College Trillionaires

Stock of the Day - May 22, 2009 - PM

2009-05-22T00:16:00.000-07:00

Finally a new article! It has been over a month since we last posted a Stock of the Day, but now that finals are over and summer break has started, expect new articles multiple times a week. So, keep checking for new posts and let me know if there are any specific stocks that you want to learn about or want to invest in so that we can write about them. Since it has been so long since our last post, we thought we would write about one of our favorite companies today. It is a pretty long article, but we didn't want to leave out any of the positives. Enjoy! -CT

Philip Morris International (PM)

A couple of months ago, I wrote about how much I loved Altria (MO), and how I believed that it was one of the best stocks that you could purchase. While I still think Altria is a great company and a good stock, I now have a new favorite tobacco company, and potentially a new favorite stock. Philip Morris International (PM) actually spun off of Altria in March 2008 to become its own entity, and I am very upbeat about the outlook for this relatively new company. Philip Morris manufactures and sells tobacco products strictly outside of the United States. Some of its most popular cigarette brands include Marlboro, Parliament, and Virginia Slims. The company’s products are sold in around 160 countries, and it continues to expand its global reach.

I love this company for many reasons, and I believe that its stock price has much more potential than Altria’s to move higher. Throughout the rest of this article, not only will I point out why Philip Morris is such a great investment, but I will also prove why it is a better investment than Altria.

The first aspect of Philip Morris that excites me is its growth opportunities. Philip Morris has the whole world to sell to, and this freedom to sell its products across the globe will ensure high growth for years to come. While the cigarette market has been shrinking in some markets, such as Japan, and smoking bans and higher taxes have lowered cigarette demand in other parts of the world, such as the European Union, Phillip Morris has the unique ability to move its operations out of these areas and focus on places where cigarette demand is increasing. Philip Morris actually saw its strongest revenue growth in the first quarter of 2009 in emerging markets. The company grew its revenue in the Latin America and Canada region by 28% compared to the same period a year ago, and revenue also grew in Eastern Europe, the Middle East, and Africa by 6%. As the middle class in these developing nations become wealthier, they will have more money to spend on cigarettes, thus boosting the prospects for Philip Morris’ profits down the road.

Because Altria sells its products strictly in the United States, it does not have the ability to focus on selling in new and growing markets. Actually, cigarette demand in the U.S. has been steadily decreasing by 3% for a while now, thus leaving Altria with less and less demand for its core product every year.

Not only does Philip Morris have the ability to grow by expanding its operations to new regions and emerging markets, but the company also has a lot of room to boost its popularity and gain more market share. While Altria has a commanding 50.7% of the domestic cigarette market, Philip Morris only controls about 16% of the market for cigarettes outside of the United States. Philip Morris International is still a relatively young company, and I believe that it can greatly increase its market share up from 16%, while Altria has pretty much peaked at 50.7%. One of the main reasons that Philip Morris will have the ability to continue amassing market share in the international markets is because there are a lot fewer regulations for advertising cigarettes internationally. Altria, on the other hand, cannot promote its brands because advertising for cigarettes is illegal in the United States.

The topic of government regulation is another reason why I like Philip Morris more than Altria. The United States continues to enforce massive taxes and strict regulations on the tobacco industry. It seems like almost every month a new law against smoking is passed in the United States, and just recently, the U.S. imposed an additional 61-cent tax on every cigarette pack sold. There are also constant litigation fears that keep investors uneasy about investing in Altria, as the fear of a massive lawsuit against tobacco companies always seems to be in the process. Foreign governments, on the other hand, are usually more lenient towards the tobacco industry, as they realize that cigarettes have the ability to bring in a lot of tax revenues. So, Philip Morris has more freedom to advertise, it is vastly less concerned with lawsuits, and if any government wants to start getting tough on cigarettes with anti-smoking laws and higher taxes, Philip Morris always has the option of just ending operations in that country and moving into a new region that seems more profitable. Altria has no such option.

Another crucial factor to Philip Morris International’s future success has to do with the U.S. Dollar that is bound to become weaker as the U.S. faces more inflationary pressure. Basically, because the U.S. Government is printing so much money to keep our country out of a depression, many believe that there will eventually be too many dollars in the system when the economy rebounds. This excess supply of dollars in the system will make each dollar worth less compared to foreign currencies. And, because Philip Morris makes its money in foreign currencies and books its profits in U.S. Dollars, the company’s profits will be larger as a result. So, if you believe that inflation is a very real possibility in the future, which I definitely do, then investing in a company that does all of its business overseas is a very wise choice. Altria, on the other hand, has no exposure to foreign currencies, and thus will not be able to take advantage of the currency fluctuations. Instead, Altria will probably suffer due to the upcoming inflation, as domestic cigarettes will continue to become more expensive, and demand will continue to decrease as a result.

The positives for Philip Morris seem to never end. The company has extremely high cash flow, which will allow it to continue expanding without worrying too much about debt levels. The stock also pays a very high and very safe 5.05% dividend. Without including currency fluctuations, sales for the first quarter of 2009 rose 6.3% and the company’s EPS also grew 12.7% compared to the first quarter of 2008. The company was able to improve its profitability and obtain its highest quarterly revenue ever by raising the prices of its products. It is clear to see that Philip Morris has been unaffected by the global recession, as it continues to raise prices and boast higher revenues and profits as a result.

With such great growth prospects, looming inflation for the U.S. Dollar, and the great dividend and cash flow, Philip Morris seems to be a definite buy. It is currently trading at $42.81, and I believe it is very cheap right now. Having said this, I think an overall market pullback is on the horizon, so I would probably wait until it hits $40 to buy some shares. This is one of my favorite stocks, and I believe it would be smart to buy some shares and hold on to them for a long time.

Niki Pezeshki

College Trillionaire

Stock of the Day - April 16, 2009 - MMM

2009-04-16T10:00:00.000-07:00

3M Corporation (MMM)

3M (MMM) is the company that manufacturers Scotch tape and Post-it notes. But to limit the gigantic industrial company to two well-known products would misrepresent the organization. 3M is constantly developing and producing new products that are viable in categories varying from health care to security systems. These products range from the reflective materials that make highway signs visible at night, to automated library systems, to the films placed on LCD televisions that increase brightness. The company does business internationally in 60 different countries and is constantly innovating. 3M gains value from its multiple types of diversification: diversity in products, in customers, and in geographic regions.

The wide variety of the company’s products allows 3M to sell its goods to multiple entities. To illustrate this point, consider the previous examples. 3M would sell highway signs to governments, automated library systems to institutions, and LCD televisions to retailers or end consumers. This is advantageous for 3M because if one product purchaser is suffering from macroeconomic conditions, another type of customer may still need to buy its products.

3M is diversified geographically as well. The company does two-thirds of its business outside of the United States with 30% in Asia and 25% in Europe. This form of diversification allows the company’s revenues to remain stable when currencies waver in strength or weakness. If the yen is strong, 3M will capitalize on its strength. Likewise, if the U.S. dollar is weak, the company will make up for domestic sales with international sales.

With roughly 30% of its sales coming from Asian markets, 3M is well poised to take advantage of China’s economic recovery. China’s government is investing heavily in infrastructure and technology. 3M’s industrial products account for 31% of the company’s overall business with products such as industrial tapes and special abrasives for construction.

3M’s diversified product portfolio is grounded by an incredibly stable balance sheet and overall business structure. The company has a market capitalization of 37.28 billion and rests on $2.22 billion in cash. It is currently paying out a dividend of $2.04, a current yield of 3.9%, and has steadily increased dividends for the past 51 years with the most recent boost made in February.

The company fared better than most throughout the dismal year that was 2008. Sales were up 3.3% on the year over 2007, while net income was down .4%. Earnings per share actually increased by 3.8% to $5.17 in 2008 due to stock buybacks. Despite this relative success, the company’s forecasts for 2009 are not as optimistic. 3M expects sales to drop between 6% to 7% and full-year earnings per share to drop from 9% to 17%. The company based these projections on a lack of economic visibility for the future.

3M is not merely waiting for the economy to turn around. The company trimmed 2,400 jobs in the fourth quarter of 2008 as part of a restructuring program that the company is undertaking to save over $700 million in 2009. More recently, the company offered 3,600 employees retirement packages, and it will be cutting capital expenditures by 30% in 2009.

The company’s stock has most recently traded at $53.73 after hitting its 52-week low of $40.87 in March. The company’s stock price steadily fell after the release of lowered projections in February until it hit is low, and has since bounced back. 3M will announce its earnings for the 1^st quarter of 2009 on April 24^th. While analysts’ expectations are low, I still expect the stock price to take a hit after that date due to lower earnings numbers.

I would wait till after the earnings report and a subsequent pullback in stock price to buy 3M. The company is a powerful international player that is incredibly well diversified. I believe that 3M is currently undervalued and positioned for a great deal of long-term growth. With this said, it would still be preferable to purchase stock at a lower level: ideally in the low-to-mid 40s.

-Matt Schwartz

College Trillionaire

The Value Investor's Handbook

2009-04-15T17:29:00.000-07:00

This is a link to an Investopedia article about Value Investing, one of my favorite investing strategies. This investing style helped Warren Buffet become the richest man in the world, and it should help you a little more with your own investments as well. Enjoy!

http://investopedia.com/articles/fundamental-analysis/09/value-investing.asp

Stock of the Day - April 12, 2009 - LMT

2009-04-12T18:59:00.000-07:00

Lockheed Martin Corporation (LMT)

Lockheed Martin (LMT) is the world’s largest military weapons maker, and it is the Pentagon’s biggest contractor by sales. The company’s main competitors include Boeing (BA), Northrop Grumman (NOC), and General Dynamics (GD), all three of which are also defense companies.

Lockheed Martin, which is currently trading at $73.32, is around 40% below its 52-week high of $120.30, and it has lost 15% of its stock value in 2009. I think Lockheed Martin is undervalued right now in the $70’s, as the lack of certainty about the company’s future earnings power has kept the share prices down.

Companies like Lockheed Martin are extremely dependent on government decisions in regards to military spending, as 85% of LMT’s sales come directly from the U.S. Government. So, while investors and analysts eagerly anticipated Defense Secretary Robert Gates’ defense budget plans that were announced last week, there was heavy selling pressure due to uncertainty about the budget plans. Many investors and analysts believed that the Obama administration would be drastically cutting the defense budget, as the current administration’s agenda seems to be focused less on the military than George Bush’s was.

But, Gates’ proposed budget plans came as a surprise to many people who thought he would cut spending, as he proposed a $534 billion defense budget (up 4% from last year). While this might sound great, a 4% increase implies that spending will essentially stay flat when accounting for inflation. So, what did the budget plan include that will directly affect Lockheed Martin?

