What Is Dell Going To Do?

Now that HP (HPQ) has entered the smartphone market with its acquisition of Palm (PALM), what is Dell going to do? Dell (DELL) needs to find a dance partner. Research in Motion and Nokia are too large to be acquired by Dell. Apple already has its own smartphone offering. Motorola already uses the same Android operating system as Dell so acquiring Motorola for their operating system wouldn’t make much sense. Dell’s best move for the time being is to go it alone in the smartphone market.

There have been rumors that Dell is developing its own smartphone which will run on the Google Android operating system. This would be a nice foray into the market but to make serious money Dell needs to develop its own operating system. As Apple has shown, having your own operating system gives you access to an endless revenue stream via Apps stores. Palm has its own Apps store. Google will make the bulk of the money from Dell’s new smartphone since Dell is using their operating system. Android apps has been very lucrative for Google. So, what move does make sense for Dell?  Dell needs to develop their own operating system if they are serious about being a major player in the smartphone market.

Dell needs to acquire a handset maker. Buying Motorola only makes sense if Dell gets a sweetheart deal to acquire the firm. Motorola currently has an enterprise value over $12 billion. Dell would need Motorola’s shares to decline significantly since they would be buying Motorola for its product development not for its operating system.  Dell’s strength has not been in product design so it would be hard to believe that Dell could develop a lightweight, sleek eye catching phone. Motorola has already developed popular phones such as the Motorola Droid.

None of these moves will happen overnight; Dell may have missed their opportunity for a quick entry into the smartphone market by not acquiring Palm.

 

Photo by: ethanlindsey

FatWallet Blog

I will be blogging for FatWallet.com once a month. Please visit the site. Thanks.

AOL’s Disappointing Quarter

AOL Inc. (AOL) reported earnings yesterday and investors displayed their displeasure by dumping the stock. AOL shares fell 14.46% yesterday ending the day at $23.96. AOL earnings fell way short of analyst expectations. EPS was 32 cents per share which was substantially lower than the 70 cent projection. Revenue came in at $664.3 million below analyst estimates of $670 million dollars due to a drop in subscribers. As I noted in previous posts, I believed that analysts were way too optimistic on AOL’s earnings and felt that the stock was overvalued at $28.

There is some good news however. Costs are getting under control at AOL and the company did increase its market share in the search market. CEO Tim Armstrong stated that the company is transitioning into a media company and believes that growth will return in Q1 of 2011. Armstrong said that ad demand is strong across a number of AOL sites. AOL is unloading businesses that have dragged down revenue such as ICQ and Bebo. AOL lost 47 cents per share to restructuring and amortization costs. So if those were added into the numbers, AOL would have made 79 cents per share.

Analysts are expecting $2.60 a share from AOL for the year. I don’t see anyway that AOL hits that number. Until AOL has earnings growth you can conservatively figure AOL’s earnings to continue declining at a double digit rate. Revenue is expected to decline 14.5% to 23% for the year. At some point AOL will become a value play. I think at around $18 a share. Until that time investors should stay on the sidelines because AOL has yet to prove that the stock should trade at its current price.

Disclosure: I do not own any shares of AOL.

 

Photo by: psd

Things You Should Say During An Interview

You may find this article useful if you are currently seeking employment. Here is a list of 7 Things You Should Say During An Interview.

Palm Finally Finds A Buyer

Hewlett Packard (HPQ) agreed to buy troubled smartphone maker Palm for $1.2 billion in cash. The HP deal couldn’t have come at a better time for Palm. Palms was burning through cash at an alarming rate. HP will pay $5.70 per share for Palm’s shares. It looks like a good deal for HP which was able to buy Palm at a modest price. HP will be entering a new market where the computer retailer will be trying to wrestle market share away from Apple, Google, and Research in Motion. Shares of Palm are currently trading at $5.91 which is above the deal price.

Buffalo Wild Wings Fails To Fly

Buffalo Wild Wings (BWLD) investors sold off shares yesterday after the company announced earnings yesterday. Earnings per share came in at 58 cents which was 1 cent higher than analyst expectations. Revenue came in light at only $152.3 million dollars vs. the $154.3 million dollar sales figure expected. The revenue miss is due to a decline in comps. Same store sales were basically flat for the quarter as the restaurant chain saw decreased foot traffic.

Comps are continuing their downward slope declining 3.7% for the month of April. After the earnings announcement, Buffalo Wild Wings shares have dropped over $10 a share. Shares are down nearly 20% already. Ouch! Shares were trading at a rich valuation of over 25 times the current year’s earnings. Now at $41 per share, the stock looks fairly valued for investors. The PE ratio has dropped to under 20 and revenue growth is still expected to come in at 20% for the year. Price to earnings growth is almost at 1. The balance sheet is great with $52 million in cash and no debt. Even the reduction in foot traffic is most likely a temporary problem as the restaurant chain is a customer favorite.

The recent price drop appears to be an opportunity for investors that are looking for a chance to get long shares. Shares have not been at this level since January of this year. Investors have a chance to buy a high growth company at a decent earnings multiple. I would wait for see where shares settle at over the next week and would start buying if I had a chance to buy shares in the mid 30’s.

Disclosure: I do not own any shares of Buffalo Wild Wings.

