Research In Motion (RIMM) Way Down, I Still Like It

I gave a glowing recommendation for RIMM last week, and the next day, it dropped 15%.

And, what was the terrible news that made investors run for their lives? Management announced sales would only rise by 28% this year.

28% is actually exactly the number I predicted as the growth rate in my last post. Even were you to revise down the 5 year growth rate to the 16% analysts predict, the stock still trades at a P/E below 7, or a PEG of less than .4375. That's over a 55% margin of safety!

I see this temporary drop as a super buying opportunity. The market has an extreme distaste for smartphone companies now, and is giving them absurdly low valuations, both from an earnings standpoint and a historical standpoint.

I own shares, and if the price drops much lower I will be buying more.

Thoughts?

Systemax (SYX) Jumps 7%, I'm Staying Away

I have been buying and selling this company for years. They are the owners of Tigerdirect.com and more recently purchased CompUSA and Circuit City. They also own the WStore chain in Europe. I have been bullish towards the company in the past, due to what I considered major expansion opportunities with their acquired brands.

Here's a quote from today's earnings release:
"...the Industrial Products group had another outstanding quarter, delivering strong double digit growth from product expansion and other growth initiatives. Consumer channel results were soft, reflecting the choppy economic environment; however, we did see improvement in our performance as we moved through the quarter."

This has been the story of the company for several quarters now. B2B, in Europe especially, has been growing at a rapid clip. Meanwhile, consumer sales have been disappointing quarter after quarter.

Here's the thing. Their B2B segment has been showing solid consistent growth. But that's not why I bought in. I bought the company for the consumer segment, the part that I see and interact with daily. I don't know anything at all about the B2B technology market in Europe, and I'm certainly not betting on any particular player in that market. If like me you were betting on consumer sales growth from their portfolio of brands and new brick & mortar stores, forget it.

Disclaimer: At the time of this writing, I do own shares of SYX.

Smart Move by Microsoft to Buy Skype

I'm pretty thrilled with the idea for several reasons:

1. As a Facebook investor, this will enable Facebook chat to use the skype platform for video chat and file sharing. Facebook chat is a major platform, and skype would integrate wonderfully. Especially if they called it "Facebook Over Skype" or "Facebook Chat, powered by Skype."

2. Also they could extend it on to their mobile phones as a serious contender to Facetime. Currently, amazingly, Facetime does not work on PC's. Skype on the other hand is the most ubiquitous video calling platform for PC's. This gives video chat on phones a compelling reason to exist. Right now, noone cares about Facetime, because you can only use it to chat with other iPhone owners. To give you an idea of how useful Facetime is, I have never ever used it. Not even once. Just not enough people with iPhones. I have on the other hand, I have actually used Skype for iOS to video chat several times. Building Skype into WinMo 7 is a killer application that people can actually use.

3. Skype should also integrate wonderfully with Xbox/Kinect. Can there be a better application for video chat that building it into the family TV?

4. Finally, Skype would provide great "built-in" video chat capability for Windows. Right now, Windows is losing market share. Built in video chat that just works and is compatible with phones and tv's would really connect EVERYBODY over a common platform. The key is for it to be called Skype - and not "Windows Chat." Windows chat is not a real VOIP platform. It's a cute thing to try out once.

All of these bullet points revolve around the following idea: Skype is THE name-brand in video chat. Sure, you CAN do it over Google, or Windows Live or whatever, but noone takes it seriously over those services. Noone expects high video quality, nor high reliability. It's more like - "hey bud, can I try out my new webcam?" Everyone who is serious about video chat uses Skype. Windows is not buying the existing paying customer base. Don't confuse that fact. Windows is buying a "brand name." They want to push brand-name (read: quality video chat) across all their platforms. They paid alot, but it's really impossible to put a price on the end product if they can pull it off. Skype could be 1000x bigger than it is now, if they keep it clean, simple, and make it everywhere. There's no question that ubiquitous video chat will be everywhere some day. This was the dream of the Jetsons. All we're waiting for is "one platform to bind them."