One of the most controversial issues in the proposed budget is Gates’ plan to limit Lockheed Martin’s F-22 Raptor fighter jets at the 187 already ordered, essentially cutting the extra 60 that were supposed to be purchased. The F-22 is the most technologically advanced fighter jet today, as it is capable of hovering in place and detecting and killing an enemy from more than 200 miles away. But these fighter jets cost $354 million each, and in this recession in which the government is spending trillions of dollars, we just cannot afford to make more fighter jets than is completely necessary. But all is not lost for Lockheed Martin, as Gates’ budget plans included details that will counteract the decrease in spending on the F-22. Gates said that the government would begin focusing on Lockheed-made F-35 Joint Striker jets, as they are cheaper and more suitable for today’s war environment.

With Obama in charge and an understanding that war has changed in the 21^st century from conventional warfare to more irregular conflicts with enemies that are more unpredictable, defense spending will continue to change. Gates has made a point in his new budget to move away from equipment used in more conventional wars, such as heavily armored tanks, to weapons that are more fit for defending ourselves against the new-age enemies. With technologically advanced weapons and jets such as the F-22 and the F-35, Lockheed Martin should continue to be a dominant player in the defense industry.

Another aspect of today’s economic and political landscape to consider when investing in a defense company is to realize that we are in a recession, and that the government has to make a conscious effort to reign in unnecessary spending like never before. While the proposed defense budget did increase by 4% this year, many cuts were made to the most expensive projects, and to many of the projects that were deemed as unnecessary or too speculative. The U.S. Government has made it a point to produce weapons that are necessary for today’s wars, and I believe that this is great news for Lockheed Martin.

In terms of the company’s stock price, I think it was unfairly brought down on speculation that Obama and his team would drastically lower the defense budget. Now that it is clear that the budget has increased instead of decreased, it seems ridiculous to me that Lockheed Martin shares are still trading 40% below their 52-week highs. Last time I checked, there is still a lot of conflict in countries like Afghanistan, and the problems in the rest of the Middle East do not seem to be ending anytime soon. As long as there are wars to be fought, Lockheed Martin’s services will be in high demand. At these depressed prices, and with continued demand from the government, I believe that Lockheed Martin is a definite buy.

(Having said this, I will not be investing any money in Lockheed Martin, as I have a moral issue with owning shares of military and weapons companies. But, if you feel no moral issues with investing in a defense company, then I would highly suggest buying some shares of Lockheed Martin.)

Niki Pezeshki

College Trillionaire

Stock of the Day - April 5, 2009 - CFSG

2009-04-05T14:43:00.000-07:00

China Fire and Security Group, Inc.

We’re giving you a look today at a small, speculative company that deals overseas. China Fire & Security Group (CFSG) manufactures and installs industrial fire safety products (think fire extinguishers and smoke detectors) and systems to organizational customers in China. With a small market capitalization of $228.96 million, buying this company’s stock may be risky, but it sure has a lot of potential.

The driving factor behind China Fire is the location in which it works: China. The communist nation is expanding and industrializing at a rapid rate. Every factory that opens is a potential customer for China Fire. China is seeing its GDP grow at a rate of 7.5% per year currently. When you consider that the United States’ GDP grew only 2.5% in 2008, it is easy to see that China is moving at a fast clip.

But a GDP growth rate of 7.5% per year does not satisfy the needs of China’s economy. Analysts estimate that roughly 24 million Chinese people enter the work force every year. China’s GDP growth needs to be around 9%-10% to provide enough jobs for these new workers. So its current growth rate of 7.5% (roughly three times as fast as ours) is too slow! The Chinese government is smart, so they are attempting to bump the GDP up by 2 to 3% by implementing a $586 billion stimulus package that was announced at the end of last year.

Now, with the Chinese economy lesson aside, it is important to note that China Fire is poised to capitalize on all of China’s growth and the stimulus package. The company’s main customers are members of iron, steel, power, and petrochemical industries. These industries are at the heart of China’s stimulus package. All of the smelting, electrical power, and increases in labor will definitely require new fire protection systems and equipment. In fact, China Fire just secured a contract with Dongbei Special Steel Group this March valued at $4.4 million.

We take a lot for granted in the United States, including legalities that require fire safety systems in all buildings. Many buildings in China do not have the fire safety systems or equipment that every U.S. building does. China’s middle class is growing, and it is also growing discontent with the lack of safety. As the market leader in China’s fire safety industry, China Fire will be at the source of improvements in safety.

The potential for growth is backed by factual data that shows the company has been actually growing. CEO Brian Lin, in China Fire’s earnings announcement on March 12^th, reported record revenues of $61 million, a 47.8% increase year over year. Additionally, net income of $24.7 million was an increase of 47%. In a time when most American companies were seeing large declines in income, and even significant losses, China Fire is surging.

CFSG was trading around its 52-week low of $5.62 in early March when this earnings report was released. After the announcement, it jumped to the $8 range, and has been trading there since. I don’t think that its current price reflects the company’s true value and potential for growth. China Fire has a ridiculously juicy PEG ratio of .31, meaning that investors have yet to factor the company’s growth rate into its current stock price.

Now is the time to buy China Fire. The country in which it operates is rapidly expanding and making big moves, and the company reported record financial numbers in 2008 and appears to be able to continue its growth. Finally, China Fire is largely unknown by investors and is an opportunity for you to buy before everyone else gets in. While waiting for a pull back after the recent extended rally may be wise, buying China Fire now would still be a great move for your portfolio.

-Matt Schwartz

College Trillionaire

Stock of the Day - March 31, 2009 - CX

2009-03-31T17:23:00.000-07:00

Cemex, S.A.B. de C.V. (CX)

Cemex (CX) is a Mexican cement company that engages in the production, distribution, and sales of cement and other construction materials. It is the third largest cement company in the world, and it operates in more than 50 countries. Cemex is actually the United States’ number one cement supplier!

Cemex’s stock price, which is currently trading at $6.25, has been crushed in the past year. The stock is around 80% percent lower than its 52-week high of $32.61! While you might think to yourself that Obama’s infrastructure plans and an economic recovery will surely drive this company’s stock price higher in the near future, it is crucial to understand the financial hardships that Cemex currently finds itself in.

The company is dealing with massive debt, and if it does not sort out its financial situation very soon, bankruptcy is a very real option for Cemex. As of December 2008, Cemex was $14.2 billion in debt, and for 2008, the company owes its creditors around $4 billion! For a company with a market cap around $4.5 billion, these debt numbers are unbelievably large and very hazardous.

How did it get itself into these debt levels? When the economy was great, construction was booming, and people were in need of cement, Cemex felt invincible. The company continued to make acquisitions and buy other cement companies in order to increase its capacity and grow its business. Unfortunately though, the money Cemex used to buy the other cement companies came from loans that had to eventually be paid back. The problem now is that construction has come to a halt, demand for cement has drastically decreased, and Cemex isn’t making the same money that it used to in order to be able to pay back its creditors.

The best example of this reckless expansion comes from Cemex’s last acquisition. Cemex bought Rinker Materials, the largest Australian cement producer, for a little more than $15 billion in mid-2007. At the time of the purchase, many people celebrated Cemex’s decision, as Rinker experienced most of its sales in booming construction states like California and Florida, thus giving Cemex more exposure to these revenue-generating areas. The deal raised Cemex’s net debt to $17.8 billion, but many analysts still liked it because they did not see the coming economic and housing crisis. Unfortunately for Cemex, the housing crisis in the United States came very soon after its acquisition of Rinker. Since then, it has been a steeply downward sloping trend for Cemex’s stock price.

So, the question now is not whether or not Cemex’s stock is a good buy in anticipation of a market recovery, but the real question is whether or not Cemex as a company can last long enough to make it out of the global recession without having to go through bankruptcy. Many experts are predicting that there is a good chance Cemex will run out of money by this summer if it does not restructure its debt or find another way to make some money.

One option for Cemex to raise some cash is to issue bonds, but because of the company’s distressed situation and with the overall poor health of the economy, the interest rates that it would have to pay on those bonds would be around 15-16%, rates that would end up causing even more problems in the future. Cemex is not going the bond route, but is instead trying to restructure its debt with the banks that it owes money too. If that does not work out, there is a lot of speculation that the Mexican government would step in and bail out the company with enough money to repay its debts so that it can avoid bankruptcy. The claim is that Cemex is too important of a company for Mexico, and letting it go bankrupt would be a disaster for the already weakened Mexican economy. This situation is very similar to the U.S. government bailing out the large financial institutions, as letting some of the big banks go bankrupt would have a very large negative impact on the rest of the economy.

If Cemex can stay afloat through this recession, it will be a great company to own for an economic recovery. The company has a great core business model, and with an increase in construction, demand for Cemex’s cement will surely increase. But, the risks for owning Cemex are extremely high. This is one of those stocks that can be double or triple in price by June, but it can just as easily be at zero if the company goes bankrupt. A wait-and-see approach is less risky, but the rewards will be much less, as you will probably be late to jump in. If you are a speculator, this is the stock to invest in. Personally, I can’t handle the risk so I am staying away.

Niki Pezeshki

College Trillionaire

Market Recap - March 27, 2009

2009-03-27T19:29:00.001-07:00

Stocks traded lower on Friday, as investors sold some shares and took in profits from the big gains over the past couple of weeks. The Dow Jones Industrial Average fell 148.38 points (-1.87%), and the S&P 500 also dropped 16.92 points (-2.03%). It was a bad way to end such a great week, as the Dow rose 6.8% this week, and the S&P also climbed 6.2%.

The Dow has surged 21% over the past 13 days, and to think that this unbelievable rally could continue without any profit taking or slight reality checks would be unrealistic. Although investors are definitely more optimistic about the markets and the economy than they were a month ago, it seems like 21% in 13 days was just too much. There is still some worry that Wall Street will be disappointed when companies release first quarter earnings. Another argument that many investors have is that the markets need to retest the lows from a couple of weeks ago and bounce up again in order to truly indicate a market bottom. As great as this rally has been, I still don’t think that it has convinced anyone that things have officially turned around. Until that happens, volatility will remain high and investors will continue to debate what to do next.

Niki Pezeshki

College Trillionaire

Stock of the Day - March 22, 2009 - DEO

2009-03-25T20:40:00.000-07:00

Diageo (DEO)

Guinness, Smirnoff, Jose Cuervo, and Captain Morgan are just a few of the alcoholic beverages that Diageo (DEO) produces. Many people believe that sin stocks, or stocks of companies that produce goods considered by some to be immoral or unethical, are recession-resistant. As an alcoholic beverage producer, Diageo finds itself in that category. Is there money to be made from this beer-brewing, wine-bottling, liquor-distilling corporation?

Diageo’s net profit increased 16% to $1.63 billion in the six months ending December 31^st, 2008. At first glance, these numbers make it seem like the company actually is recession-resistant. But, the increase in income can mostly be attributed to a strong U.S. dollar. Although Diageo is based in Europe, the United States is one of the company’s largest markets. Because the company trades its beverages for strong U.S. dollars, it has benefited from exchange rates.

