Filed under: Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Bargain stocks, Chasing Value, Stocks to Buy, Best Stocks for 2008

After years of ranting and raving that Google Inc. (NASDAQ: GOOG) was over priced and that investors and speculators alike were at risk I finally did an about face this week. The big GOOG made my Chasing Value column earlier in the week Chasing Value: Is it Google time? when it dropped below $500 per share. Contrarian that I am, when everyone else is losing heart I think perhaps reality takes hold. One tenet of contrarian investing is that nothing is ever priced right!

So this week I sensed an opportunity was at hand and could not resist blurting it out. In a down week and down day Google is up, so far so good. Microsofts (NASDAQ: MSFT) offer to buy Yahoo Inc. (NASDAQ: YHOO) in a hostile bid Microsoft attacks: going after Google not Yahoo did not faze Google. There are many that think MSFT is making a mistake by overpaying and will not see the return on investment that shareholders should expect.

The market is down mid-day and Google is up about $10 trading around $515 a share, about $24 higher than when I took notice. Based on a buy at this price Google should have a 2008 forward P/E of 27 without any strenuous exercises this year. Microsoft on the other hand was clicking along just fine in most of its business segments and may have bitten off more than it can chew.

Google, with $14 billion in cash and short term investments and growing, is only getting stronger. I did not like GOOG before, but hey, a bargain is a bargain.

• UPDATE: GOOG closed today at $516.69, up $11.64.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture & planning firm. To find potential opportunities and verify my track record read Chasing Value or Serious Money. Disclosure: I do not own shares of GOOG, MSFT or YHOO.

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Filed under: Magazines, Mutual funds

The Securities & Exchange Commission is looking for investor input on its new ideas for improving mutual fund disclosures.

According to the SEC, the purpose of the new proposals is to provide investors “with concise information about mutual funds that is easier to use than the mutual fund prospectuses available today.” The proposal includes a requirement of a summary section in every prospectus that would include investment objectives, costs, principal investment strategies, risks and performance, top ten portfolio holdings, a list of investment advisers and portfolio managers, brief purchase, sale, and tax information, and information about broker compensation and conflicts.

A model prospectus summary on the SEC website is a great improvement over the current system which requires investors to leaf through mountains of boilerplate to find key information about their funds.

According to an article in the latest issue of SmartMoney (not available online), the industry is supportive of the measure as it will save it about $182 million in printing and mailing costs! But the industry is resistant to further suggestions that the new model for prospectuses should also include additional comparative data on fees and performance. It’s a shame that the industry is opposed to giving investors more information; good funds would probably want to provide investors with this kind of data.

But the streamlined prospectus is a great improvement and hopefully it will come to fruition soon. Only about 10% of investors read prospectuses before investing in funds, and that number ought to be 100%.

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Filed under: Good news, Industry, McDonald’s (MCD), Options, Technical Analysis

McDonald’s Corp. (NYSE: MCD) shares are rising this morning after the fast-food giant reported that same-store sales rose 5.7% in January, driven by strong international growth. This could be a good sign for MCD, as it indicates strong sales growth at existing stores despite the current economic slowdown. If you think that the company won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MCD.

After hitting a one-year low of $42.31 in March, the stock hit a one-year high of $63.69 in December. MCD opened this morning at $54.90. So far today the stock has hit a low of $54.81 and a high of $55.99. As of 10:20, MCD is trading at $55.86, up 1.40 (2.6%). The chart for MCD looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.

For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $47.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just six weeks as long as MCD is above $47.50 at March expiration. McDonald’s would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.

Continue reading McDonald’s (MCD) rises on strong Jan. sales

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Filed under: Walt Disney (DIS), News Corp’B’ (NWS)

According to the Associated Press, mighty mouse Disney (NYSE: DIS) wants in on the American Idol action. I don’t blame the company one bit — even though I’m not a huge Idol fan, and thought that the fad might wear out by now, there’s no question that hooking up with the equity tied to this incredible broadcast brand is a good strategic move.

Disney’s Hollywood Studios theme park plans on hatching an attraction that will allow guests the opportunity to audition in a park stage. There probably will be several shows during the day, and the guests who perform in them will receive some sort of evaluation, although I hope there won’t be any evil Simon-like judges handing out the critiques; in fact, the Associated Press article indicates that the judges might actually be members selected from the actual show audience.

I honestly see this as a great value-added to the Disney theme-park experience. And the cool thing is that Disney gets exposure to the success of American Idol even though its arch competitor, News Corp. (NYSE: NWS), obviously derives the most benefit by programming the show as a part of Fox Broadcast’s portfolio. It’s also a great way to make up for past mistakes — ABC apparently could have had Idol on its schedule if it had wanted to, according to this past article from the Motley Fool. No matter, Disney can now make amends by thrilling its tourists with the fantasy of Hollywood and its tinsel fame. And, in case you were wondering, Disney didn’t need to get Fox’s permission to do this; all it had to do was negotiate with 19 Entertainment and FreemantleMedia, the entities behind Idol. Kind of a neat trick, huh?

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Filed under: Stocks to Buy

The choppy/consolidating (or perhaps worse) market conditions sometimes give the impression that growth plays do not exist, but that is not the case, and one growth company worth reviewing is Elan Corp. Note: Elan is appropriate only for investors who can tolerate high-risk.

Elan Corp. (NYSE: ELN) is a neuroscience-based technology company focused on discovering, developing, manufacturing and marketing advanced therapies in neurology, autoimmune diseases and severe pain.

