is not on (for lack of a more appropriate word in this case). So, the question is, what happens now? Do you own these shares? Do you not own these shares? Well, technically, you don’t own anything until the next opening day of the market. When the market opens (usually the next Monday) then your order will be filled at the current price – and not at the price that you bought the shares at – so this means that your cash account may be credited or debited (depending on whether the price at which the fill took place was higher or lower than the price you actually paid for these shares) with the difference.

Note that you will be able to cancel your order at any time before the actual filling of the order (so, hesitation is allowed and forgivable when you are buying shares on a weekend).

Now, you might be wondering whether it’s possible in some other markets, to actually trade stocks on weekends. Well, it’s possible. Middle Eastern stock markets (such as ADX, KSE, and Tadawul) are open on Sundays (weekends there are Fridays and Saturdays), so, if you have an investor account there, or if your broker allows you to trade stocks in these markets, then you’re able to do so on Sundays.

A word of advice: Buying stocks on weekends is not a good idea (no investor worth his salt actually does that), this is because of the following two reasons:

  1. You don’t know what your fill price will be and…
  2. Markets are usually very active and very volatile in the morning of the first business day after the weekend, which means that you might buy the stock at a very inflated price.

So, unless you know something that other investors don’t know then this game can be very treacherous. Oh, and if you are buying shares on the weekend just because the company issuing these shares released a report of an excellent-not-seen-before quarter on Friday evening, then you’re already very late for the party.

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 5, 2012 | In: General

Are Penny Stocks Safe?

I have defined what a penny stock is before. I have stated that a penny stock is a cheap stock that can be listed in any market. I have also stated that it usually trades in OTC (over the counter) markets, since the financial regulations in such markets are very lax. In this article, I am only talking about penny stocks in these markets.

To answer the main question of this article, the answer is definitely no, and below I will list 10 reasons why penny stocks are not safe at all!

Ten Reasons Why Penny Stocks Are Not Safe

  1. You are investing based on rumors: When was the last time you actually invested in penny stocks based on some solid research? It’s either you’re investing based on some rumors or based on the advice of a friend, a friend of a friend, or even worse, a spam email!
  2. You are not protected: Unlike stock trading that happens in the normal markets and where you are protected when you make a trade, penny stock trading does not offer any protection whatsoever. What guarantees you that the trade that you have made will actually happen? What guarantees you that you have actually bought a share in the company? What guarantees you that the company that has issued the stock actually exists? Here’s my answer, nothing!
  3. What you see is not what you get: There are penny stocks that have a very high volume and there are penny stocks that have a very low volume. Either way it’s not good! When you make a (sell) trade for let’s say 10,000 shares of a penny stock that doesn’t have a large volume, then expect to wait for hours (and maybe days) until someone will actually want to buy your shares, especially when everyone is jumping ship! This means that the sell price that you first see when you execute the trade will not be the sell price at which your shares will be sold. Same thing when you’re trying to buy and everyone is buying (a high volume penny stock), your order may be queued forever and then it will be processed at a much higher price than you initially thought you’re going to pay.
  4. Missing the pump and dump boat: Here’s the lifecycle of any penny stock: 1) List it. 2) Pump it. 3) Dump it. If you miss the pump or dump boat, then expect to lose at least 50% of your money (that if you don’t lost it all).
  5. Too many scams: There are just too many companies (in fact, most companies) that get listed in the OTC just because they want to rob investors of their money. Either the company doesn’t really exist or either the company is lying about its financial sheets. In any case, just getting listed in the OTC means that the company does not meet the minimum standards to be listed in real markets.
  6. You are purely driven by greed: There was a time (not too long ago) when investors used to invest in companies that they believed in. Let’s move forward to now, and to your situation, think about it, why are you investing in penny stocks? Do you actually believe in the company issuing the penny stock? Or are you driven purely by greed?
  7. No tools to help you stop your losses: When you’re buying regular stocks, you have a lot of tools to help you limit your losses: You can buy married puts, you can create a sell on stop order, you can do a lot of things… None of these tools are available for you when you’re trading penny stocks.
  8. Highly manipulated: Penny stocks are highly manipulated, and it only takes a few investors to manipulate them because of their cheap price. If you’re note one of those few investors manipulating the stock, then stay clear, because it won’t be fun for you!
  9. High leverage: Penny stocks are very similar to calls and puts because of their leverage. While leverage is an excellent thing when you’re making money, it’s a terrible thing when you’re losing money.
  10. Penny stocks are a zero sum game: I have demonstrated before that the stock market is not a zero sum game (although I’m sure that there are investors who disagree with me about this – but at least there is a debate), however, the “penny stock market” is a zero sum game. When someone makes a specific amount of money, someone else will lose that same amount of money (or shall I say, when a few make money, many will lose money). The company’s news often have little to no effect on the stock in this case.