Analysts actually expected much higher results from DEO. The company itself stated that profit from operations was weaker than desired at the end of 2008. CEO Paul Walsh stated that, “the global economic slowdown has affected business in the period, and in November and December this impact was more pronounced.” Diageo cut its growth forecast for full-year operating profit, citing a lack of visibility for the rest of 2009. The report that missed expectations, when combined with an admission of vulnerability to a weakened economy, caused investors to stray away from DEO.

Diageo’s stock has a 52-week range of $40.93-86.19. It most recently traded at $44.18, very close to its 52-week low. While I believe that some drop in share price was necessary to accommodate for weakened macroeconomic conditions, the current price leaves DEO undervalued.

It’s important to note that Diageo maintains a great deal of strength from its top brands. The names are incredibly popular: Smirnoff is the world’s number one vodka, Jose Cuervo is the leading tequila, and Guinness is the top stout. The majority of DEO’s other alcoholic beverages also maintain large market shares. These brands will not suddenly disappear because of slow economic times.

The company’s statistics are also enviable. Diageo bears a large market capitalization of 27.52 billion, pushes out a reliable dividend yielding 3.6%, and most recently generated a free cash flow of $1.24 billion. Add in the fact that the company currently has $3.45 billion in cash, and it’s easy to realize that DEO is a real powerhouse.

My main fear for Diageo is the weakening of the U.S. dollar. Just as DEO benefits from a strong dollar, a weak dollar hurts it. Its sales and large market share in the U.S. would become less valuable if the dollar becomes less valuable. We’re beginning to see a decrease in value of the dollar resulting from a large amount of government spending, a dramatic increase in the printing of money, and shrinking demand for treasuries and debt from foreign countries.

Nevertheless, the U.S. is only one of Diageo’s many markets. The company acts in about 180 countries in North America, Africa, Europe, and Asia. Considering the company’s powerful brands, international diversification, and financial backing makes DEO a great buy at current levels. Diageo is sitting at a relatively cheap price in an industry that does well in harsh economic times, and now is the time to scoop it up.

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - March 24, 2009 - Stock Buybacks

2009-03-24T19:50:00.000-07:00

Stock Buybacks

Stock buybacks, which are also called share repurchases, occur when a company buys back its own shares from the marketplace. This action by the company reduces the number of outstanding shares that the public is able to buy and sell.

So, how do stock buybacks benefit investors? Because stock prices are determined by multiplying the P/E ratio by the Earnings per share (EPS), then it would make sense that a higher EPS would lead to a higher stock price. EPS is calculated by dividing a company’s net income by the number of outstanding shares. So, when a company repurchases its shares, it is decreasing the number of outstanding shares. This action decreases the denominator in the EPS formula, thus increasing the company’s EPS. Because the EPS increases, the overall stock price for the company also increases.

Let’s do an example. If Company A has a P/E ratio of 10 and an EPS of 2, the company’s stock price will be $20. Let’s also assume the company has a net income of $200 and has 100 shares outstanding, thus explaining the EPS of 2 ($200 NI / 100 shares). If Company A decides to repurchase 50 shares, it will only have 50 shares outstanding. So, the new EPS will be 4 ($200 NI / 50 shares). So, if the P/E ratio remains at 10 and the EPS has increased to 4, then the new stock price will be $40 (P/E ratio 10 * EPS 4). When Company A repurchases half of the outstanding shares, the company’s share price doubles!

It should be clear by now that share repurchases are great for investors. But, why do companies repurchase shares, and what kind of companies repurchase shares? Companies with a lot of excess cash are more likely to repurchase shares, mainly because they have the money to buy back their shares. For cash-rich companies, the best way to directly reward investors is through dividend payouts or through stock buybacks.

Most of the time, companies that repurchase shares do it because they believe their stock price is undervalued. By buying their own shares at the perceived discounted prices, companies believe that they will be able to greatly profit in the long run when the stocks that they have purchased appreciate in price.

Make sure to stay on the lookout for companies that have already repurchased shares or are potential candidates to do it. When a company buys back shares, it shows that it has a lot of excess cash, but it also shows that the company thinks its stock price is undervalued and that it will go up in the future. Stock buybacks are a very solid indication of what the company thinks about its own future, as a company would not repurchase shares if it thought that its share prices were on the way down.

Niki Pezeshki

College Trillionaire

Market Recap - March 24, 2009

2009-03-24T19:13:00.001-07:00

The same financial stocks that pumped the Dow up 500 points yesterday were responsible for dragging the markets down today. The Dow Jones industrial average lost 115 points (-1.5%) to end the day at 7659.97, while the S&P 500 fell 16.57 points (-2%) to 806.35.

The chairman of the Federal Reserve, Ben Bernanke, and Treasury Secretary Timothy Geithner spoke to the House Financial Services Committee today. The top officials will be asking the committee and, in turn, Congress to provide them with stronger regulatory powers over non-bank financial institutions. AIG is a perfect example of a non-bank financial institution. The ‘insurance’ company engaged in many financial acts, but was exempt from the regulations that affect banks. Bernanke claimed that stronger regulatory powers would have prevented much of the crisis that we are now facing.

While a report yesterday stated that February sales of existing homes increased by 5.1%, a report released today showed that home prices fell 6.3% January compared to the January of 2008.

Oil prices rallied today to $53.98 per barrel while the U.S. dollar continued a three-week decrease in value. Currency traders are fleeing to commodities like oil as a method to avoid potential inflation. These investors believe that the government’s multiple plans to inject trillions of dollars into the financial system will cause inflation. Oil, gold, silver, and other commodities tend to act as safe havens when inflation is rampant.

The drop in the markets today can be mostly attributed to profit taking. The gigantic rally yesterday provided investors with an opportunity to sell off and receive some juicy profits. Nevertheless, the Dow gained three times as many points yesterday as it lost today. I’ll take that ratio any day.

-Matt Schwartz

College Trillionaire

Market Recap - March 23, 2009

2009-03-23T22:42:00.000-07:00

The stock market skyrocketed on Monday, as Treasury Secretary Timothy Geithner announced the details of the government’s plan to help the troubled financial system. The Dow Jones Industrial Average gained 497 points (6.84%) and the S&P 500 surged 54.38 points (7.08%)!

The government’s plan is called the Public-Private Investment Program (PPIP), and it will provide banks with up to $1 trillion in financing in order to get them to start lending again. The great thing about this plan is that it involves the private sector. It is a very confusing plan, but if you want to read a good summary of it, check out this link: http://www.thestreet.com/story/10476062/1/geithner-plan-may-aim-1-trillion-at-bad-assets.html.

Another catalyst for today’s jump came from the housing sector. The National Association of Realtors’ reported that home sales greatly increased in the month of February. From the month of January to February, home sales grew 5.1%. While home prices are still at 10-year lows, many people took the jump in home sales as a sign that people are taking advantage of the low prices. While this might dilute the impressive numbers, it is still good to know that people are starting to spend more on bigger purchases.

Today’s jump was unbelievable, as the S&P 500 doesn’t always increase by 7% in one year, let alone in one day! The good news continues to flow out of Washington and the economy seems to be turning around for the better. A lot of people are saying that this is a temporary rally, and that we need to retest the lows one more time in order to ensure a bottom. Right now might be a great time to take some profits and sell some shares.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - March 22, 2009 - HSY

2009-03-22T13:10:00.000-07:00

Hershey Co. (HSY)

Hershey (HSY) produces and distributes a variety of chocolate and confectionary products, including Hershey’s Kisses and Reese’s. The company is the largest American chocolate producer, with around 45% of the domestic market share. It is no longer the largest candy producer though, as Mars Inc. recently surpassed Hershey with its $23 billion acquisition of Wrigley.

Hershey’s stock price only fell 12% in 2008, and it is currently trading at $34.93. Its share price has actually only dropped 9.04% since exactly one year ago. Comparing that to the S&P 500, which has lost 43.07% of its value from the same time one year ago, it is clear to see that Hershey has been doing some things right.

One of the reasons that Hershey’s stock price has not been hurt too badly in this recession is because chocolate is a largely recession-resistant good. The company actually increased its sales in 2008 by 4% compared to 2007, and chocolate sales continue to do well, as chocolate is considered to be a very affordable luxury. Eating chocolate is a cheap way to make yourself feel good, and people have turned to it throughout this recession in order to give themselves a treat.

While I do think that Hershey’s stock price is currently overvalued, I believe that the chocolate company is setting itself up very well for long-term sales growth and profit growth through many different strategic avenues.

The first way in which Hershey is increasing sales growth is by expanding into international markets, something relatively new to the company, as it has historically operated mainly in America. The company is currently focusing on expanding its operations into Mexico, Brazil, Canada, and Asia. With its recent purchase of “Van Houton”, a consumer chocolate business in Asia, the candy maker has started its aggressive attempt to increase its presence abroad. Hershey is also planning on increasing sales through more advertising. The company has announced that it will take advantage of lower advertising costs by increasing its ad spending by 20% this year.

In addition to increasing sales growth, Hershey is focusing heavily on increasing its profit growth. Understanding that its products are more inelastic and recession-resistant than most other products, Hershey has been raising the prices for its most popular products. This has worked very well for the company, and it has not hurt sales. Hershey’s raw costs (Cocoa, plastic, oil, etc.) for producing its chocolate and other candy products have also dropped as a result of the recession. When combining higher selling costs with lower production costs, it is clear to see that the company’s profit margins are increasing. This means that for everything that Hershey sells, it is making more profit than it used to. The company’s increase in profit margin, combined with its increase in sales will lead to solid income growth for the company.

While the fundamentals look great, I have some issues with the company’s stock price. First of all, Hershey’s shares have increased by 13.6% since March 10^th, far too drastic of a move for a company that usually has a very stable and slow-moving stock price. This sudden increase has to do with the recent overall market rally, but it also has a lot to do with the fact that Jim Cramer has been promoting the stock heavily on his show. The company also has a P/E ratio of 25.65 and a PEG ratio of 3.42. These numbers are ridiculously high when comparing them to other food processing companies, as the average P/E ratio for the industry is 12.12 and the average PEG ratio is 1.47. Hershey’s valuation numbers are so high, especially compared to its industry, that its stock price seems to be unbelievably overvalued. People are starting to notice that Hershey’s stock is too pricey, and 7.4 million shares (4.84% of total shares outstanding) are currently being shorted as a result, compared to only 6.1 million shares last month. Right now might actually be a great time to short Hershey’s stock, before more people catch on to the fact that it is grossly overvalued and pull the stock price down.

Hershey’s share price would have to drastically decrease for me to even consider buying it. But even then, I would hesitate for one simple reason. With a Beta of .25 (Beta was the term of the day on February 6^th), Hershey’s stock price is usually very stable and moves much slower than the overall market. If the market has bottomed already, or if it is close to bottoming with the expectations of a huge rally coming up, I would not want to be invested in a company with a Beta of .25. Instead, I want to be invested in companies with Betas of over 1 that I can really profit off of when the markets do start to rally.