 

Photo by: mcsquishee

3 Stocks For Long Term Investors

1. AK Steel (AKS) has dropped quite a bit over the last few weeks. The steelmaker has shed almost 25% of its value since April 6th. Shares have dropped due to increasing iron ore prices and a sketchy forecast for the next two quarters. It may take a few quarters for shares to rebound but the current price for AK Steel has gotten my attention. Shares were last trading at $18.91 in the after hours market. Iron ore may cut into the firm’s short term profits but sales are still strong as noted by the Q1 earnings. The lowest analyst estimate for AK Steel’s 2011 earnings is $1.30 which would mean that shares are trading at 14.6 times earnings even with the most pessimistic forecast.

2. Goldman Sachs (GS) is in the midst of a media nightmare. The investment banking firm is facing potential lawsuits and tighter regulatory scrutiny. Investing in Goldman is a long term endeavor. It may take a year or a year and a half but Goldman will survive the media storm and find a new way to boost earnings. Goldman is always ahead of the curve and there is no doubt that the firm’s trading desk will find new ways to make money. If investors get a chance to buy shares anywhere near the $115 warrant price that Buffett owns, then they should buy shares.

3. Citigroup (C) is finally looking like a good buy. Wait for the government to unload its shares onto the market. As the government unloads stock, shares of Citigroup should decline giving investors an opportunity to buy. The government is preparing to unload its 27% stake in Citigroup beginning with the sale of $7.7 billion shares in Citigroup stock soon. The government will make a profit as long as shares are sold above $3.25. Investors should be able to buy the stock in the mid to high $3 range.

Disclosure: I own shares of Goldman Sachs. I previously owned AK Steel but sold off my position at $25.

 

Photo by: TreyDanger

Why Does The FDIC Wait Until Friday To Close Banks

The FDIC shut down 7 more banks on Friday. The seven banks in question were all Illinois banks 140 banks closed their doors last year due to the financial crisis. 16 banks have failed this April bringing the total to 57 bank failures for the year. At the current rate, more than 185 banks will fail this year. That’s a remarkable number considering that unemployment is dropping and the economy is deemed stable. Apparently the banking sector is still feeling the after effects of the worst recession in US history. So, if the FDIC knows a banking institution is set to fail, why does the FDIC wait until Friday evening to announce it?

The FDIC places weak banks on watch lists months in advance and then speaks with potential bank suitors. Many individuals believe that bank failures are announced Friday evening to limit paranoia and a mass exodus of deposits from the bank. Since most people are not paying attention to financial markets over the weekend, bank closures can go largely unnoticed. This could help to prevent a run on deposits. Although this theory makes perfectly logical sense; it is not correct according to FDIC chairwoman Sheila Bair.

According to Bair, “The FDIC and the bank are putting together the merger of financial institutions in the matter of a weekend.” The goal is to open for business by Monday with new management in place. The three day weekend gives the FDIC the best chance to ensure an orderly sale of assets and a smooth transition. This involves transferring assets, communicating with employees, and merging operations. The FDIC’s goal is to have the financial insitution open for business the next business day. The fact that this process can take place in just 3 days is pretty remarkable. So, as you can see the best time for the FDIC to announce these banking failures is on Fridays after the close of business.

 

Photo by: neate photos

Recent Buys

I picked up additional shares of Bank of America (BAC). I still like the banking giant despite potential financial regulations. Earnings may not be as robust as they were previously but banks will be more financially sound. As stated in previous posts, I believe that the Merrill Lynch and Countrywide acquisitions will increase top line earnings over the long run.

Warren Buffett’s Big Bets Continue To Pay Off

Warren Buffett’s Smart Investments

Any list of great CEO’s would not be complete without Warren Buffett. Buffett is the head of Berkshire Hathaway and the namesake for this blog. Berkshire Hathaway is the holding company for Geico, Dairy Queen, Nebraska Furniture Mart, Burlington Northern, and a number of subsidiaries.

The Oracle of Omaha is still one of the greatest investors around. With so many pundits claiming the demise of Buffett’s investment prowess; Buffett just continues to make shrewd investments. How about his investment in Goldman Sachs (GS) when the investment bank was desperate for capital? His $5 billion dollar investment looks pretty smart now even with Goldman’s government problems. How about his $3 billion dollar stake in General Electric (GE) during the financial crisis? While the warrants are still underwater, the 10% dividend on preferred shares has paid off nicely.

His company, Berkshire Hathaway (BRK.A) has made millionaires out of many investors over the past 25 years. Shares have skyrocketed from $7,100 in 1990 to over $118,280 in 2010. The stock has performed well in recent years also. Berkshire Hathaway has returned 98.12% to shareholders over the past decade. Buffett’s shareholder meetings are legendary with investors trekking to Nebraska annually to hear the financial wisdom of Buffett. While insurance companies like AIG needed government bailouts to stay afloat; Berkshire Hathaway has not needed one dime from the government. This is because Buffett has managed to properly manage risk. The firm has made some poor bets on derivatives in the past but did not allow these bets to jeopardize the underlying businesses.

This outstanding performance comes at a cheap price. The world’s third richest man is arguably the most underpaid CEO of any major company. Buffett takes home just $100,000 annually in salary. Buffett’s salary has been the same for the past 25 years. His total compensation comes in at just over half a million a year with over $300,000 being spent on personal security to protect Buffett. Buffett is generous with both his time and money. He has pledged to donate 85% of his wealth to charitable causes and shares his insights with young investors.

I do own shares of Berkshire Hathaway Class B stock.

 

Photo by: Ethan Bloch