Monday, July 25, 2011

GLD $156.12 [Real $]

The jitters in the economy over the debt ceiling and the inability of the political puppets to come to an amicable conclusion led me to buy gold ETF (GLD).

Truck loads of earnings are coming out today, but I believe that the debt ceiling issue may cause many of these stocks to decline which will turn into a good buying opportunity.  I will buy GLD and get out and replace it with an oversold stock so I can realize a higher return than what the GLD alone can provide me.

- Saliq Khan

Saturday, July 23, 2011

Google Aug 11 585 Put Option [Paper Account]

Since I am a struggling grad student and Johns Hopkins isn't reducing their tuition rate anytime soon I have to play with paper money a lot more than I can with real money.  1) I have a lot less to lose...except time 2) It's one hell of a way to learn how to trade options / stocks

I bought the Google Aug 11 585 Put Option a few days back and now it looks like Google's stock is climbing and is currently sitting at $618.52.

The long-term outlook for GOOG is solid, but I was hoping for a short-term pull back to capture some gain (virtual money).  It's possible that the market is excited about Google buying the start-up Fridge...I doubt it.  The four person team will be joining the Google+ team and expanding their social network.

If I don't see GOOG going down, I will buy shares of GOOG to help offset the potential loss on the put option.

Note: This was first posted on:


Sunday, July 17, 2011

New Blog: Investment Insights


I will be posting a lot more about my thoughts on the various investments on my personal blog:

I will continue to post on the Equity Analyst Team blog, but will be much more active on my personal blog.

Thank you,
Saliq (CRM) - Stock Pitch

At 4.32 PEG and 449 P/ (CRM) overpriced?? Noted as being the king of cloud computing, the price of the stock will rise as most hardware and software move off company premises into a cloud environment. The company have given better than expected guidance for the year and has enough cash on hand to pay off all the debt. 

- Saliq

Saturday, July 16, 2011

Apple Inc. (AAPL) - Stock Pitch

Look for AAPL to take off after they report their earnings. $0 debt, low PEG, great ROI, driving out of MSFT and RIM in the smartphone business will help AAPL, iPhone 5 is right around the corner and this solid product continues to get better.

- Saliq

Tuesday, July 12, 2011

Another Johns Hopkins Alum Making It Happen

American, Chinese Win Key IMF Posts 

WASHINGTON—The International Monetary Fund said Tuesday it would install White House aide David Lipton as its No. 2 official and elevate Zhu Min of China to a newly created deputy managing director post.

The appointments by new IMF managing director Christine Lagarde—who took over last week after serving as France's finance minister—maintain the longstanding arrangement in which a European fills the top post and an American takes the No. 2 role. The addition of Mr. Zhu, however, is a new move designed to balance the fund's traditional leadership with representation from emerging markets.

Saturday, July 9, 2011

MasterCard Incorporated (MA) - Stock Pitch

The company which I will discuss in brief is MasterCard Incorporated (NYSE: MA).  A leader in electronic payment, MasterCard has no debt with a $3 billion cushion full of cash on its books and between 2008 and 2010, MasterCard’s net profit increased 57%. 

With international expansion and the increased use of debit cards, credit cards, and mobile payments, the use of electronic payments will rise in 2011 and will continue in 2012.  The current change in regulation may put pricing pressures on payment processors, but I believe that the global expansion and the ever increasing shift towards electronic payments will give rise to the large firms in this sector.

Investors have a misconception about this industry which should quickly be cleared up.  Many think that the delinquent credit card bills and the dire state of the economy will push the stock prices of payment processors down the drain.  This is just not the case.  Investors and analysts need to keep in mind that banks extend credit to their customers while MasterCard processes the transactions.

A quick look at the cost of equity and return on total capital (ROTC) of MasterCard will give an investor more insight.  With a cost of equity of 26.58%, calculated by utilizing CAPM method, and an actual ROE of 42.33%, this stock is great for investors that are seeking a high growth investment.  ROTC was at 36%, while its closest competitor Visa experienced a ROTC of 11.8%

MasterCard’s best known competitor is Visa Incorporated (NYSE: V) and the following is a breakdown of their comparison:

MA vs V:

Market Cap: 40.12B vs. 74.48B
Revenue: 5,539B vs. 8,065B
Net Income: 1,847B vs. 2,964B
Net Margin: 33.35B vs. 36.75B
PE: 21.20 vs. 22.98

Nothing should strike the investor as unusual.  Both the firms are in good financial position, but MasterCard has half the market capitalization of Visa which could indicate better growth prospects for the stock price.  With a Price/Earnings To Growth (PEG) Ratio of 0.94 and a ROE of 42.33, MasterCard is undervalued and offers high growth prospects.

- Saliq

ROA vs. ROE vs. ROIC

The three ratios mentioned below are all used to determine the returns which a company generates and all of them have a slight distinction.  All of them are valuable and no single ratio should be used as a clear indicator of the overall prospect of a firm.

Return on Assets (ROA) is calculated as net income divided by total assets.  ROA is readily used to compare firms in the same industry and can show the efficiency of a firm in using its assets to generate earnings.  An analyst or investor would prefer this number to be higher because that would indicate that the company is earning more with less.  This ratio can be skewed very easily and can happen when a firm is holding on to excess cash or assets.

Return on Equity (ROE) is calculated as net income divided by shareholder’s equity.  Used in comparing firms with the same capital structure, ROE reveals the level of profitability which a firm realizes by the money which was given to them by equity investors.  One thing to remember is that preferred shares are not used in this calculation.

The ratio which is more informative than ROA and ROE is the Return on Invested Capital (ROIC) and is calculated as net operating profits after taxes (NOPAT) divided by invested capital.  ROIC tells an analyst how efficient the firm was in investing capital in profitable investments.  This invested capital can go into anywhere from buildings to other companies.  The one major downside to this ratio is that it doesn’t specify if the return is more from continuing operations or a single event.  The upside to this ratio is that it can be used to compare firms with different capital structures.

An analyst needs to measure ROIC against weighted average cost of capital (WACC) since WACC is the minimum rate of return that a firm needs to earn for its stakeholders.  One thing to look for is that when ROIC is greater than WACC, value is being created for the stakeholders.  When this ratio is less than WACC, value is being destroyed.  Rather than following the much publicized ROE and ROA ratios, investors should look at the spread between ROIC and WACC for a firm.  On very broad terms, a firm with a higher spread between ROIC and WACC tends to be more valuable than a firm with a lower spread.

- Saliq