– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	Freeport McMoran	FCX	Holding	10/4/2011	+25%
2	Ford Motor Co.	F	Holding	10/5/2011	+23%
3	Alcoa, Inc.	AA	Purchased Today	10/24/2011	+1.2%

– Story-Stock Investing –

Here’s our SMC Intra-Day Alert that we sent today regarding our investment in Alcoa, Inc. (AA $10.55)

Dear Subscriber-Friend,

This morning, the equities (stock) markets are up strongly.  Here’s why –

1. There is continued HOPE that European leaders will do what they have to do to secure the confidence in the worldwide financial markets in European sovereign nation bonds.  This hope is bringing with it renewed interest in the Euro and sellers in the U.S. dollar.  As the U.S. dollar has sold-off this morning commodity based stocks like SMC holding Freeport McMoran (FCX) have advanced strongly.  In order to simply maintain parity with last week’s pricing, commodities priced in dollars like crude oil and copper increase in price as the U.S. dollar adjusts downward.  FCX is up another approx. +6% today alone. But there is more than just the adjustment to the U.S. dollar taking place today in equities.
2. Caterpillar, Inc. (CAT $92.43) has announced its quarterly earnings today that are simply extremely strong.  CAT beat earnings expectations by $0.07/share, on revenues that are UP 41.2% this last quarter verses the same quarter last year – AND – guided for HIGHER for revenue and earnings for the entire fiscal year 2011. Importantly, CAT said this during their earnings conference call this morning, “Although there is a good deal of economic and political uncertainty in the world, we are NOT seeing it much in our business at this point.  We believe  continued economic recovery , albeit a slow recovery, is the most likely scenario as we move forward.  …We expect the world economy will continue to recover in 2012, with growth improving to about +3.5%.  The United States and Japan should account for much of the improvement…”
3. We have mentioned some time ago that President Obama may look for a way to improve the current horrible situation in the retail housing market (to help homeowners AND to improve his chances next November).  This morning the news is reporting that there may be an initiative that helps homeowners refinance at current low rates, with reduced fees involved AND allows homeowners that have negative equity to participate.   A requirement of this program is that the homeowner be current in their mortgage payment and therefore the home loan not be in delinquincy.   Any improvement in the overall retail home market – as long as it doesn’t come at an added expense to the federal deficit – will be evaluated by economists as a benefit to this current economy.  Obama’s re-election team is not going to miss such an opportunity.

We’ve mentioned that we like Alcoa (AA $10:38) here and have purchased shares at $10.45 this morning for a 15% holding.  Alcoa isn’t roaring like other stocks today, but we like the underlying possibilities here based on their decent earnings reported on October 11th and their expecations for continued improvement in the aluminum markets and end demand.

Nike (NKE $95.14) is also looking very good here, but it has come so far so fast in price over the last two weeks, that we want to see how it continues to handle the mid-$90’s area before making a purchase.

Each investor is on their own.  We are simply communicating our position in the market place.  For more details, please see our disclaimer below.

Your – Stock Market Companion

 

Next subject = Groupon IPO.  It may be that Groupon, Inc. proceeds with its Initial Public Offering (IPO) on November 4th.  There are few companies that have such a reach into mainstream America that Groupon has and the interest surrounding the IPO is going to be high.

Here are some facts that we believe are accurate concerning Groupon’s IPO (courtesy of Briefing.com and Investor’s Business Daily) –

• Target date of 1st day of trading = November 4th.
• Offering price = $16-$18 / share.
• # of Shares to be issued = 30 million.
• Approx. 5% of the company’s shares will be represented by the IPO.
• Based on it’s latest S-1 filing, quarterly revenue (gross sales) has grown to approx. $430 million; UP +426% over the same quarter a year ago!
• The company reported a loss of approx. $239 thousand last quarter, which means it essentially broke-even for the quarter.  That compares a lot better than the approx. -$56 million loss on the same quarter a year ago.
• Groupon’s subscribers have grown to 142.9 million, from 21.4 million a year ago.
• Featured merchants = approx. 78,000 vs. approx 19,000 a year ago.
• Groupon DOES NOT expect to be profitable on an annual basis any time soon.
• Barriers to entry in the business are LOW.

We will be watchful concerning Groupon.  It is clear that there will be a lot of interest.  But we don’t know if this is a great company to invest in;  A trade for a quick, significant profit profit, maybe.

Netflix (NFLX $120) reported earnings DISASTER after the close.  Friends, this was a $300 stock in July.  In after hours trading this stock is selling right now for $92/share and dropping.  WHY?

Because the company doesn’t really know what their next quarterly earnings are going to really look like.  They earned $1.16/share this last quarter, which is great.  But their guidance (forecast) for next quarter is $0.36-$0.70/share.  This means that they don’t know whether their earnings are going to be cut by 2/3 or simply cut by a little less than half.  They are however still planning on producing numbers in the black.  That’s a plus, but doesn’t warrant a $91/share (current price right now) price tag.  Let’s say that the company stabilizes earnings at approx. $0.45/share / quarter.  4x 0.45 = $1.80.  $91/1.80 = P/E of 50.55.   That’s too high, when you consider that you can purchase Apple, Inc. shares at a P/E of 15 and basically know that you are getting an incredible company for the price.

Netflix may go down in history as one of most incredible stock failures in recent times of a profitable company, DUE to a single failed decision by management.  Imagine all the people who purchased the shares at $100 or more/ share and did not take their profits when the stock hit $300.  The stock is now at $87 and falling more.  What a shame.  Here’s a good article describing the situation courtesy of Bloomberg-Businessweek.   Under the conditions of an extreme sell-off, if an opportunity presents itself for nimble investors, we will try to identify it with an SMC Intra-Day Alert.

 

– Benchmarks “At a Glance” –

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