GTAT

The Difference Between Speculation and Investment

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Brian Nelson, President of Investment Research at Valuentum, discusses the difference between speculation and investment.  Brian Nelson, CFA: This is Brian Nelson from Valuentum Securities. I’d like to talk about the concept of speculation. I think it is best taught with a story perhaps, one of my personal experiences. I used to work on the buy side and one of the more interesting stocks that I pitched in my experience was a company called Synaptics (SYNA). This must have been in 2004-2005 — almost 20 years ago now. Synaptics made an interface for a number of electronic devices, and what it held was some of the technological building blocks for a click-wheel technology. About a year or two later following that … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

ALERT: Apple Pulls Forward iPhone 6 Launch!

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On the same day Apple (AAPL) announced the purchase of Beats Electronics for $3.2 billion, Reuters reported that a Taiwanese media source stated that Apple will release the next iteration of the iPhone in August, one month earlier than expectations. The $3.2 billion purchase price of headphone maker and music-streaming service Beats is economically-neutral from our standpoint, and in the context of its massive share repurchase program and the firm’s $500 billion market capitalization, the net impact of the transaction is effectively immaterial. In any case, the deal will bolster Apple’s music offering in the face of growing competition from Pandora (P), Spotify, Rhapsody, and Google’s (GOOG) YouTube, and give it a platform to drive a streaming and subscription-based business … Read more

Apple’s iPhone 6: The Catalyst to Send Shares to Intrinsic Value

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We recently published an article on the irrational exuberance exhibited within small capitalization stocks. We think as the hype inevitably comes out of the small capitalization space in coming periods, this “speculative” capital, assuming some of it can cross cap restrictions, will flow into underpriced (yet growth-y) equities with extremely strong fundamentals, companies like portfolio holdings Apple (AAPL) and eBay (EBAY) that have tremendous upside potential. Carl Icahn is working diligently to reveal the significant underpricing of eBay in requesting a spin-off of PayPal to unlock value much like that of Yahoo (YHOO) unlocking value via its initial public offering of Alibaba. Yahoo’s shares have performed wonderfully in the wake of the Alibaba IPO. We think Icahn will inevitably get … Read more

Small Capitalization Stocks Officially in Bubble

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Tulip mania was a period in the 17th century during which prices for tulip bulbs reached irrationally high levels and then collapsed almost overnight. The picture to the right is a tulip, known as “the Viceroy”, as displayed in a Dutch catalog of the time. The picture serves as a reminder to us of the potential madness of crowds, perhaps no better popularized by Charles Mackay’s 1841 book Extraordinary Popular Delusions and the Madness of Crowds, which outlined such behavior: Many individuals grew suddenly rich. A golden bait hung temptingly out before the people, and, one after the other, they rushed to the tulip marts, like flies around a honey-pot. Every one imagined that the passion for tulips would last … Read more

First Solar Disappoints

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The solar industry is extremely competitive and continually evolving as constituents strive to differentiate themselves to better compete within the broader electric power industry. Significant price reductions (per watt), reduced margins, and drastic market share shifts have become commonplace for participants. Profitability can be negatively impacted from government subsidies and sovereign capital that allow firms to operate unprofitably for extended periods of time. Production overcapacity is another major concern and will likely persist for some time. We think the structure of the solar industry is very poor, and First Solar reminded us of this when it reported fourth-quarter results Tuesday. The leading global provider of photovoltaic (PV) solar energy solutions reported revenue in the fourth quarter that declined nearly $500 … Read more

Why We Didn’t Get Excited About First Solar

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Tuesday afternoon, solar panel maker First Solar (click ticker for report: ) announced disappointing second-quarter results, confirming some of the issues we have long held with its business. Valuentum subscribers know that we don’t like the firm’s long-term prospects considering the industry’s ultra-competitiveness and First Solar’s forecast of weak gross margins. During the quarter, revenue at First Solar declined 46% year-over-year, to $520 million, more than $200 million short of consensus estimates. Earnings per share were 71% lower than a year ago, coming in at $0.37, again well below consensus expectations. Free cash flow was also materially weaker, registering $168 million (down 49% year-over-year) and equal to 32% of revenue. Image Source: FSLR 2Q 2013 Earnings Slides The situation for … Read more

First Solar Is Wise to Raise Capital

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First Solar’s Wild Ride Without question, solar modules and systems maker First Solar (click ticker for report: ) has been among the most controversial stocks in our coverage list during the past few years. The stock recently popped back above the $50 level on positive earnings guidance for 2014 and 2015, after nearly falling into the single digits last summer.  Though we’ve recently increased our fair value estimate for the solar maker to $47 per share (at the time of this writing) as we’ve warmed up to its mid-decade outlook (which looked better than what we had previously anticipated), management made a wise (and opportunistic) decision to raise equity capital at current levels via the announcement of a secondary offering yesterday. … Read more