Although Hershey is doing some things right and is slowly growing both sales and profits, I still think that it is overvalued. If you are looking for another company in the food processing industry, maybe you should check out Heinz (HNZ). Heinz is giving out a 5.1% dividend yield and is trading with a P/E ratio of 11.17, making it a much better value than Hershey.

Niki Pezeshki

College Trillionaire

Stock of the Day - March 19, 2009 - AZO

2009-03-19T10:16:00.000-07:00

AutoZone (AZO)

AutoZone (AZO) is a specialty retailer of automotive parts and accessories that aims its goods at do-it-yourself customers. The company provides products for consumers to replace or fix broken parts of cars, trucks, and other vehicles. AZO is a very interesting stock that has seen a lot of positive action in the past few months.

The downfall of car manufacturers like General Motors (GM) and Ford (F) has been the catalyst for AutoZone’s growth. People can’t afford to buy new cars, so they’re driving their current cars for a longer amount of time. The older the car, the more repairs and parts are needed to maintain it. In this sense, the recession and economic instability we’re currently witnessing has been beneficial for AutoZone!

Indeed, the company reported fiscal second quarter earnings that blasted through analysts’ expectations. The quarter ending February 14 saw an 8.6% increase in net income and 21.1% increase in earnings per share. The large jump in earnings per share came after the company bought back roughly $375 million worth of its stock.

Investors rewarded the company’s ability to outlast recessionary conditions by buying AZO and driving the stock price upward. AutoZone skyrocketed to its current price of $162.31 after hitting its 52-week low of $84.66 in November. Due to popular sentiment, the stock has potential to keep rising, but I believe that we will soon see AZO drop in price.

My main concern for AutoZone is the large amount of debt that the company is carrying. AZO is currently lugging over $2.2 billion in debt with a very low amount of stockholder equity: it has a high debt/equity ratio at .378. This means that the company has borrowed a lot of money and doesn’t have a comparable amount of growth potential and backing to match its debt. In the financially crippled environment we’re facing, large amounts of debt are far from desirable.

It’s also important to note that AutoZone is a retailer. The retail sector has taken an absolute beating during the economic downturn. AZO should be grouped with discount retailers like Wal Mart (WMT) and Family Dollar (FDO). AutoZone provides secondary products that most customers only buy if they can’t afford to have a mechanic do work for them. Even though discount retailers have been faring better than regular or premium retailers, the entire group is still suffering.

We must also consider the massive rally that AZO has already made. Unfortunately, if you don’t already own the stock, you’ve probably missed the jump on this one. I think that the company is overvalued at its current price. When all the information surrounding AutoZone is boiled down, we’re left with a retail company that is carrying a lot of debt. Even though the company’s stock may increase in the short term, it won’t be able to sustain its current price in the long run. I would even consider selling AutoZone short at these levels.

-Matt Schwartz

College Trillionaire

Market Recap - March 18, 2009

2009-03-19T00:30:00.000-07:00

Investors saw stocks gain today as the Federal Reserve announced that it would be taking some major steps to stabilize the economy. The Dow Jones Industrial Average gained 90.88 points (1.2%) while the S&P 500 rose 16.23 points (2.1%). Continuing a remarkable rally, the markets have ended in positive territory for 6 of the last 7 days.

Ben Bernanke and the rest of the Federal Reserve’s leading committee are making moves… big moves. The Fed announced today that it would be spending $1.2 trillion (yes, with a ‘T’) in a gargantuan effort to stabilize the financial markets. It will use $300 billion to buy long-term government bonds, $750 billion to purchase mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, and $200 billion to buy debt from those two companies.

The Fed already bought $500 billion in similar mortgage-backed securities from Fannie and Freddie last year. These two government-created companies own or guarantee between 40% and 60% of all American mortgages. Economists and analysts believe that the $500B purchase was the major factor behind a decrease in mortgage rates from about 6% down to 5%. Purchasing $750 billion more in these securities should drive mortgage rates even lower. This would provide a major incentive for people to buy homes.

The purchases of mortgage-backed securities and long-term government bonds were made in efforts to encourage lending. The Fed believes that buying bonds and securities will lower interest rates. Lower interest rates will allow banks to give credit at lower costs to borrowers.

It’s important to understand that the Federal Reserve funds these purchases by simply printing money. From a long-term perspective, adding cash to the money market will devalue the U.S. dollar. While preventing deflation is the Fed’s current goal, many analysts and experts believe that the massive amount of government spending will cause inflation in the future.

Criticisms aside, investors reacted positively to the Fed’s announcement by sending the markets higher. Federal Reserve Chairman Bernanke has a good head on his shoulders, and knows the Great Depression like the back of his hand. If there is one man we can trust with the economy, it’s him. Let’s hope the good news keeps coming in and the markets keep moving up.

Until tomorrow,

-Matt Schwartz

College Trillionaire

Market Recap - March 17, 2009

2009-03-17T19:09:00.001-07:00

Stocks continued their unbelievable rally on Tuesday, backed by some great news on the housing market! The Dow Jones Industrial Average finished higher 178.73 points (2.48%), the S&P 500 increased 24.23 points (3.21%), and the NASDAQ jumped 58.09 points (4.14%)!

The government reported today that home construction picked up in February, and the market responded very favorably to the unexpected news. Investors saw this news as another piece of evidence that the economy has bottomed and is starting to turn around. With Citigroup (C) and Bank of America (BAC) both reporting recently that they were profitable in the first two months of the year, people began to sense a turnaround in the economy. Now it seems like good news, like this most recent housing report, comes out every day to give the markets even more momentum to the upside.

The tone in the markets is almost unrecognizable, as people have moved from a state of never-ending gloom to a state of hope that this rally has the potential to be sustainable. Whether or not this rally will be sustainable and we truly have moved up from the bottom is still yet to be seen, but the fact that this rally has been backed by upbeat economic news makes it seem much more realistic than the 20% rally that occurred from November 21^st to the end of 2008.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - March 16, 2009 - APP

2009-03-16T21:38:00.000-07:00

American Apparel, Inc. (APP)

American Apparel (APP) is a vertically integrated manufacturer, distributor, and retailer of basic apparel products. The company, which also operates a wholesale business that sells T-shirts to distributors, employs around 10,000 people and has more than 260 retail stores in 19 countries.

American Apparel’s stock has been massacred this year. The company’s share price, which is currently trading at $2.40, is down over 75% from its 52-week high of $10.25. In the past year, the company has flirted with bankruptcy, dealt with a very tough retail market, and has seen its CEO be charged for sexual harassment. These three factors have pulled the stock down, but looking at the future for American Apparel is very interesting.

The company has been in the news a lot recently. Before last week, American Apparel was seriously considering filing for bankruptcy, as the company has taken on over $111.6 million in debt to help expands its operations over the past five years. With the recession causing a lower-than-expected revenue stream, the company was having trouble paying back its loans. But, American Apparel announced last Friday that private-equity firm Lion Capital was providing it with $80 million in exchange for an 18% stake in the company. American Apparel will use this money to repay much of its debt, and this cash infusion will likely resolve the company’s debt concern for the next five years. Investors loved this news, as the threat of bankruptcy is no longer looming, and the company’s shares shot up 68% on Friday. I also think this cash infusion is great for the company, as American Apparel can take its mind off money problems and back onto the unique designs and efficient operations that make it such an interesting brand.

American Apparel’s sales have actually held up relatively well throughout this recession compared to other retail companies. The company’s 2008 fourth quarter same-store sales were up 10% compared to a year ago. December same-store sales were higher 3%, January same-store sales were up 2%, and February same-store sales were down 9% compared to one year ago. So, while the growth rate of same-store sales has fallen dramatically compared to years past, it is still very impressive that a retail company in such poor economic times has been able to post positive changes in same-store sales numbers until February. These numbers are extremely impressive for American Apparel, and it proves to me that the company has a very devoted and solid consumer base, and that its products are worth buying, even in a recession.

The problem with American Apparel that keeps me from buying its stock is the company’s CEO, Dov Charney. Charney, who is the face of American Apparel, is infamous for doing things his own way and acting very strange, and his peculiar ways have gotten him into trouble. A former employee is suing Charney for allegedly walking around the workplace in his underwear, attending staff meeting completely nude, and padding inventory numbers to entice potential investors. While these allegations may or may not be true, Charney’s reputation and the fact that he seems to always be in the news for the wrong things makes me uneasy about the whole situation. Walking around nude at work is one thing, but to pad numbers to entice potential investors is unacceptable. The factor that magnifies the issue is that American Apparel is a vertically integrated company, meaning that Charney plays a major role in all aspects of the company, and has more control over the overall business operations than the average CEO. The fact that a loose cannon like Charney has so much power in American Apparel raises a huge caution flag for any potential investor. Anytime he makes a mistake or gets in the news for the wrong reasons (which is often), American Apparel’s stock price takes a drastic hit.

So, while I do think American Apparel is a great brand with room to grow, I still have my doubts about the company’s management team, and specifically about Dov Charney. I do think that the company’s share price will increase in the future, but the bumpy road to profits that investors will have to deal with as a result of the CEO’s behavioral problems will not be worth it. If you want to buy retail companies that will be safer, less volatile, and much more certain bets to increase in share price, go with either Wal-Mart (WMT) or Best Buy (BBY). Both of these companies were previous Stocks of the Day on College Trillionaires, so make sure to read those articles as well.

Niki Pezeshki

College Trillionaire

CT Note: Max Siskin, a good friend of mine, owns a lot of shares in American Apparel and thinks very highly of the company’s future prospects. He will post his response to this article in the near future, so make sure you check out what he has to say about American Apparel on College Trillionaires!

Market Recap - March 16, 2009

2009-03-16T15:40:00.000-07:00

The markets edged slightly lower today, ending a four-day rally that began last week. The Dow Jones industrial average fell 7.01 points (-.10%) and the S&P 500 dropped 2.66 points (-.35%).

Stocks continued their gains today until the Dow was up 169 points. After reaching this level investors steadily sold off, taking gains until the indexes closed in negative territory. The profit taking was a part of normal market behavior, analysts said.

American International Group paid out an estimated $165 million in bonuses last Friday to top executives. These extra payments came after taxpayers have given the company $170 billion in bailouts since September of 2008. President Obama asked, “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

Even though the markets ended the day lower than they began, we witnessed a good sign in the form of investor optimism this morning. Traders weren’t given much in the form of news today, yet stocks still rose until the afternoon. Confidence is key in the process of discovering a bottom.

-Matt Schwartz

College Trillionaire

Stock of the Day - March 12, 2009 - COP

2009-03-12T19:03:00.000-07:00

Conoco Phillips (COP)

Conoco Phillips (COP) is the 3^rd largest integrated energy company in the United States. The company explores and produces oil, natural gas, and natural gas liquids in several countries around the world. Conoco Phillips’ stock price has been absolutely battered since the economic downturn, and I believe now may be a great time to buy.

