Posts Tagged ‘nflx’

  • The Scary Bomb Not on Netflix’s Balance Sheet
    , July 9th, 2012 at 11:52 am

    David Merkel alerted me to this:

    I think Netflix ($NFLX) would still be overpriced at half the current price. If all goes well, the company may make a small profit this year. I don’t see how anyone can justify paying $80 for this stock.

  • 13 Stocks to Avoid
    , May 14th, 2012 at 10:58 am

    Here’s a list of 13 stocks that are way, way, WAY overpriced. I listed Friday’s closing price with each stock.

    Amazon ($AMZN), $227.68

    Motorola Mobility ($MMI), $39.23 (getting bought by Google)

    Salesforce.com ($CRM), $137.78

    Netflix ($NFLX), $77.38

    Coke ($KO), $77.47

    Whole Foods ($WFM), $88.54

    Costco ($COST), $84.60

    Stericycle ($SRCL), $83.24

    Starbucks ($SBUX), $55.01

    Nike ($NKE), $108.26

    Ariba ($ARBA), $39.17

    Chipotle ($CMG), $408.25

    Intuitive Surgical ($ISRG), $558.95

  • CWS Market Review – November 4, 2011
    , November 4th, 2011 at 6:23 am

    Even though October was the eighth-best month for the S&P 500 of the last 70 years, the market has taken back some of those gains thanks to the recent political chaos in Greece. Here’s what happened: George Papandreou, the Greek Prime Minister, surprised everyone on Monday by putting the euro zone bailout plan up for a referendum. Simply put, that freaked out everyone—and I mean everyone.

    For a few hours it looked like Greece was really honestly going to default. Monsieur Sarkozy said that the Greeks wouldn’t get a single cent in aid if they didn’t adhere to the original terms of the bailout. It got so bad that the European bailout fund had to cancel a bond offering. Yields on two-year notes in Greece jumped to 112%.

    Yes, 112%.

    The ECB, under its new head Mario Draghi, stepped in and cut rates by 0.25% which seemed to calm folks down. At least for a little while. Only after his party revolted against the idea did Papandreou decide to ditch the referendum. That’s what traders wanted to hear. On Thursday, the S&P 500 jumped 1.88%, and the index is now up barely for the year.

    So we dodged a bullet for the time being, but we’re not yet out of the woods. I think it’s obvious that Greece will get the aid although the details are still unclear. My fear is that this latest cure only addresses the symptoms and not the underlying problem.

    The issue isn’t that Greece mismanaged its finances (which it did) but rather that the euro zone as currently constructed is inherently unworkable. As it now stands, the countries on the periphery of Europe have to run massive trade deficits with the heart of Europe (Germany, mostly), and without the ability to downgrade their currencies, they’re forced to run large public-sector deficits.

    The equation boils down to this: The euro zone needs fiscal union or the euro dies. Perhaps a smaller euro zone could make it. If the EU was just a trading club for the rich nations of Western Europe, fine—that might work. But what’s happening now, I fear, is just delaying a problem that can’t be avoided.

    The problems in Europe are having an unusual side effect on the stock market here. What we’re seeing is an unusually high correlation among stocks. In other words, nearly every stock is moving in the same direction, whether it’s up or down. It’s important for investors to understand this. The last time correlation was this high was in October 1987 when the market crashed.

    Bespoke Investment Group, one of my favorite sites, tracks what it calls “all or nothing days” which is when the advance/decline line for the S&P 500 exceeds plus or minus 400. Since the start of August, more than half of the trading days have been “all or nothing days” which is a rate far greater than seen in previous years. The current market divide has energy, industrial, material and most importantly, financial stocks, soaring on up days, while volatility, gold and bonds rally on down days. The market is behaving like a legislature that has only extremists and no moderates.

    I don’t believe the high correlation portends any ugliness for the U.S. market. Instead, I think it reflects the dominance of geo-political events over the market. Though one important side effect is that when everyone moves the same way, it becomes much harder for hedge fund managers to stand out from the crowd. That’s why we’ve seen crazy action in stocks like Amazon.com ($AMZN) and Netflix ($NFLX).