And here’s a bonus reason why a penny stock is not safe:

  1. The company issuing the penny stock may just vanish into thin air: There are many companies that issued penny stocks in the past and that have vanished all of a sudden. So, you might be the proud owner of 100,000 shares worth 10 cents each at Company X one day, and then you wake up the next day and realize that you are now the not-so-proud owner of 10,000 shares worth 0 cents each at what was once called Company X.

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.

After my post on the worst stocks to buy in 2012, I have decided to calculate the average stock market return for 2011..

Note that some calculations for the stock market return assume a certain fixed dividend rate, I don’t. In this post I am just tracking the indexes to see how much they went up (or down) in terms of points and percentage. As we all know, there are several indices (or is it indexes?) in the US Stock Market, so here are these indexes, and their average return for 2011:

  • S&P 500: The Standard and Poor’s 500 index went down 0.04 points (a negligible percentage). The S&P 500 index is a major metric to measure the stock market return, so, if you want a short answer (and you don’t have time to continue reading this post anymore), the market, on average, didn’t move in 2011. Maybe we should thank BAC and C; both reduced the total value of the S&P by about $200 billion.
  • NASDAQ Composite: The NASDAQ composite went down 47 points, or 1.8%. Note that the NASDAQ loss would’ve been bigger but Apple was there to the rescue, as the heavyweight stock went up around 25% in 2011, lifting the index. (here’s a little tidbit on the NASDAQ, in case you’re wondering when it was created and what does the word NASDAQ mean). The NASDAQ lost a lot of money because of once-loved-now-very-hated companies such as Netflix and RIM.

  • Dow Jones: The Dow Jones index went up 640.05 points, or 5.53%. Mind you the stock that lifted this index was XOM. It went up 15.92% in 2011 and it constitutes almost 11% of the Dow. This stock alone lifted the whole index around 1.78%.

So, what was the average return on the stock market in 2011? Well, as you can see from the above, not much, it was almost 0 (Again, the S&P 500 is the metric that most financial companies use to measure the performance of the stock market during a specific period). This is normal immediately after a recession (but are we out of the recession yet?). Will 2012 be better? I don’t know, and I’m sure that no one else knows. It’s all speculation, but from the looks of it, people now think that 2012 is a great year (didn’t they say the exact same thing about 2011 before?). It seems that in January everyone forgets about the January effect, and those who do remember about it, claim that it’s only a myth. A myth that materializes every single year!

As I always like to say, only time will tell!

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 2, 2012 | In: General

Worst Stocks to Buy in 2012

We’re now in the beginning of January 2012, and the January Effect is now set to take place: stocks that should not go up will go up, merely because those who have sold them back in December will buy them back in January. The January Effect will completely fade in mid February, and it’s at that time that most investors will be able to distinguish between good stocks and bad stocks. Now as for the worst performing stocks, they’re not that hard to find…

In my article, investment strategies for 2012, I took a glimpse at which stocks should be avoided in 2012. This article will be much more detailed about this point, and will focus on the worst stocks to buy in 2012. I have categorized these stocks based on the industry of their respective companies…

