Down-to-earth alternative to Facebook
CURIOUS INVESTOR DAVID ROEDER firstname.lastname@example.org May 18, 2012 7:22PM
NEW YORK, NY - MAY 18: A reporter waits for the share price of Facebook to start trading at the Nasdaq stock market moments before it went public on May 18, 2012 in New York, United States. The social network site began trading after 11:30 a.m. with shares jumping 13% to $43 before quickly falling. On Thursday Facebook priced 421 million shares at $38 each. Facebook, a Menlo Park, California based company, will have a valuation exceeding $100 billion. (Photo by Spencer Platt/Getty Images)
David Roeder reports on real estate at 6:22 PM. Every Thursday on News- radio 780 and 105.9 FM WBBM. The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday
Updated: May 20, 2012 2:40AM
Facebook (FB) took its public bows Friday and the reviews were mixed. After its initial public offering at $38, the shares moved as high as $45, but a wobbly trade set in and it closed at just $38.23.
It’s only a one-day result, but it indicated resistance to the higher prices Facebook’s underwriters had been soliciting until Friday. Facebook is now valued at more than $100 billion, an undeniable achievement, but the cost of “liking” the social media company was getting steep even for the insider trade.
IPOs are a two-step process that benefit insiders. The first step is well known and has the underwriters peddling the shares at the opening price to favored buyers. The second phase has those buyers who want to quickly sell negotiating prices with exchange market makers, who have accumulated buy orders. It’s why Facebook didn’t start its actual public trading until two hours after the markets opened.
So now the average unconnected investor can get in, but is that smart? People who thought Facebook would shoot higher by 50 percent Friday were a trifle embarrassed.
The company is profitable, which distinguishes it from that other tech star Groupon (GRPN), but its need for cash is immense. It must purchase or lease more computer servers as its user base grows, and CNET has reported that Facebook intends to more than triple its staff, to about 9,600, over the next few years.
It also could buy companies, perhaps issuing shares in return, which would dilute the value of the stock it just issued.
Consider the perspective of Tracey Ryniec, analyst at Zacks Investment Research, who suggested that investors tune out the hype in tech IPOs and buy shares in a sector that is posting record earnings with low price-earnings ratios, a sign that the stocks are on sale.
The sector is agriculture, the good earth. The U.S. corn crop is expected to reach a record level this year and foreign supply disruptions are bringing higher prices for soybeans, so Midwestern farmers are busy buying tractors and fertilizer.
Ryniec suggested four picks in ag stocks. They are AGCO (AGCO), CNH Global (CNH), Titan International (TWI) and Agrium (AGU). While the herd concentrates on Facebook, others can “buy growth at cheap valuations” in agriculture, she said.
THE INTEL INTELL: Chipmaker Intel (INTC) faces several challenges, including the rise of smart phones and tablets that rely on processors from competitors. But Morningstar analyst Andy Ng wrote that Intel’s scale and manufacturing moxie make it a compelling long-term investment.
He said Intel “is able to create faster processors at lower per-unit costs than its closest competitor, Advanced Micro Devices (AMD), as well as the rest of the semiconductor industry.”
GOOD SPORT: William Blair & Co. analysts are working up a sweat praising Dick’s Sporting Goods (DKS), which flexed muscle in its first-quarter earnings. Management accordingly boosted its earnings guidance for the year. The Blair analysts said Dick’s benefitted from an unusually warm spring, but they think improved sales and higher profit margins, now at a gross rate of 30.8 percent, should continue. They have a bullish “outperform” rating on the stock.
BUYER BEWARE: All stock-traded companies hype themselves, and many analysts fall for the story lines. So I thought you’d appreciate a corrective gesture. Eddy Elfenbein, editor of Crossing Wall Street, listed 13 stocks, many with high analyst ratings, that he regards as “way, way, way overpriced.”
Here they are: Amazon (AMZN), Motorola Mobility (MMI), Salesforce.com (CRM), Netflix (NFLX), Coca-Cola (KO), Whole Foods (WFM), Costco (COST), Stericycle (SRCL), Starbucks (SBUX), Nike (NKE), Ariba (ARBA), Chipotle (CMG) and Intuitive Surgical (ISRG).
NOTE TO NATO: Welcome to Chicago. We are pleased to host you, so long as you don’t cause trouble. Feed the parking meters, as I’m not sure the sharks who own them recognize diplomatic immunity. Observe our local custom of bowing in the direction of City Hall three times a day. Do not be alarmed by people gesturing at your motorcades, as here that is a sign of admiration. And please, keep the euros tucked away. We’re just provincial enough to want dollars only.
CLOSING QUOTE: You’ve seen the ads for JCPenney (JCP) in which it touts everyday low prices and an end to coupons and sales. The strategy by Chief Executive Ron Johnson isn’t working. Last quarter, JCP’s revenue fell 20 percent and foot traffic in stores dropped 10 percent.
Retail analyst Howard Davidowitz turned up on Yahoo Finance to comment on JCP. “JCPenney didn’t need a revolution. It needed an evolution,” he said. “You can’t take an old-line company that’s been operating the same way a very long time and throw everything out the window and say, ‘Now we’ve reinvented the company.’ ”
As for Johnson, Davidowitz said, “He’s caused incalculable damage. The customers are everything. They don’t know what the hell he’s doing.”