COP traded around its 52-week high of $95.96 in June of 2008. Since then, the company’s stock price has tanked as the prices of oil and natural gas have plummeted. The stock last traded at $37.39, about three dollars above its 52-week low of $34.12. Was there merit to this steep drop in price?

Conoco Phillips posted a massive $31 billion loss in the 4^th quarter of 2008 that resulted from a $34 billion write down of asset value. COP suffered from horrible timing. The company rapidly expanded its oil exploration and production when crude oil was valued above $130 a barrel. At the same time, the company acquired major natural gas fields when natural gas was worth over $17 per 10,000 mmBtu (measuring units for natural gas).

Now, crude oil is valued at $46 a barrel and natural gas is worth $4. Conoco bought while prices were very high, and as a result, the company lost billions of dollars in the value of its assets. I have trouble determining whether or not to place the blame on the company’s executives. Current CEO, James Mulva, entered the company a few years ago and was a major proponent of expansion. Nevertheless, few people were able to predict the downfall of energy products, and I would chalk up the losses to poor timing instead of poor management.

The company has responded to the drop in oil prices by reducing capital expenditures. After releasing the tragic 4^th quarter earnings report, Conoco announced that it would be cutting capital spending by 37% in 2009. This troubles me. While I understand that the company simply cannot afford to be expanding its business right now- after all, it does have to stay afloat- it is again falling victim to poor timing. COP is buying high and selling low! Expansion would be cheaper than ever now that oil and natural gas are priced so low, but the company isn’t making any moves.

Despite unfortunate circumstances that resulted from terrible timing, I think Conoco Phillips is still undervalued. The company boasts a massive balance sheet with almost $143 billion in assets. Even though the purchases made in recent years were overvalued, they still will generate cash for COP in the future. The success of the company ultimately boils down to the movement of oil and natural gas prices.

As I stated earlier, oil is trading at $46 a barrel and natural gas is trading at $4. While I can’t see oil and natural gas rising to the high levels seen in early 2008, I think they are bound to rise by late 2009 and early 2010. Oil production has steadily been cut by many companies around the world, so supply is down. The demand for energy products have dropped as the economy has headed south. Basic economic principles tell us that low supply and high demand equates to high prices. When demand for oil picks up, Conoco will be able to provide it for more money.

If you agree that oil will pick up in the coming months, Conoco Phillips is the single most valuable major energy play you can make. Chevron (CHX) and Exxon (XOM) are off 35% and 30% from their 52-week highs respectively, while Conoco has dropped a dramatic 60%. When you consider Conoco’s potential for improvement compared to its competitors, the $37 ticket for a share of COP begins to look very cheap.

-Matt Schwartz

College Trillionaire

Market Recap - March 12, 2009

2009-03-12T17:26:00.000-07:00

The stock market rally continued today, as the major indexes were up for the third straight day. The Dow Jones Industrial Average increased 239.66 points (2.46%) and the S&P 500 was higher 29.38 points (4.07%). Over the past three days, the Dow has jumped 622 points (9.5%)!

One of the major reasons for the continued uptrend came from the announcement that accounting rules for companies, especially banks, may be eased. This is great news for banks, as their bottom lines will greatly improve with the ability to avoid mark-to-market accounting practices.

Investors were also very happy with General Electric (GE), as Standard & Poor’s cut the company’s credit rating less than expected. GE was up 12.7% on the day. General Motors (GM) was also up big today (17.2%) on news that the company will not need the $2 billion of government aid that it had originally asked for.

This was a great week for the market and, for the first time in a long time, investors were treated with more good news than bad news about the economy and about specific companies. With so many people on the sidelines with cash waiting for the right time to get into the market, there is no reason to think that the rally won’t continue as long as the good news keeps flowing.

Also, Bernie Madoff pleaded guilty today and was sent to jail without bail. He could get up to 150 years in prison.

Until next week,

Niki Pezeshki

College Trillionaire

Trillionaire Term of the Day - March 11, 2009 - Uptick Rule

2009-03-11T23:45:00.000-07:00

Uptick Rule

In order to gain any sort of understanding about the uptick rule, you need to have a basic appreciation of short selling. Short sellers bet against the success of a stock by selling stocks that they don’t own. If successful, they sell the stock at a high price and then make the payments on the shares at a lower price to cover the sale. If you’re interested in learning more about short selling, read our Term of the Day from January 26.

The uptick rule was created in 1938 by the Securities and Exchange Commission in an attempt to stop short sellers from driving down the markets. The rule required short sellers to wait for a stock to move upward one-eighth of a percentage point before making a short trade. Before the rule was instated, traders could short a stock at any time, regardless of whether or not someone bought it long (the usual method of purchasing stocks) before them.

The SEC believed that the uptick rule would prevent short sellers from gaining momentum and driving down stock prices. This is because short sellers not only bet that a stock will go down, but the very act of selling a stock short actually moves the price downwards. When investors sell a stock short, the bid price of the stock is lowered. If many people sell short at the same time, a steep decline is very possible.

The uptick rule was successfully enforced from 1938 until June of 2007. The SEC eliminated the uptick rule to determine whether or not the rule actually had any effect on the markets. The SEC’s Office of Economic Analysis determined that the rule wasn’t necessary to prevent short sellers from manipulating the markets.

Well, now that the financial system is tanking, short sellers have been actively trading in the financial sector. Naturally, when things go bad, people start to point fingers to find out why. Many analysts have placed the blame on the elimination of the uptick rule. While the credit crisis and a basic lack of fundamentals have caused investors to sell out of financials, many argue that short sellers have driven the stocks of banks such as Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC) down past appropriate levels.

The advocates of reinstating the uptick rule believe that the regulation would take away a lot of the firepower of short sellers. The shorts would have to wait for long buyers to make a purchase before making their trades. This would take away the momentum that rapidly drives stocks downwards.

People tend to look down upon short selling because it essentially involves betting on failure. Nevertheless, shorting is an important market tool that helps bring stocks down when investors become overly enthusiastic and place too much value in a stock.

There are two main arguments against reinstating the uptick rule: efficiency and freedom. The nature of the uptick rule forces short sellers to wait some time before making a purchase. It is possible for this waiting period to create some lag in the markets. Supporters of free markets dissent to almost every kind of regulation or inhibition of people’s rights. The uptick rule would be a limitation on the right to short sell.

Despite these points, it’s very difficult to argue against the uptick rule, as the stock markets functioned just fine during the 70 years in which it was upheld. It appears that its elimination will be temporary, as Representative Barney Frank of the House Financial Services Committee said yesterday that he hopes the rule will be back in effect within a month. Part of yesterday’s rally can actually be attributed to Frank’s announcement, showing that most investors want to see the uptick rule come back. It will be very interesting to see what influence the uptick rule, if reinstated, will have on the markets, and especially on the bank stocks.

-Matt Schwartz

College Trillionaire

Market Recap - March 11, 2009

2009-03-11T17:45:00.001-07:00

Yesterday’s uplifting rally didn’t see much of a continuation today, as the markets barely held on to a gain. The Dow Jones industrial average rose 3.91 (.1%) to end the day at 6930.4 and the S&P 500 rose 1.76 (.2%). The Dow’s two-day trip into positive territory marks the first consecutive gains since February 5-6.

Investors, optimistic after hearing good news yesterday from Citigroup and the government (regarding the possible reinstatement of the uptick rule), battled hard to keep the indices in the green today. The Dow flip-flopped a remarkable 37 times today between gains and losses.

Holding onto Tuesday’s gains was difficult because investors didn’t hear any good news today. Renewed worries surrounding the housing market were incited as Freddie Mac announced that it will be asking the government for $31 billion in additional aid. The company is one of two housing entities that were seized by the government last fall. Along with the other company, Fannie Mae, Freddie Mac owns or guarantees over 50% of all U.S. home loans. The company’s need for aid points to continuing trouble in the housing sector.

Investors were also informed of escalating unemployment. At least 5.1 million people are currently receiving state unemployment insurance. Four states posted unemployment rates above 10% in January: California, South Carolina, Michigan, and Rhode Island. The crucial indicator of an economy’s strength, national unemployment, has steadily increased for the last several months.

Nevertheless, it is apparent that investors are ready to buy. One drop of good news from Citigroup yesterday sent them on a purchasing spree. While the fundamentals behind the economy are still moving downward, we’re beginning to see a trickle of beneficial signs. I would definitely expect investors to react positively to any good information that comes their way.

Until tomorrow,

-Matt Schwartz

College Trillionaire

Opinion - Going Global

2009-03-10T20:16:00.000-07:00

Thank you Shriftman for the article! Remember, if any of you readers want to write anything about the stock market, about the economy, or about anything even semi-related to those topics, just send your article to collegetrillionaires@gmail.com and we will post it for you. Thanks! - Trillionaires

Going Global

“History does not repeat itself, but it rhymes.” Mark Twain, a 19^th century writer and philosopher, uttered those words without the slightest knowledge or inclination that their true meaning would be revealed 150 years later during one of modern history’s toughest times. The current economic crisis exhibits one simple premise; today foreshadows tomorrow, for society follows trends. This concept of “history rhyming” is the single most imperative idea that the Y generation should apply for success and safety in the increasingly difficult, global environment.

Today’s global marketplace is seamlessly interconnected, or “flat”. Unfortunately, this integration is epitomized by the current global financial meltdown. In order to prevent another crisis from reoccurring in the future, the actions of companies and governments alike need to be more utilitarian – creating the greatest good for the greatest amount of people. Safeguards must be implemented to protect humankind from its greed in the future; safeguards rooted in the understanding of prior bubbles, creating awareness of their symptoms and signs, and resulting in a self-preserving, ethical oversight.

Now how do bubbles apply to technology, the Internet, multinational corporations, and ultimately the global marketplace? If one country today experiences a crash following a boom, then this effect will magnify itself exponentially onto its trading partners. For instance, the United States, now with fewer funds, shrinking demand and enormous debt, can no longer purchase as many goods and services from its significant trading partner, China. That decrease in demand from the US will cause China to generate less income, therefore making them unable to trade to get their desired needs as well, say oil, with the Middle East. That loss of revenue and shrinking demand in the Middle East will in turn cause a cut in the supply in oil, therefore affecting every country that needs this rare commodity. This trend continues, creating a domino effect. Essentially, today’s flattened global environment results in each country having a vested interest in every other country, regardless of intent.

For these reasons, a country and its citizens must be aware of global bubbles and economic trends. All bubbles share consistent attributes and traits; primarily, there is an abundance of easy credit applied to an industry where historical criteria is ignored, and every person is doing “it” with full confidence. “It” can easily be replaced with purchasing a dot-com stock, an interest free mortgage, or dating back to 1637, the Tulip Bubble where the bulb of the flower was the most desired product in the world, only to have it become worthless almost overnight.