Worst Bank Stocks to Buy in 2012

  • BAC: Bank of America was probably the worst worst performing large cap stock in 2011, the stock went down 58%, and reached a second all time low of $4.92. What makes anyone think that this stock is set to recover in 2012? The only time that this stock will go up is in January (this month) because of the January Effect. Other than that, this stock is doomed in 2012. There is just too many problems associated with Bank of America, and I’m not sure that the current management at BAC is doing enough to address these problems.
  • C: Although C did slightly better than BAC in 2011, it still was one of the worst performing stocks in the American markets. C was down 44% in 2011, which reduced Citigroup’s market capitalization to below $100 billion (a number not seen since 2009). C’s prospects are better than those of BAC’s, but still, C may need yet another reverse split in 2012 if the trend continues (and, from where I’m standing, it will).

Note that all European bank stocks will be even worse performers than BAC and C, but I figured that it’s a given, considering what Europe is going through and what it will go through in 2012.

Worst Insurance Stocks to Buy in 2012

  • AIG: AIG (American International Group) is one stock that literally was the main reason behind many suicides back in 2008-2009. It still is a very dangerous and bad stock. The stock went down nearly 60% in 2011 and is set to lose more in 2012 with all the troubles in Europe and AIG’s huge exposure to Europe.
  • MFC: MFC (Manulife Financial Corporation ) is another really, really bad insurance stock. It went down around 40% in 2011, and again, will probably lose even more than 40% in 2012.

Worst Energy Stocks to Buy in 2012

  • RIG: I used to love RIG, a lot. I discussed (a year ago) that offshore drilling companies were undervalued, but it’s not the case anymore. You see, offshore drilling companies are companies that suffer from a lot of politics and regulations. RIG is a good stock to buy, but in 2012, it will continue its slide that pulled it down nearly 45% in 2011.
  • BP: BP had an average year in 2011, the stock went down only 3%. But, 2012 will hold a lot of challenges of BP. Its revenue already diminished because of the assets sales back in 2010. Also, demand on oil will be much lower because of a slower demand in emerging economies such as China (China already signaled that it will experience a smaller growth in 2012 than in its previous years).

Worst Technology Stocks to Buy in 2012

  • RIMM: Research In Motion missed the train, and now it has to pay the penalty. RIM is losing customers at an insanely fast rate, and will never recover. Of course, there are rumors here and there about companies offering to buy RIM, but we’ve established that nobody needs nor wants RIM, including Amazon. RIMM has lost 75% of its value in 2011. I’m not sure if RIMM will still be listed in 2012, or, if it won’t go with a reverse split.
  • NOK: Nokia is another company that refused (similarly to RIM) to ride the Android bandwagon. Result: NOK has lost its prestige as one the most influential mobile phone producers in the world, and it’s now a company that receives money (as aid) to advertise its own phones (I’m talking about the $30 million or so it received from Microsoft). NOK is highly overpriced, even though it lost 53% in 2011. I think NOK will be halved in 2012.

  • NFLX: Netflix got a taste of its own medicine when it tried to rob people at the wrong time (during a recession) by hiking its fees. The price that Netflix paid is the loss of many many subscribers, and the emergence of competitors in the streaming business (both of which I have warned of a long time ago). NFLX reached an all time high of $304 back in July, and now it’s trading at less than 1/4 of this price. Ah, greed!

Worst Internet Stocks to Buy in 2012

  • LNKD: LinkedIn had no reason to go public whatsoever, and the valuation of the company by the market is just outrageous. LNKD is trading at a forward price to earnings ratio of 1,244. This is extremely high by any standards. LNKD should be trading at no more than 1% of its current value, which would literally make it a penny stock!
  • GRPN: Even worse than LinkedIn is Groupon, because while LinkedIn is making money (though not enough at all), Groupon is losing money. Groupon is losing so much money that they should create something like a reverse P/E ratio for it (a reverse P/E ratio is a term that I just invented, where you substitute the earnings per share with the loss per share to calculate the P/E). GRPN is a really bad stock and most likely there will be a huge correction in 2012 for this stock. And if you’re wondering how much Groupon is really worth, I can answer you with confidence, “not much!”.