(Standard Disclaimer: I do own Microsfot (MSFT) shares at the time of this writing.)
Thoughts?

RIMM (Research In Motion)

This stock has been terribly beaten down over the last year, along with the rest of the smartphone industry (ie: APPL, GOOG). This former industry leader is currently trading at a P/E of 8.7. Yikes!

Does it really deserve such a bad rap? A quick look at the numbers says the company is still chugging along wonderfully. Sales growth of 36%, Net Profit Margin of 17%, ROIC of 40%(!). It's in outstanding financial condition with Quick Ratio of 1.9. (These numbers are from MSN Finance.)

But those are historical figures. What about the future? In terms of Blackberrys, they seem to be as popular as ever. This is a very subjective measure, but I still see my "business" friends purchasing them faster than ever. Furthermore, BB users (really, all smartphone users) tend to be extremely loyal customers, so RIMM can likely count on current customers sticking around.

The major question is the newly released Playbook. It has not sold very many units to date - certainly no where near as many as iPad 2. Still, it has received very good reviews, and I think the BB community will slowly but surely embrace it. RIMM has explained that the Playbook will be tailor made to sync and interface with the BB phones, as well as contain the ability to run Android apps.

RIMM is far from the dying company the market is making it out to be. Analysts predict a 5 yr growth rate of only 16%, and I highly doubt the company can keep up the 40%+ ROE it's been posting for the last several years. I project growth will more likely be in the middle of those two rates: 28.6%. At a P/E of 8.7, I believe it is an amazing buy, with an enormous margin of safety, and I personally own shares.

Recent SBUX and Dunkin Donuts deals with Green Mountain

Today SBUX and GMCR announced a deal for GMCR to distribute Starbucks K-Cups. GMCR stock jumped 30%, SBUX 8.5%.

A. The deal makes no sense. The K-Cup patent expires in 1 year. I suspect the deal is very short term, or else....

B. The deal is likely very one sided, in favor of SBUX. GMCR is a desperate company with their patent about to expire. They may have cajoled SBUX into signing with them, but I guarantee you, SBUX is the one keeping the profit.

The jump in GMCR stock today is ludicrous. The stock will fall back to the low 40's when more details of the deal are released. SBUX will continue to rise. One thing is clear - a K-Cup deal is a BIG DEAL to the market.

Revisiting Intuit

After playing around with QB 2011, and learning about new features in my ProAdvisor training, I have to say that I made a mistake when analyzing the stock. I am actually very impressed with the improvements that are being made to the core products. Intuit is slow to improve Quickbooks, but they are working on it, and the truth is, my clients do like the software very much, even if I find it frustrating at times. I would only recommend taking a smallish position as the price is rather high (P/E of 33). Full disclosure: I personally own a very small position.

Revisiting Green Mountain

Well, GMCR said they are going to restate their earnings. They expect the cumulative change will be 4-5 cents over 3 years. Practically nothing. At this point, I'm really no longer worried at all over the pending lawsuits. 5 cents a share over 3 years, is hardly something to really sue over.

Additionally, I was worried about their high levels of inventory. The truth is, their inventory turnover ratio is 5.6. While not super high, it does mean that they are moving alot of inventory, so I'm actually not so worried anymore. I previously bought a small position, but now I'm going to double it.

Starbucks to Compete With K-Cups

More on the coffee roasting front: Starbucks just announced that they are selling their own machines and pods to compete with K-cups. At first glance, this could be worrisome to shareholders of Green Mountain, but truthfully, I don't know if Starbucks will really win over too much business:

• Starbucks machines will likely cost more.
• The pods will likely cost more.
• Green Mountain owns close to a dozen different brands. None of them are of Starbucks caliber (or to be exact, none of them have Starbucks marketing dollars behind them), but I know that a major draw for many people who use K-cups is the huge variety. Starbucks in only one brand, and they have a dozen blends. Green Mountain has close to 100, including flavored coffees, hot cocoas, and teas.