    As depressing as the news is from Europe, there’s been more cause for optimism here in the U.S. While the economy is far from strong, it appears that the threat of a Double Dip recession in the near-term has fizzled. Last week, we learned that the economy grew by 2.5% for the third quarter. Job growth, of course, has been distressingly poor.

    I’m writing this early Friday morning ahead of the big jobs report. Economists expect that the jobless rate will remain unchanged at 9.1% and that 100,000 new jobs were created last month. Even if we hit that expectation, that’s still pretty poor.

    The good news is that this has been a decent earnings season for the market and especially for our Buy List. The S&P 500 is on track to post record quarterly earnings. The latest numbers show that of the 415 S&P 500 stocks that have reported so far, 288 have beaten expectations, 89 have missed and 38 were in line with estimates. Outside the S&P 500, 64.5% of companies have beaten estimates and that’s better than the previous two quarters. Our Buy List has done even better. Of the 12 Buy List stocks that have reported so far, ten have beaten earnings estimates, one missed and one was inline.

    On Tuesday, Fiserv ($FISV) reported third-quarter earnings of $1.16 per share which was two cents better than estimates. The company also raised its full-year guidance (man, I love typing those words) from $4.42 – $4.54 per share to $4.54 – $4.60 per share. Shortly before the earnings report, Fiserv’s stock gapped up to over $61 but then pulled back after the earnings report came out. Fiserv is a good buy up to $62 per share.

    Our star for the week and perhaps for the entire earnings season was Wright Express ($WXS). The stock soared 12% on Wednesday after its blowout earnings report. The company, which helps firms track their expenses for their vehicle fleets, reported third-quarter earnings of 99 cents per share which was six cents better than Wall Street’s consensus. That’s a 38% jump over last year. The company also said that it expects between 88 cents and 94 cents per share for the fourth quarter (the Street was expecting 94 cents per share). I was happy to see Wright extend its gain on Thursday as well. I rate Wright Express a buy up to $53.

    The big disappointment this week came from Becton, Dickinson ($BDX). For their fiscal fourth quarter, Becton reported earnings of $1.39 per share which was inline with Wall Street’s estimate. The problem was their guidance for the coming year. Becton said that they expect earnings to range between $5.75 and $5.85 per share. That’s far below Wall Street’s forecast of $6.19 per share. I’m disappointed by this news but Becton is still a solid company. Sometime later this month the company will likely raise its dividend for the 39th year in a row. Investors shouldn’t chase this one but if the shares pull back below $65, I think Becton will be a good buy.

    I also need to explain what happened to Leucadia National ($LUK) this week. A ratings company downgraded Jefferies ($JEF) in the wake of the immolation of MF Global. Leucadia owns about one-quarter of Jefferies so that impacted their stock as well. However, it’s not clear that Jefferies’s health is anywhere as dire as MF Global’s. Actually, the facts indicate that it’s almost certainly not.

    At one point on Thursday, shares of Jefferies were off by more than 20% but cooler heads prevailed and the stock finished the session down by just 2.1%. Leucadia took advantage of the panic and picked up one million shares of JEF. At the end of the day, Leucadia’s stock managed to close six cents higher. The stock remains an excellent buy. By the way, this a good lesson on why you should be careful with stop-losses. Panic can set in and bust you out of good trades.

    That’s all for now. In addition to tomorrow’s big jobs report, Moog ($MOG-A) is due to report earnings. Then on Monday, Sysco ($SYY) is scheduled to report. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Netflix Is Down $200 in Three Months
    , October 11th, 2011 at 12:13 pm

    Eighteen months ago, I called Netflix ($NFLX) “The Absolute Worst Stock to Buy Right Now.” Ugh; not one of my better calls. The posting even caused the CEO to send me a snippy email.

    This was part of my post:

    Last year, Netflix made $115.9 million of sales of $1.67 billion. That works out to earnings of $1.98 a share. The stock, however, is currently around $86 or 43 times trailing earnings. The shares were overpriced at the start of the year and they’re up another 55% since then.