Worst Software Stocks to Buy in 2012

  • QSFT: Quest Software is a company that was once famous for its enterprise management software. Well, it was good times when spending was high and there was no competition. But nowadays IT spending is much lower in its main market (the US) and there is a competitor popping every other day or so! QSFT has lost 33% in 2011 after reaching an all time high in January. Stay clear!
  • CA: Computer Associates Inc. is another company that probably all of us remember its former glory. But all that glory is lost (forever?), and all that remains is a company that still exists because of all the legacy software in the market, and because of all the IT Managers with legacy mindset. CA has lost 17% this year and the downward trend will definitely continue in 2012.

Worst Pharmaceuticals Stocks to Buy in 2012

I don’t think any of the large cap pharmaceutical stocks will perform badly in 2012, simply because the world needs more drugs to face what’s going on in Europe.

Worst Chinese Stocks to Buy in 2012

Why am I even writing this? All Chinese stocks are really, really bad, but, if you really insist, here are the worst Chinese stocks in 2012:

  • YOKU: Youku.com is China’s answer to Youtube.com. We all know that there is no way, on heaven or on earth, for this company to ever make money. Why bother even considering it as an investment? This stock is not even worth 1 cent, and the market cap of YOKU should be no more than a couple of million dollars. YOKU went down 55% in 2011.
  • DANG: E Commerce China Dangdang Inc. is another Chinese answer to an American website (Amazon, which is not a great investment either). Of course, DANG is now losing money and will probably continue losing for the next lifetime or so. DANG went down 83% in 2011.

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.

December 30, 2011 | In: Technology

What Will Amazon Do with RIM?

Of course we have all heard lately that almost every company in the world has expressed interest in purchasing the flip that flopped, RIM (Research In Motion). Even a RIM Chairman confirmed this lately, by stating that RIM spurned an offer by Amazon (an overvalued company which stock, AMZN, is worth one tenth of its current value) to buy the company. Wow! Another reason for RIM investors to really love this guy (the same way investors loved Jerry Yang for refusing the $33/share Microsoft offer back in May of 2008 – FYI: Yahoo is now trading at $16.20). In any case, I wonder who’s more crazy, is it RIM, for refusing the offer, or is it Amazon, for making the offer.

Why would Amazon be crazy? You might wonder… Isn’t RIM a catch at a current market capitalization of $7.56 billion. Well, here’s what I think:

  • RIM’s main flop product, the PlayBook, directly competes with Amazon’s media hailed product, the Kindle Fire (both of them are useless pieces of junk, but hey, that’s just my opinion). What’s the point of Amazon buying a company that is producing a product that doesn’t sell, and that directly competes with its best selling product. I’m sure there’s a business sense somewhere, but I just can’t see it.
  • RIM’s userbase in developed countries is shrinking, and this is where the real moneymaker is. No matter how the RIM executives try to make things look rosy (by claiming that they are growing overseas), RIM is definitely losing market share. Is Amazon interested in buying the company at a P/E of 3.4 thinking that it can sustain this P/E and make pure profits in about 40 months?

  • Regardless of whether RIM is a catch or not, Amazon doesn’t have the expertise to handle a company like RIM. RIM needs a company like Microsoft, Google, or Samsung to turn it over, and not Amazon. RIM, in my opinion, will only add huge administrative/technical overhead to whoever buys it. How will Amazon cope with that overhead is beyond me.

  • RIM uses a technology that is rapidly becoming obsolete. Their OS, their phones, and everything related to RIM is either obsolete or on the way to becoming obsolete. What’s the point behind buying a company with an obsolete technology.

So, why did Amazon make this offer if it clearly can’t do anything with RIM?

Obviously, this is not official. Someone at Amazon might have mentioned this to someone at RIM on a social occasion and they made a media hype out of it, just to inflate the stock price. Could it be that RIM’s executives are jumping ship and inflating the prices just to sell their RIMM shares (watch out for these insider trades)?