Analysts sees 33-40% revenue growth for Elan in 2008 after likely 30-35% growth in 2007.

Analysts also like Elan’s ramping sales for drug Tysabri for multiple sclerosis and Crohn’s disease; they are also hopeful about the company’s Alzheimer drug, bapineuzmab, currently in trials.

Continue reading Elan Corp. always has the mind on its mind

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Filed under: Major movement, Good news, Amazon.com (AMZN), Options, Technical Analysis

Amazon.com Inc. (NASDAQ: AMZN) shares are rising today after the online retail giant announced a multi-billion dollar stock and debt buyback plan this morning. The company will retire debt worth $1.25 billion and will buy back up to $1 billion in common stock over the next two years. If you think that the company won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AMZN.

After hitting a one-year low of $37.04 in March, the stock hit a one-year high of $101.09 in October. AMZN opened this morning at $73.40. So far today the stock has hit a low of $72.67 and a high of $74.60. As of 10:20, AMZN is trading at $74.07, up $3.16 (4.5%). The chart for AMZN looks bearish but improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 4.4% return in just six weeks as long as AMZN is above $55 at March expiration. Amazon would have to fall by more than 22% before we would start to lose money. Learn more about this type of trade here.

Continue reading Amazon.com (AMZN) soars on buyback plan

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Updated below with conforming loan limit increase information.

The Senate passed a $150 billion stimulus package in an attempt to avert a mortgage-crash fueled recession. The bill now goes to the President for signing. He is expected to pass the Republican-favored bill quickly.

From the Market Watch story on the stimulus package:

The plan would give tax rebates of up to $1,200 for households, with $300 more for each child. The full rebates would be sent to individuals with incomes under $75,000 and to families with incomes under $150,000, including seniors and disabled veterans. The rebate would be phased out for those earning more.

The bill also has provisions to prevent undocumented immigrants from receiving tax rebates.

The plan would also cut business investment taxes by $44 billion for one year. It would raise the caps on mortgages issued by the Federal Housing Administration or purchased by Fannie Mae and Freddie Mac.

No mention of the final increase in the conforming loan limits for Fannie Mae and Freddie Mac but as soon as I can dig it out of the news I’ll have it here.

Update: A big thanks to reader Don for the info from Bloomberg on increasing conforming loan limits as part of the stimulus package:

Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies, will be allowed to buy loans worth as much as $729,750 for loans made between July 31, 2007, and Dec. 31, 2008, an increase over the current $417,000 loan limit. The move may help struggling homeowners refinance large mortgages at a lower interest rate. It will also allow the Federal Housing Administration to insure loans as high as $729,750 in expensive markets.

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Filed under: Bad news, Economic data, Commodities, Oil, Agriculture

The idea behind switching energy usage from fossil-based fuel like gas to ethanol is that it is better for the environment. Much of the push to create alternative energy companies has been based on this premise and it has also helped the American farmer get more for crops like corn.

Now it appears that ethanol may not be so “green.” According to The Wall Street Journal (subscription required), “a study published in the latest issue of Science finds that corn-based ethanol, a type of biofuel pushed heavily in the U.S., will nearly double the output of greenhouse-gas emissions.” A second study appears to support those findings. Part of the CO2 increase created by biofuels is due to changing land from forest to farmland. The process causes large amounts of greenhouse-gas emissions to be sent into the atmosphere.

The news is hardly good for the hundreds of biofuel companies that have been created around the drive for “green” fuel, and it may not be good for farmers who are getting higher yield from the crops they plant to create alternative energy.

But it may be very good news indeed for Big Oil.

Douglas A. McIntyre is an editor at 247wallst.com.

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Updated below with conforming loan limit increase information.

The Senate passed a $150 billion stimulus package in an attempt to avert a mortgage-crash fueled recession. The bill now goes to the President for signing. He is expected to pass the Republican-favored bill quickly.

From the Market Watch story on the stimulus package:

The plan would give tax rebates of up to $1,200 for households, with $300 more for each child. The full rebates would be sent to individuals with incomes under $75,000 and to families with incomes under $150,000, including seniors and disabled veterans. The rebate would be phased out for those earning more.

The bill also has provisions to prevent undocumented immigrants from receiving tax rebates.

The plan would also cut business investment taxes by $44 billion for one year. It would raise the caps on mortgages issued by the Federal Housing Administration or purchased by Fannie Mae and Freddie Mac.

No mention of the final increase in the conforming loan limits for Fannie Mae and Freddie Mac but as soon as I can dig it out of the news I’ll have it here.

Update: A big thanks to reader Don for the info from Bloomberg on increasing conforming loan limits as part of the stimulus package:

Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies, will be allowed to buy loans worth as much as $729,750 for loans made between July 31, 2007, and Dec. 31, 2008, an increase over the current $417,000 loan limit. The move may help struggling homeowners refinance large mortgages at a lower interest rate. It will also allow the Federal Housing Administration to insure loans as high as $729,750 in expensive markets.

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Thanks to a Blown Mortgage reader for sending this gem in. From the “you can’t make this stuff up” department I submit for your pleasure and pain the license plate “OPT ARM”. As the submitter said:

I wonder how people who’ve been swindled into an Option ARM feel when they see this car driving down the road.

 Or as my buddy said.  “What were douche bag and slime ball taken?”  The base price on a BMW 645ci is north of $70,000.  So figure anywhere between 3 and 5 pay option arms to buy that sucker outright.

Gotta run now, I just vomited in my mouth a bit.

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