    When the fourth-quarter earnings came out in January, Netflix said that it expects full-year earnings-per-share for 2010 to range between $2.28 and $2.50. So even going by the top end of forward earnings, NFLX is still trading with a P/E ratio of around 35 which is more than twice the S&P 500. That’s just crazy.

    Seems reasonable, but it was one of the worst calls I’ve ever made. At the time, the stock was at $87. Three months ago, NFLX hit $304.79.

    To be fair, I continued to call the stock horribly overpriced. For example, when it hit $110 or when it hit $188 or when it hit $230 or when it hit $267. Hey, at least I’m consistent.

    To be a good investor, you need to look at your mistakes. So why was I so off about Netflix? I think my analysis was right but I was wrong on just how irrational the market can be — and how long it be irrational for. In the end the facts win, but that can take awhile.

    Today, shares of Netflix hit $103.13 which is a loss of $201.66 in just three months. I don’t believe that Netflix is down so much because they upset their customers and made some bad moves at damage control. Of course, that’s part of the move but that alone doesn’t cause a company to lose two-thirds of its value in a matter of weeks.

    Instead, the severe drop was due to a vastly inflated share price. The price issue was merely a catalyst for the momentum investors to get out. And they did.

  • Netflix Separates Its DVD and Streaming Business
    , September 19th, 2011 at 10:09 am

    A customer backlash truly works — or perhaps I should say that a customer and investor backlash truly works. Netflix ($NFLX) has announced today that it’s separating its online streaming and DVD-by-mail service. The new division will be called “Qwikster” (who thinks of these names?).

    The streaming business will continue to be called Netflix. Members who subscribe to both services will have two entries on their credit card statements. Instead of Netflix, the distinctive red envelopes will now say Qwikster.

    The stock fell from a high of $304 on July 13 to $154 last Friday. The company has been on the defensive ever since they announced a controversial price increase this summer.

    The problem was that the stock was enormously over-priced so any disruption could cause the shares to plunge. Last week, Netflix had to lower its Q3 subscriber forecast and that caused even more pain for the stock.

    Reed Hastings, the CEO, finally took hold of the issue and publicly said that they made a mistake:

    Acknowledging that he “messed up,” Hastings said he “slid into arrogance based upon past success” when he did not adequately explain the reasons behind the plan separation and effective price hike. He said the reason is that instant streaming and DVD-by-mail are becoming “two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.”

    Explaining the reasons behind the plan change “wouldn’t have changed the price increase, but it would have been the right thing to do,” Hastings wrote.

    Hastings said the DVD service will be the same as ever, “just a new name.” But customers will see a video games upgrade option for game rentals on the Qwikster website. Andy Rendich, who has been working on Netflix’s DVD service for 12 years, and leading it for the past four years, will be the CEO of Qwikster.

    The real Qwikster, of course, is the stock market and how quickly it turned against Netflix. This apology may help in the short-term but the stock is still vastly overpriced.

  • Netflix Poised to Plunge
    , July 26th, 2011 at 9:28 am

    One of the of the things about having a blog is that I can’t hide my awful market calls. A little over a year ago, I called Netflix ($NFLX) “the absolute worst stock to buy right now.” I even got a snarky email from the CEO. The stock has jumped about $200 since then.

    Sure, it’s embarrassing. But I’ve consistently believed that Netflix was absurdly overpriced. As it climbed higher, I thought it was just becoming even more and more overpriced.

    Netflix just reported second-quarter earnings of $1.26 per share which was 14 cents more than expectations. Yet NFLX said to expect Q3 sales of $780 million to $805 million where Wall Street was expecting $845.3 million. The early indications are that the stock will open down about $25 per share.

    I think Netflix’s decision to raise its prices has struck a nerve among its customers and some investors. Just as the stock’s price rise was in no way close to the earnings increase, so too is today’s sell-out matched by the poor sales forecast. When a stock plunges 10% on news that really isn’t that bad, you know something was wrong to begin with.