Nobody knows, but what I know is that RIM is a company with no future, and that RIMM, even at a P/E of 3.40 is still highly inflated. This stock should be trading at a price lower than $5. Wait till the results of the next quarter are published and see how much RIMM will be worth then.

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.

December 28, 2011 | In: Technology

Is Nokia Overpriced?

I think I would like to start this article with this question: “When was the last time you saw someone with a Nokia phone?” Now let me be the first to answer it: “A few months ago…” If I had been asked this same question 5 years ago, I would have said “I carry one myself, as well as everyone else I know”. In these 5 years, and especially since the invention of the iPhone, Finnish Nokia, as a business, was in a downtrend.

Let us check NOK for the past 5 years:

Figure 1: Nokia (NYSE:NOK) for the pat 5 years (image courtesy of Google Finance)

As you can see from the above chart, NOK is trading at just over 10% of its peak back in 2007. What happened between now and then for the stock to go down like this? In my opinion, here’s what happened:

  • Nokia stopped becoming innovative: When was the last time you looked at a Nokia phone and you said Wow!
  • Nokia didn’t adopt the mainstream smartphone mentality: In fact, Nokia insisted on selling outdated and overpriced Symbian phones and tried to pass them as smartphones (that was the case until very recently when it started its alliance with Microsoft), while there was nothing really smart about them.

  • Nokia didn’t adopt Android: This is the same mistake that RIM has committed and that cost its business. Nokia stopped short from adopting the Android OS and is sticking to Symbian (here’s a comparison between Symbian and Android). It wasn’t until very late that Nokia has decided to ally with Microsoft and produce Windows phones, that probably suck even more than Symbian phones.

Now we know why Nokia is trading at just 10% of its peak back in 2007, but, we haven’t answered this question, is it overpriced even at the current price of $4.74? To know the answer to that, we have to take a glimpse at Nokia’s future by analyzing its current business:

  • Nokia’s main revenue comes from developing countries: Ever since Nokia’s demise in the developed world back in 2007, Nokia’s main revenue comes from selling cheap phones in developing markets. Will that be the case in 3 years from now when (Chinese) competitors will try to get a piece of this cake as well, and when developing markets will become more developed?
  • Nokia has allied with Microsoft in the smartphone business: I think Nokia took a wrong turn with this alliance. The market for Windows smartphones is not that big and it is shrinking every day (Android’s market is expanding at the expense of the Windows smartphones’ market, among other markets). Of course, Nokia released the Lumia 800 smartphone, but that phone is not cheap and, again, it doesn’t have Android.

  • Nokia is spending a lot of money on advertising: Nokia’s advertising expenses are on the rise to make up for the loss of market interest in its products. (By the way, Nokia received a $30 million of free money from Microsoft to advertise its Windows smartphones – although I think that money is now spent).

  • Nokia phones are uglier by the day: I remember that until the year 2007, Nokia used to always awe us with the beauty of its phones, this is no longer the case. Even the Lumia 800 is nothing special!

  • Nokia’s ovi store is one ugly store: Check store.ovi.com if you don’t believe me, compare that to the Android market or iTunes. Which one would you be more inclined to buy something from?

Now, after analyzing Nokia’s present, what will be its future? I don’t believe it’s going to be a bright future, in fact, Nokia has nothing special to offer anymore. Now Nokia is trading at a forward price to earnings ratio of 20.68, but will it exist 20 years from now? I don’t think so, will it still exist in 10 years from now, I still don’t think so. How about 5 years? Maybe, but if, and only if, these Windows smartphones gave it a temporary antidote. Which means that Nokia should not trade at anything over a P/E ratio of 5, which means that the current stock price should be $1.15 (which makes NOK a penny stock).

Nokia is dead, RIM is dead, the iPhone will die, long live Android! It’s probably not what everyone wants (including me) but the fact of the matter is Android is here to stay, and it was the best investment that Google made.

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 am seeing many questions over the Internet asking about the minimum age to trade stocks. Some are asking if it’s 16, 18, 20, or even 25 years!