Given this relationship between countries, one must ask, “What is next in the global environment?” For the next decade, the world will be in a poor status quo due to government bailouts and inflation, and sadly, we are all wedged in it together. To escape this global meltdown, essentially and oddly enough another bubble, or two, will save us. They will inevitably be the “Alternative Energy Bubble” and the “Nanotechnology Bubble”.

The world can no longer rely on overpriced oil (some believe Peak Oil is here) nor should stable nations deal with irrational, terrorist funding entities. Additionally, the burning of fossil fuels is destroying our planet causing global warming. Clean, renewable, cheap technology will spawn in the next decade that will change the way the world functions. This alternative energy boom will birth new companies, create modern jobs, and save the planet.

The nanotech bubble will also emerge. While still in its earliest stage, this micro sized technology will be used to manufacture new medicine, electronics, and energy production. For example, nano-tech has already been utilized to purify and desalinate water, improving the quality of life for millions in third world countries that now have access to uncontaminated drinking water. Just for perspective and range of use, it has also been used for cosmetics, bacteria-proof knives, and stain-resistant pants.

The future of the global environment lies in the hands of technology, which has an expanding curve of innovation. Utilizing the rhetoric of “history rhyming”, we must acknowledge these future bubbles, capitalize on them, and figure out a safe, pragmatic exit strategy in order to ultimately return to a normal period of steady growth between all countries. It is evident the world will continue to make technological progress, but hopefully it will only be a brief matter of time until countries unite and follow in the words of Greek philosopher, Socrates where he states, “ I am not an Athenian or a Greek, but a citizen of the world.”

Jonathan Ross Shriftman

College Trillionaire

Market Recap - March 10, 2009

2009-03-10T17:43:00.000-07:00

It was a great day on Wall Street, as the major indexes skyrocketed upwards on great news from the financial sector. The Dow Jones Industrial average ended higher 379.44 points (5.8%), the S&P 500 increased 43.07 points (6.37%), and the NASDAQ jumped 89.64 points (7.07%)! The market hasn’t seen a rally this big since November of 2008!

The rally really started today on news that Citigroup (C) was profitable in the first two months of 2009. The company’s CEO, Vikram Pandit, also said that he is confident about the bank’s capital strength. Citigroup ended the day 38.1% higher as a result of the good news. Other banks and financial companies also traded much higher, with Bank of America (BAC) gaining 27.73%, General Electric (GE) gaining 19.7%, and Capital One (COF) gaining 15.12%.

Another piece of news that greatly helped the financial sector was that the uptick rule might soon be restored. The uptick rule essentially makes it so that you can only short sell a stock after the last trade of the stock was positive. Investors are big supporters of the uptick rule, as the ability to short beaten down financial stocks throughout this economic downturn has continued to pull shares of bank stocks lower and lower. With an uptick rule, less people will be able to short bank stocks, and thus confidence will hopefully be restored.

The question now becomes, was this just a one day rally, or did today mark a bottom in the stock market? It is important to note that throughout the ongoing stock market crash, experts have been saying that until the financial system and banks are fixed, the market will not recover. With Citigroup’s announcement today, is it proof that the banking companies are starting to turn around? One thing that is for sure is that the economy is still very problematic, and that the unemployment rate is still very high. Having said that, it has been noted on many historical occasions that the stock market usually recovers six months before the economy does after a recession. So, it will be very interesting to see how the markets react tomorrow after today’s huge rally. Will people continue to be optimistic, or will people take some profits and sell stocks tomorrow knowing that the economy is still in shambles?

Until tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - March 9, 2009 - MO

2009-03-09T23:03:00.000-07:00

Altria Group, Inc. (MO)

Altria Group (MO) manufactures and sells cigarettes and other tobacco products in the United States through its subsidiaries. Through Phillip Morris USA, Altria sells cigarette brands such as Marlboro, Virginia Slims, and Parliament. Through John Middleton, Altria sells Black & Mild cigars. And, through its recent acquisition of UST, Altria sells smokeless tobacco brands such as Skoal and Copenhagen. The company’s stock price is currently trading at $15.86, and while it is off from its 52-week high of around $22 per share, it has held up relatively well throughout the economic downturn. Altria is actually only one of nine stocks in the S&P 100 that is up so far in 2009.

Altria is easily one of my favorite stocks for 2009 and for the long-term! There are many factors that go into my adoration for this company, so hear me out while I take you through the many positives.

Altria’s first advantage is its dominance in the U.S. tobacco industry. In 2008, Altria had a commanding 50.7% share of the domestic cigarette market, with Marlboro (its most popular brand) gobbling up 41.6% of the cigarette market. With Altria’s recent acquisition of UST, the company also has a 57.4% market share of domestic smokeless tobacco. Second place in the industry is nowhere even close, and with tobacco advertising illegal in the U.S., I don’t see how any company could ever take a big chunk of market share from Altria’s dominant brands.

Let me talk more about Altria’s recent acquisition, as the addition of UST is the biggest growth prospect for the tobacco giant. Altria’s subsidiary, Phillip Morris USA, bought UST for $10.3 billion in January. UST is the nation’s biggest smokeless tobacco maker, with famous brands such as Skoal and Copenhagen. This acquisition was huge for Altria, because while cigarette consumption has been dropping about 3% a year, smokeless tobacco sales have been increasing by about 5% or more a year. In 2007, U.S. consumers spent $78 billion on cigarettes, and only spent $4.77 billion on smokeless tobacco. So, from the numbers, it is clear that the smokeless tobacco industry could be the next big thing for tobacco companies such as Altria. And, with its recent acquisition of UST, Altria has set itself up well to take advantage of the growth of smokeless tobacco consumption.

You might be wondering how I could love a tobacco company when cigarette sales are falling 3% per year. The answer is that, because tobacco is addictive, tobacco companies like Altria can make up for the drop in consumption by increasing the price of cigarettes without worrying too much about their customers quitting smoking. For example, the federal government just announced a federal excise tax on cigarettes effective starting March 9 that will increase the tax on cigarettes from 39 cents to $1 per pack (61 cent increase). Instead of worrying about the increase in taxes, Altria simply transferred the tax to its customers. The company has raised the prices of its famous Marlboro cigarettes by 71 cents a pack. So, not only did the company make up for the tax, but with an increase in selling price of 71 cents per pack compared to a tax increase of 61 cents per pack, Altria will actually make 10 cents more per pack than it used to. This extra 10 cents per pack will greatly help the cigarette maker’s profits, and it should send the stock price higher and higher in the future.

For the same reason that Altria can raise cigarette prices without worrying too much about a drop in cigarette consumption, investors can be confident that Altria’s sales will remain generally immune from the economic downturn, as smoking is addictive and hard to stop. I have even read some studies that show during recessions like the one we are currently experiencing, more people start smoking and less people feel the need to quit. So, unlike construction companies like Caterpillar (CAT) that are very cyclical and have their profits tied to the state of the economy, Altria’s profits are very stable, and that stability is very attractive in this environment.

The final, and possibly the most attractive, positive aspect of Altria’s stock is the dividend (past Trillionaire Term of the Day). With a current dividend payout of $1.28 and a dividend yield of 8.30%, the stock could remain at its current price and you would still make a very solid and enviable return of 8.30% on your money. In a market that has fallen around 50% in only one year, a high dividend yield like that is precious. In today’s economic environment, where companies are constantly slashing dividends to conserve cash, Altria’s dividend is also one of the safest in the stock market. I can say this with confidence because the company has a lot of extra cash, and it has increased its dividend payout for 42 consecutive years!

The biggest knock against Altria is always litigation concerns, and worries that the government will do something ridiculous like impose a complete ban on cigarettes. My argument against legal concerns from people suing Altria is that, after years and years of legal battles, Altria claims that it has only paid $108 million dollars in charges. When considering how often tobacco companies get sued and how long Altria has been around, this number is unbelievably small. Clearly, Altria has a great legal team. In response to worries about federal and state governments banning cigarettes or imposing extremely harsh restrictions, my first response is that Altria has been dealing with harsh restrictions for a long time and continues to be successful. Smoking in restaurants and bars has been banned in over 20 states, and Virginia (both Altria’s and tobacco’s home state) just recently joined the list of states banning smoking in restaurants. Another thing to consider is that tobacco is a heavily taxed product, and it would be detrimental for state and federal budgets to ban smoking or even severely restrict its use. For these reasons, I believe that worrying about litigation issues or harsh government bans are a little overblown, and should not scare away investors.

Altria was the best performer in the S&P 500 for the 50-year period from 1957 to 2007, and I think that it is such a great company that this trend should continue into the future. With a high dividend and a huge market share in the extremely stable domestic tobacco industry, Altria is a great defensive play for this recession. But, with its acquisition of UST and the emerging popularity of smokeless tobacco, I think Altria has some great long-term growth prospects. If you had to buy one stock right now for both the short-term and the long-term, I urge you to strongly consider Altria.

Niki Pezeshki

College Trillionaire

Market Recap - March 9, 2009

2009-03-09T18:58:00.000-07:00

Last week’s major sell-offs and occasional rallies made today’s market action seem weak, as investors gradually sold stocks. The Dow Jones industrial average fell 79.89, or 1.2%, while the S&P 500 fell 6.85, or 1%. Both indexes have dropped 25 percent this year alone.

The United Auto Workers (UAW) approved contract changes for Ford (F) today. The unions agreed to allow Ford to freeze wages and cut benefits for laid off workers in an effort to stay competitive amid harsh economic conditions. Ironically, Ford is the one American automaker that has not asked for government assistance. General Motors (GM) and privately owned Chrysler LLC have yet to make contractual changes with workers. If and when they do make changes, the Ford contract will serve as a model for alterations.

On an unusual note, the financial sector actually rallied today! Bank of America (BAC) gained 61 cents, or 19.43% while Wells Fargo (WFC) was up $1.36, or 15.80%. These gains come after the stocks were completely battered by nationalization fears in the past few weeks. Analysts don’t believe that today’s financial rallies can be attributed to any sort of fundamental change, as investors are probably scooping up the stocks while they’re down in hopes that long term returns will be made.

Pharmaceutical company Merck (MRK) announced today that it will be buying Schering-Plough (SGP) in a $41.1 billion deal. The acquisition will make Merck the second largest pharmaceutical company and help it expand its business while cutting costs. This deal comes several weeks after pharmaceutical giant Pfizer (PFE) announced a buyout of Wyeth. Increased pressure from the troubled economy and difficult healthcare regulations announced by President Barack Obama have led drug companies to come together to stay economically viable.

While stocks still lost today, it was good to see the markets act more tamely. Investors are tentatively buying and selling in hopes of discovering a bottom.

-Matt Schwartz

College Trillionaire

Stock of the Day - March 8, 2009 - WMT

2009-03-08T13:01:00.000-07:00

Wal-Mart (WMT)

In the midst of some of the worst economic times the United States has ever seen, consumers are saving in efforts to maintain a certain quality of life. One company’s motto reflects this mindset: “Save money. Live Better.” Wal-Mart (WMT), the retailer of all retailers, has over 7,800 stores in 16 worldwide markets. Should this mega-corporation be a part of your portfolio?