Stock Analysis: Green Mountain Coffee Roasters

Green Mountain Coffee Roasters is famous for their Keurig coffee brewing system, as well as their many lines of specialty coffees (Newmans Own, Timothys, Tullys, Donut Shop, Gloria Jeans, ect…)

Here’s a rundown of the important issues:

PROS:

• K-cups are wildly popular and product growth last year was over 80%, with the company predicting another 85% growth this year.

• K-cups are also wildly profitable. They cost just a couple cents to produce and sell for several times that.

CONS:

• The company is running high inventories, high debt, and low levels of cash. This is not necessarily bad, but it does add a level of risk.

• The stock currently trades at a P/E of 65. The market already knows it’s an awesome company.

• The company is being sued for improper financial reporting, and there is evidence of possible insider trading right before the company disclosed the lawsuit.

In the final analysis, while the pending litigation scares me, the company’s business is too valuable to ignore. Even in the worst case, if the company lost the lawsuit and didn’t have the cash to pay, they would certainly be bought out by a third party for a great price. Full Disclosure: I own shares of GMCR stock.

Healthy Candy?

I wouldn't be surprised if lots of people believe eating this can make them healthy. Is such marketing unethical? You're providing the consumer with what they want, but what they want is an excuse to eat Baby Ruths.

Stock Analysis: Intuit

I did an analysis of Intuit's stock recently (INTU). As an accountant, I use almost all of their products, so it seemed like an obvious choice to investigate their stock. Here are the key points of my analysis:

PROS:

• Quickbooks, Turbotax, and Quicken are the leaders in their industry.
• They come out with new versions of their software each year which aren't backwards compatible, insuring continuous upgrades.
• They have a great offering of "auxilary services" like merchant services, POS, payroll, ISW, ect…
• Outstanding marketing. They have a huge community of users and Proadvisors, who help support and proliferate the product.
• The company is making interesting investments with mint.com and MedFusion (integrate medical billing into QB for doctor's offices).
• They are planning to buy back $1 billion worth of shares in 2011.
• The company is in great financial shape.

CONS:

• They project a growth rate 9-12% compared to the stock's p/e of 27.
• Even considering the gain from the share buyback program, EPS growth should still be below 18%.
• Their focus in on increasing the connected anncilliary services, rather than on improving their core products. This is the biggest CON in my opinion. As a user of their products, I know first hand that accountants are hesitant to recommend Quickbooks as it's NOT super easy to use.
• The stock's p/e and p/s are at 4 year highs.
• Finally, the CEO didn't mention any of the company's challenges in the last conference call. What's he hiding?

This is far from a comprehensive list of all the company's financial stats, but it summarizes what I felt were the key points in deciding whether or not to invest. It would seem to me to be a mistake to buy this company right now. They need to spend more time working on improving Quickbooks. It hasn't been improved much since at least 2009 (when I started using it). Finally, even if you're a fan of the company's strategy, it's stock price is already a bit high considering it's expected growth rate.

Which is better? A good idea or a good CEO?

I was wondering today what it takes to run a successful business? Do you need to have a great new idea to start with, or could a top notch CEO turn a profit in any business? I have worked with a dozen different business owners and managers in both manufacturing and service industries, and from my experience, it all comes down to having a capable person running the show. Any business can be profitable if it's run smartly.

Android is "New Windows"

Upset that you missed buying Microsoft stock back in the early 90's? Here's another chance. In just two years, there are already over 250 mobile devices running Android. Apple's niche was it's enormous App Store, but Android has it's own now, with plenty of the exact same programs. Android has Google's massive coffers financing it's growth, and considering it's free to device manufacturers, we will soon see it on nearly every non-Apple smartphone. Disclaimer: I own shares of Google's stock.

"Walkthrough" Window

Here's another photo I snapped today at Dunkin Donuts. It's a walkthrough window. I guess you can walk up and give in your order without entering the store. I didn't have time to try it, but anyway, I don't really get the point. Why would customers want this?

Dunkin Donuts Ad for EMTs and Firefighters

Snapped at DD today. A neat way to grow your customer base. A cup of coffee costs like 10 cents. If they buy one other item, DD makes a profit.

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