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Great Growth Stocks Sold Too Soon

July 13, 2010 By Leave a Comment

Today I would like to take a look at an investment mistake that I have made in the past. It is a common mistake of many investors,. The mistake is failing to stay invested in great growth stories that have the potential for multibagger status. Selling a stock too soon can rob you of the potential profits. Many investors worry about holding a stock too long but too few consider whether they have given up on a stock too quickly.

Here are 3 great growth stocks that I sold too soon.

Netflix (NFLX)

Who knew that renting DVD’s through the mail would become so popular? Shares looked expensive in the early 2000’s at $26. Since then the stock has split and returned 1300% over the past 8 years. Needless to say, my selling early was a big mistake.

Chipotle Mexican Grill (CMG)

I thought that this would be just another fad restaurant chain. There are so many chains in the restaurant industry that it’s difficult to tell which ones will make it and which ones will now. Well, Chipotle made it. Chipotle shares are up over 200% since the chain was spun off from McDonald’s in 2006.

Google (GOOG)

During Google’s initial IPO, shares were selling in the $85 dollar range. I bought in at $145 and I sold out way too early in the upper 200′s. I failed to see the long term growth potential of Google. Shares of Google are now approaching $500 and the stock could be an earnings giant for a decade or more.

An important lesson to learn from this is that sometimes the best investment ideas can be found in your existing portfolio.

Tomorrow I will take a look at 3 stocks that I believe have multibagger status written all over them.

Filed Under: Investing Tagged With: , , , , ,

Is Research In Motion A Value Stock or Value Trap?

June 25, 2010 By 4 Comments

It’s always important for value investors to be able to tell the difference between a value stock and a value trap. Value stocks are stocks that are trading below their true intrinsic value. These stocks are sometimes unfairly beaten down due to market events. Value traps are stocks that look like good investment opportunities and may appear to be cheap but really are not. Value traps deserve to trade at low prices. A value stock is a good company trading at a distressed price. A value trap is a distressed company trading at its proper price.

Value Stock or Value Trap?

Take Research in Motion for example. Research in Motion (RIMM) trades at $52 a share as shares plunged over 10% after releasing subpar earnings Thursday. Sales and subscribers slightly underperformed Wall Street expectations. Research in Motion continues to lose market share to the iPhone and Android phones. Analysts have been rushing to downgrade the stock hitting it with sell ratings. Research in Motion is a stock that is close to becoming a value play. If investors get an opportunity to buy shares in the 40’s, that would be a solid purchase.

Despite all of the negativity over Research in Motion, the company is still adding subscribers. The company is still growing just at a slower rate. 2011’s EPS is expected to come in at $5.90. Research in Motion is cash rich with $1.5 billion in cash and no long term debt. The company has even started buying back 3% of the outstanding shares. The key for RIMM is its new Blackberry phone. Will its new Blackberry phone be able to take market share from the Google’s and Apple’s of the way? Analysts believe that will all depend on how successful RIMM’s new apps and browser is.

My Take

I have to admit there is some risk in buying RIMM but the opportunity to buy a solid tech company trading at just 7.5 times earnings would be attractive to me in the mid 40’s.

Do you think that Research in Motion is a value stock or a value trap?

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Google’s Good Quarter

April 16, 2010 By Leave a Comment

When is a 37% increase in profits a bad thing? It is when you are Google and expectations for your company are totally out of whack. Google reported earnings yesterday and the earnings were solid. Top line growth was impressive with sales coming in at $5.06 billion dollars beating the $4.95 billion dollar average estimate. EPS came in at $6.76 beating most Wall Street estimates. Just about any other company’s stock would have rallied on such a report but not Google. Google’s stock declined nearly $30 after the earnings announcement. Why did Google drop so precipitously? it appears that Google has set the bar so high in the past that the company has become a victim of its own success.

The search engine giant failed to meet analysts top line projections. The highest estimates for Google’s were for $5.12 billion dollars in revenue and earnings per share of $6.91. Google is still a growth stock but the growth is slowing. With a $189 billion dollar market cap, analysts should set reasonable growth targets for Google going forward. Google’s earnings are expected to grow just shy of 20% over the next 5 years. Most tech firms would kill for this kind of growth. For Google however, this is just one half of the growth rate for the previous 5 years. Google’s earnings grew 43% per year over the past 5 years.

With shares retreating nearly 5% after hours and Google trading at $566, the stock may represent a compelling buying opportunity for long term investors.

I do not own any shares of Google.

Filed Under: Investing Tagged With: ,

Payday Loans Are a Financial Nightmare

January 6, 2010 By 4 Comments

 

A friend of mine was telling me about how he took out a few payday loans over a year ago. He said that he was strapped for cash and needed money in a hurry. He didn’t want to ask friends or family so he went to a payday lender. He then proceeded to tell me a story of a never ending cycle of usurious interest rates, high processing fees and payments that kept him in debt for 16 months. He explained how a loan of $1500 ended up in a repayment of over $10,000.

When I heard his story I decided to look deeper into payday loans. I started by googling the phrase “payday loans”. Over 5.75 million entries were returned by google search, I clicked on a few sites to do some investigating. To qualify for a payday loan you just need 2 forms of identification, bank statement, pay stub, personal check, social security number and a utility bill. That sounds simple enough. Payday lenders often refer to themselves as the quick and easy solution to your cash flow problems. Bad credit? No problem. Caught between paychecks? No problem. Short on cash? No problem. The problems come when you take a deeper look at the fine print in payday loan agreements.

Payday loan websites make it as difficult as possible to determine the APR that they are charging. The most popular websites have interest rates ranging from 500% to a whopping 1630%. For every $100 borrowed many payday lenders will charge a “service charge” of $25 every two weeks. For example if you borrowed $1,000. You would pay $250 biweekly to keep the loan active and none of this money would be applied to the principal. You would be making a $500 payment every month and not a dime would go to the principal of the loans. Payday loans have no maturity date and continue in perpetuity until you have enough money to pay more then the weekly service charge.

The terrible part about payday loans is that they have onerous terms designed to prey upon the working poor that have bad credit. The interest rates offered are ridiculous. If someone is desperate enough to visit a payday lender for $1,000, what do you think the chances are that the same person will have $1,250 in two weeks to pay off the loan? Little to none. Most people just scrounge up enough money to keep paying the service charges to keep the loan active. If a person is fortunate enough to ever pay the loan off, they will likely find themselves in need of another payday loan due to the bad terms of the first loan. What payday lenders fail to tell people is that what many people believe to be a lifeline utlimately turns out to be an albatross driving them deeper and deeper into financial ruin.

Filed Under: Investing, Personal Finance Tagged With: , , ,