Wal-Mart has become the master of slashing prices and providing variety to its customers. The company’s superstores have become a one-stop shopping place where all living necessities can be satisfied simultaneously. From groceries, to electronics, to furniture and beyond, Wal-Mart provides shoppers with cheap prices and diversity of products.

The company can consistently beat the prices of its competitors because of its gigantic economic moat. As a retailer, Wal-Mart simply takes the products of other manufacturers and sells them at its stores. Wal-Mart has become so massively popular and successful that retailers actually compete to be in its stores! This allows Wal-Mart to effectively decide what prices the manufacturers will give them. Other retailers do not have this luxury, and those companies cannot deliver prices that compare.

As the bad economy gets worse, customers will continue to leave expensive retailers and seek bargains at Wal-Mart. This idea is no longer a hypothesis; the numbers are proving it. Wal-Mart released its February sales report last week. The company’s U.S. same-store sales increased by 5.1% compared to February sales in 2008.

Even better, Wal-Mart is beating out its competition. In the company’s most recent earnings report, CEO Mike Duke stated, “Our performance relative to competitors was exceptionally strong in the 4^th quarter. We expect this momentum to continue.” Indeed it has. Both Target (TGT) and Costco (COST) missed expectations in February, when the companies’ sales dropped 6% and 3% respectively. The only retailer, other than Wal-Mart to increase same-store sales was BJ’s Wholesale Club (BJ). BJ’s still missed expectations when its sales increased by a mere .6%.

Wal-Mart rests on incredibly solid fundamentals. The company has $7.28 billion in cash, and it’s currently the second largest company in the S&P 500, with a market capitalization of $191.92 billion. On the same day as the February sales report, the company increased its dividend by 15 cents to $1.09. Currently, this is a 2.2% yield.

My biggest concern for Wal-Mart was international sales. The company’s international sales decreased 10.8% in February. My worries were alleviated when I learned that the drop could be completely attributed to higher foreign exchange rates brought on by the strength of the U.S. dollar. If the exchange rates were the same now as they were in February 2008, international sales would have actually increased by 9.9%! This means that Wal-Mart’s international business will start bringing in more cash as the dollar loses ground against other foreign currencies.

Wal-Mart’s stock price is currently down 21% from its 52-week high of $63.85 set on September 19, 2008. At $48.91, the stock is currently trading at 14.42 times earnings. While this P/E ratio makes the stock more expensive than many of its competitors, I don’t believe that WMT is overvalued.

Wal-Mart is thriving in a time when most companies are cutting dividends, laying off workers, and closing stores. The company is hitting its stride while everyone else is tanking. When people say that we’re witnessing some of the best buying opportunities in history, they’re referring to Wal-Mart. I encourage you to do some research of your own and discover the potential money to be made.

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - March 6, 2009 - Sin Stocks

2009-03-06T17:43:00.000-08:00

Sin Stocks

Sin stocks are stocks of companies that produce products that are associated with activities widely considered to be immoral or unethical. Some examples of these sinful activities could include the production and distribution of alcohol, weapons, sex-related products, and tobacco.

Phillip Morris (PM) and Altria (MO) are two of the best-known tobacco companies. Anheuser-Busch (BUD) and Diageo (DEO) are some of the biggest alcohol companies. Playboy Enterprises (PLA) is one of the most famous sex-related companies, while MGM Mirage (MGM) and Wynn Resorts (WYNN) are two giant casino companies. Northrop Grumman (NOC) is also one of the biggest weapons manufacturers.

Sin stocks have a reputation for being great investments during recession, as these stocks provide a safe haven during slow economic growth periods. There is a lot of debate as to which stocks and which industries should be put into the “sin” category, and everyone has his own criteria of what should be considered sinful. But, it is clear to see that some sin stocks do hold up well during recessions. For example, tobacco companies like Altria (MO) usually hold up very well during economic slumps. The logic behind Altria’s relative strength can be attributed to the fact that smoking is addictive, and people will not stop smoking because of a weakening economy. On the contrary, people might actually begin to smoke more during recessions due to increased stress levels.

But, sin stocks don’t always hold up during recessions. One sin industry that has been crushed due the credit crisis is the resorts and casino industry. MGM Mirage (MGM) is currently off of its 52-week high by 96.92%, and Wynn Resorts (WYNN) is off of its 52-week high by 82.85%! These huge drops in casino company stock prices are understandable though, as people do not have the extra income to spend on gambling anymore. So, while some “sinful” industries, like tobacco and alcohol, hold up well during recessions, industries like the casino industry struggle mightily.

Another important issue to think about with sin stocks is whether or not it is morally right to invest in these companies. For example, every time someone invests in a weapons company like Northrup Grumman, that investor is essentially providing the company with the money to produce more weapons. Personally, I have promised myself that I will never invest in a weapons company, as I feel like it is unethical to fund the production of bombs and guns that kill people. Having said this, I own shares of both Phillip Morris and Altria, so I clearly do not feel like funding the production and distribution of tobacco products is as bad as funding the production and distribution of weapons. People have their own moral feelings about weapons and tobacco though, so it is every investor’s individual choice as to what types of companies are ethically acceptable to invest in.

If you don’t have a moral problem with investing in sin stocks, you should definitely check out some of the industries and companies that I have mentioned throughout this article. I highly suggest Altria (MO), and you can expect a Stock of the Day for the company next week.

Niki Pezeshki

College Trillionaire

Market Recap - March 5, 2009

2009-03-05T18:14:00.000-08:00

Wednesday’s comeback didn’t last. The markets tumbled today as General Motors (GM) and Citigroup (C) continued to show horrible signs. The Dow Jones industrial average dropped 281.4 points (-4.09%) to 6594.44 and the S&P 500 lost 30.32 points (-4.25%) to end the day at 682.55.

In a report given today, GM said that it was nearing bankruptcy. Independent auditors analyzing the company stated that there is “substantial doubt” as to whether GM can overcome massive losses and bring in enough money to stay in business. The odds are stacked against the Detroit-based automaker, as it must prove to the government by March 31^st that the company can become viable again. GM posted a $30.9 billion loss last year; it has been helped by $13.4 billion of government loans and the company is seeking up to $30 billion more. The company lost 34 cents, or 15.5%, to end at $1.86 on the day.

Thinking of Citigroup’s history in the past months brings images of trains derailing in my mind. The major bank has suffered nothing short of a catastrophe: it used to be the biggest publicly traded bank based on assets and market capitalization, but its market cap is currently $6.2 billion, whereas in early 2008 it was around $270 billion. The company’s stock was trading above $20. At one point today, the stock traded at 97 pennies per share.

Tomorrow will be an incredibly important day for the markets, as the government’s February jobs report will be released. Analysts surveyed by Reuters expect that 648,000 jobs were lost last month. Losing this number of jobs would bring the unemployment rate to 7.9%. These expectations alone are dismal: this unemployment rate would be a 25-year high. We could see a horrible day on the markets if actual job losses are greater than the expected number.

As the market dips lower and lower, wary investors will search for signs of a bottom. To find a bottom, we need to determine the overall market sentiment. If people believe things can get worse, we haven’t seen a bottom. When people yank their hair out and scream that things “can’t get any worse”… a bottom may be in sight. While this makes for a painful process, let’s hope the bottom comes sooner rather than later.

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - March 4, 2009 - YOY

2009-03-04T18:07:00.001-08:00

Year Over Year

One of the single most popular methods of evaluating investments and other financial indicators is to analyze year over year (YOY) changes. Analysts, writers, and other members of the financial world tend to use this method without explaining its meaning. We’re here to help.

When you hear that a stock’s 4Q revenue increased 10% year over year in 2008, this means that their revenue in the 4^th quarter of 2008 was 10% higher than their revenue in the 4^th quarter of 2007.

To give you an understanding of how the percentage change is found, let’s calculate the year over year change in February car sales for General Motors (GM). The automaker reported that it sold 126,170 cars last month. From reading the company’s 2007 financial report, I learned that GM sold 268,737 cars in February of 2007. 126,170 is 47 percent of 268,737 (simply divide the first number by the second). So we know that there was a 53% drop in GM’s February sales year over year.

But why would we use year over year data instead of analyzing sequential monthly or yearly change? Consider companies that make profits based on retail sales. Sales for these companies, for the most part, are much higher in the 4^th quarter than in any other quarter of the year. End of the year holiday shopping substantially drives revenue up for most retail companies. If we want to measure how well a retail company is doing, we can compare 4^th quarter statistics year over year with the 4^th quarter numbers of a different year. In this case, simply analyzing the percentage change in sales from the 3^rd quarter to the 4^th quarter would not give us effective information to evaluate.

This form of measurement has become prevalent in the investing world because it is a good method of isolating performance for a specific period of time. We can compare every kind of change on a year-to-year, month-to-month, or even day-to-day basis.

-Matt Schwartz

College Trillionaire

Market Recap - March 4, 2009

2009-03-04T13:42:00.001-08:00

After 5 consecutive days of selling, investors finally pushed the markets substantially higher today! The Dow Jones Industrial average increased 149.82 points (2.23%) and the S&P 500 was also up 16.54 points (2.38%)

A major piece of news that boosted the markets came from Washington, as Obama’s foreclosure prevention program went into effect today. The program’s official name is the Homeowner Affordability and Stability Plan, and it will provide $75 billion to help around 9 million struggling homeowners avoid foreclosure. The government will use the money to help homeowners refinance into lower interest rates and will also use the money to give incentives to lenders to restructure mortgages to more affordable levels. As a result of this plan, the government is hoping to decrease the number of foreclosures and to help ease homeowner worries.

The markets were also up on news that China is ramping up its economic stimulus plan. China will spend billions on infrastructure in order to boost consumer spending and to create jobs. As a result of the increased government spending, oil and other commodity prices soared due to expectations of higher demand.

But, then again, maybe the markets went up today strictly because stocks can’t go down forever. At some point, there are going to be investors who think that the markets have just been too oversold and feel like some stocks are undervalued. After five straight days of selling, and after reaching lows in the major indexes that have not been seen since the mid-1990s, the bargain hunters were out in full force today.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - March 2, 2009 - MVL

2009-03-04T11:48:00.000-08:00

Marvel Entertainment (MVL)

Marvel Entertainment (MVL) has the rights to around 5,000 characters in the United States, including Iron Man, The Incredible Hulk, Spider Man, Captain America, The Fantastic Four, X-Men, Ghost Rider, and many other famous superheroes and villains that we grew up with. The company is split into four sections: Licensing, publishing, toys, and film production.

Marvel, which is currently trading in the mid-$24 range, has a 52-week high of $38.50 and a 52-week low of $23.28. The company, which released 4^th quarter earnings about a week ago, had a great 2008. For the full year 2008, revenue increased by 39% and earnings climbed 54%. In the 4^th quarter alone, Marvel doubled last year’s 4^th quarter earnings of $0.35 a share to earn an analyst-beating $0.80 of profit per share! This increase in 4^th quarter profit was mostly due to amazing Iron Man DVD sales. The entertainment company continues to impress, as this was the sixth consecutive quarter that Marvel has beat analysts’ earnings estimates.