I will first answer the question, and then discuss it. The minimum age to trade stocks is 18 years old, in the United States and Canadian markets (other countries may have different regulations when it comes to age eligibility for trading stocks). I was personally about 30 years old when I started trading stocks.

Now, if the minimum age to trade stocks is 18, does it mean that it’s impossible to trade stocks if you’re below that age? Well, the good news (for those who are below that age) is that it’s possible, and the way to do it is by making one of your parents (or one of your guardians) open the investor’s account for you with the bank (it’s called a custodial account). This way, you will have full access to the account and you can trade in the stock markets, however, the one who opens the account will be responsible for that account (when it comes to issues arising with the account, as well as paying taxes on the account). Margin accounts (that allow you to short stocks – here’s an introduction to shorting stocks if you’re interested in the subject) are even trickier because they will allow you to play with money that isn’t yours (which is not a favorite by the bank especially when you’re below 18, regardless of who’s responsible for the account).

But why are there age limitations for trading stocks?

To answer this question, let me clarify a myth. Even if you are 10 years old, and you’re making enough money, you have to pay taxes! I’m saying this because some believe that the age limitation exists because those under the age of 18 do not have to pay taxes (which is wrong), and stock trading may generate a substantial amount of money. However, what is right is that it is more expedient for your parents to do the taxes for you, especially when you’re generating a lot of money, and that’s one of the reasons why there is this age limitation.

Another reason is that while stock trading is not a sin, it can quickly become an obsession (or addiction) with someone who’s very young and may need to be monitored by his parents. A person who’s less than 18 years old may drop school just to trade stocks. And while making money is probably the point for many in this life, having at least a high school education is the standard these days (governments do not want their people to become money grabbing idiots at a very young age).

So what do I think? Well, if you really care about my point of view, I think that the current system works, and that a person who’s under 18 and who wishes to trade stocks will get the best of both worlds (if, and only if, one of his parents, or a guardian, opens up the investor’s account for him), which is a good thing (trading without responsibility).

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.

After my accurate prediction of the IRE reverse split back in July (3 months before the actual reverse split), I am now pondering, which stock is next on the reverse split list. And then I thought, hmmm, Bank of America is technically becoming more and more of a penny stock, and I’m not sure if Brian Moynihan will be very fond of the idea of BAC becoming a penny stock under his leadership… So, in short, I believe that BAC is going to have a reverse split, at least 1:10 (10 shares pre-split will be equal to 1 share after split) most likely next year.

Other reasons that make me think that BAC will do a reverse split:

  • Citigroup, a very comparable bank, already did a 1:10 reverse split earlier this year, so, BAC will not make a bold move by doing so. It’s been done before by a very similar institution.
  • BAC is set to go even lower (much lower) in 2012 on the European crisis. It won’t make sense not to make a reverse split.
  • There is no need to have 10 billion shares at $5 a piece when you can only have $1 billion at $50 a piece.

But, as we already know, reverse splits are not that great and are signs of bad stocks. If you don’t believe me, just look at any stock that did a reverse split in the past few years: AIG, AIB, IRE, C, etc… One of them (AIB) no longer exists, and the others are slowly returning to their pre-split price (IRE before the split was $0.8, and now it’s $4, it’s not that far from that $0.8 again).

In my opinion, a reverse split is as if the company is saying, we don’t expect our stock to return to the good old times, so, let’s just fake it, and do a reverse split, and make it look like it’s worth more than it’s actually is. I have warned before and I’m warning again, bank stocks are absolutely terrible and should be avoided in 2012 (haven’t we learned our lessons already?). And, out of all bank stocks, BAC is probably the worst one to invest in. It’s down 61% this years alone (vs 45% for C). So, as soon as BAC experiences a reverse split, then rest assured you will never, ever see that $20 level again (pre-split), at least not in your lifetime.

In my opinion, the question is not whether BAC will do a reverse split or not, the question is when will the reverse split take place (and, as I said before, it will most likely be next year).

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.