The best way for a company like Marvel to beat estimates and to continue making huge profits is by coming out with blockbuster movies. In 2008, the company released two very successful summer blockbusters in Iron Man and The Incredible Hulk. Both of these movies brought in a ton of money from box office sales and also from DVD sales. Marvel has also changed its movie-making strategy recently, as it has started to finance and produce its own movies instead of licensing them out to other companies. While the risks are higher because it is using its own money, the rewards are greater because it can keep all of the profits.

Having said this, 2009 will be a very troubling year for Marvel, and I believe that you should hold off buying Marvel for now. I say this because the pipeline of movies for 2009 is extremely weak. “X-Men Origins: Wolverine” is the only Marvel movie set to release in 2009, but Marvel sold the producing rights to 20^th Century Fox, so it will only get a fraction of the movie’s profits. For a company that relies heavily on its income from blockbuster movie releases, 2009 looks very grim. Analysts are expecting drastically lower 2009 earnings of $1.30 a share when compared to the company’s current EPS of $2.61. If the EPS did drop to $1.30 and the share price remained at $24.35, it would result in a P/E ratio of 19, about double the current P/E of 9.3. With the weak product line coming out in 2009, there is no real reason to believe that investors will be fine with paying 19 times earnings. Thus, I believe the stock price for at least the first half of 2009 will fall.

But, the long-term prospects for Marvel look great! With Iron Man 2 and Thor coming out in 2010, and Captain America and The Avengers expected to hit the big screens in 2011, Marvel is looking at an amazing revenue stream that will last for a very long time. What makes these upcoming movies even more enticing for Marvel investors is the fact that Marvel will be producing and paying for these movies instead of licensing them out. As a result, Marvel will reap 100% of the profits made from the box-office sales and the DVD sales.

With over 5,000 characters under its name, Marvel has a firm grip on the very lucrative superhero genre. Even after the four movies that it is coming out with in 2010 and 2011, Marvel has a plethora of very famous characters that it can continue to produce movies based on in the future. Superhero movies have been some of the biggest box-office hits in the past few years, and with so many characters to work with, Marvel is looking at a goldmine of film revenue. Marvel’s films are very appealing to many demographics, and the company’s movies continue to pack theaters and continue to sell DVDs at high rates.

There is no doubt that the product line for Marvel will be weak in 2009, and the stock price will probably reflect that. But with around 5,000 characters that are marketable, with four blockbusters coming to theaters in 2010 and 2011, and with a very stable financial situation, Marvel looks to be a company that is set to grow for many years to come. I would highly suggest holding off on buying until the 3^rd or 4^th quarter of 2009 after the stock has pulled back due to the weak EPS numbers. But, the future looks bright for Marvel, and I think it will be a great stock to own for the future!

Niki Pezeshki

College Trillionaire

Crisis of Credit

2009-03-03T17:12:00.000-08:00

This is an interesting video that very simply explains how the United States got itself into the credit crisis we are currently experiencing. The video lasts not much longer than 10 minutes, and it is definitely worth your time. If you have never heard about Credit Default Swaps, Collateral Debt Obligations, or you just do not understand the exact reason why the economy is so messed up, check out this video: http://vimeo.com/3261363

Niki Pezeshki

College Trillionaire

Market Recap - March 3, 2009

2009-03-03T17:11:00.000-08:00

The markets showed some signs of hope today, as some investors picked up declining stocks. Despite a few small rallies, the Dow Jones industrial average and the S&P 500 ended down for the 5^th consecutive day. The Dow fell 37.27 points (-.55%) while the S&P dropped 4.49 points (.64%). The S&P closed below 700 for the first time since 1996.

The Federal Reserve Chairman sat in front of Congress today and defended the $30 billion bailout of the American International Group (AIG) that was announced yesterday. Monday’s bailout marked the fourth time that the government has rescued the troubled insurance group. Bernanke said that allowing the company to fall would create a destructive financial chain reaction. Critics believe that the Fed has put itself in a terrible position: they’ve put too much money into AIG let the company fall, but the company will continue to need more support in the future.

Bernanke also announced the new Term Asset-Backed Securities Loan Facility (TALF) program. The Fed and Treasury Department will buy out $200 billion worth of securities that own debt. These securities are mostly backed by credit card loans, auto loans, and student loans. This program will definitely put more credit in the markets and allow more people to get loans. Despite this, some are worried that the government will disturb the credit markets because investors will be less attracted to those securities that aren’t backed by the government.

Blockbuster (BBI), saw its share price plummet nearly 80% in 10 minutes today, as the stock closed down 74 cents, or 77.1%, to settle at a price of 22 cents. Investors sold en masse as reports circulated regarding a possible bankruptcy. A company spokesperson said that Blockbuster does not intend to file for bankruptcy protection.

Even though the markets ended in the red today, we saw investors attempt to scoop up stocks at lower prices. While the time and location of a possible bottom are still unknown, it is reassuring to see that people still see opportunity in the recent drops.

Until tomorrow,

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - March 3, 2009 - REITs

2009-03-03T14:00:00.001-08:00

Thank you for the article Ramin! Remember, if you want to write an article on a specific stock, a term that interests you, or anything else that relates to the stock market, do not hesitate to send your article to collegetrillionaires@gmail.com so that it can be posted on College Trillionaires!

Real Estate Investment Trust (REIT)

During the 1960’s, congress created the Real Estate Investment Trust (REIT) with the intention to allow everyday investors to invest in large-scale real estate properties through the stock market. REITs (pronounced Reets) essentially act like normal stocks, and they are traded on major stock exchanges such as the NASDAQ. The one key difference that sets them apart from normal stocks is that REITs invest in real estate, with at least 75% of their income coming from real estate endeavors. REITs normally act as promising investments, as they usually receive a high yield of return (between 5-10% per year). These high returns come partly from the numerous tax benefits that these companies receive during the process of buying, selling, and holding real estate. These corporations are required to distribute 95% of their income, which allows them to avoid the corporate income tax.

Equity REITs invest in multiple real estate properties ranging from shopping centers, large shopping malls, apartment complexes, office buildings, warehouses, etc. These REITs can hold the property while producing income through rent and they can sell the property as it appreciates in value. REITs can also purchase old, rundown, undervalued properties with the intention to fix them. With the right moves, this can be a highly lucrative and quick investment. Lastly, the REIT can purchase a high income producing property such as a shopping mall or apartment complex at a low price and be able to receive large amounts of income through rent.

A Mortgage REIT is an investment fund that deals with property mortgages in three different ways. The first and most simple way of investing in mortgages is to loan out money to property owners for their mortgages (like a bank). The money made through the compound interest that these loans earn makes up a majority of the income for REITs. The REIT is also able to purchase packages of existing mortgages from banks or other REITs. This allows corporations to buy, sell, and trade huge amounts of mortgages, and the prices of these mortgage packages depend on the credit of the property owner and size of the loan. Similar to purchasing mass amounts of mortgages, REITs can also purchase mortgage-backed securities, which is essentially purchasing pools of mortgages. All three ways produce revenue through collecting on the interest of the loans.

And then there is the hybrid, which is the combination of the Equity REIT and the Mortgage REIT. These REITs hold investments in properties and mortgages.

A few examples of REITs include American Century Investments (ACIVX), Vanguard (VNQ), Boston Properties (BXP). You can find a list of the top REITs in the NASDAQ using this link: http://www.forbes.com/2008/02/20/reit-perfomance-grades-biz-cx_dp_0220reit_table.html.

Unfortunately, due to the recent economic crisis combined with the massive drop in real estate prices, nearly all of the REITs have taken beatings the past two years and have dropped in share price by an average of 40-70%.

Ramin Ghaneeian

College Trillionaire

Stock of the Day - March 2, 2009 - MCD

2009-03-02T22:34:00.000-08:00

McDonald's Corporation (MCD)

McDonald’s (MCD), home of the Big Mac, Chicken McNuggets, and those unbeatable french fries. What once was a small American burger joint quickly expanded to become the world’s largest fast food restaurant business. The golden arches are now an international symbol for tasty, yet cheap eating. So should McDonald’s be a part of your investment portfolio?

We don’t have to worry about the popularity of McDonald’s restaurants. Fast food has become an integral part of American culture. People love nothing more than quick and delicious food at a low cost. There are currently over 35,000 McDonald’s restaurants in over 100 countries, and the gigantic franchise currently has a market cap of $58.18 billion.

McDonald’s has done a lot throughout the years to update its image and remain current. The company has eased the worries of health-concerned individuals by providing alternatives like salads and apple slices. Two years ago, the company introduced its drip coffee to the breakfast menu. As a terrified Starbucks (SBUX) looked on, McDonald’s steadily gained market share in the coffee market. Coffee sales have increased 70% since its introduction, and McDonald’s receives an added benefit from customers who come for coffee and leave with other breakfast items.

The main source of expansion for MCD is overseas growth. In fact, the company brings in 65% of its revenue from restaurants overseas! McDonald’s has proven to be incredibly popular in Europe and most recently in China. In a period of time when most companies are closing stores and laying off employees, McDonald’s will be opening 500 restaurants and hiring over 12,000 workers.

Many people believe that McDonald’s has proven itself to be ‘recession resistant’ or even recession ‘proof.’ Individuals that used to go out to eat at middle tier restaurants such as California Pizza Kitchen (CPKI) and The Cheesecake Factory (CAKE) may opt for a cheaper meal under the golden arches. McDonald’s’ same-store sales increased by 7% worldwide in January. People simply love McDonald’s famous dollar menu for its price value. I’m skeptical of the term ‘recession proof,’ because I don’t believe that any company can fully resist the effects of the macroeconomy. With that said, I do agree that McDonald’s has a competitive advantage in a recession.

The company definitely could not avoid one major factor of the macroeconomy: the rallying dollar. Interestingly, the rising value of the U.S. dollar spelled bad news for McDonald’s in the last quarter. Net income fell 23% to $985 million as revenue fell 3% to $5.57 billion. The higher U.S. dollar affected these drops because it diminished the revenue of McDonald’s international business through steeper exchange rates. More recently, however, the dollar has started to lose speed against other currencies. As other currencies gain value, so will business for McDonald’s.

Despite all of the good news, one recent trend is troubling. Insiders have been dumping their shares in the past 6 months. Executives and managers working inside the corporation have sold off about 160 million shares. While the catalyst behind the selling is unknown, insider selling generally spells bad news because it gives management less incentive to keep the stock price of the company high.

My main concern for MCD is the value that stockholders are currently giving the company. McDonald’s is currently trading at about 14 times earnings and has a PEG ratio of 1.5. Its main competitor, YUM! Brands (YUM), is trading around 13 times earnings and as a PEG ratio of 1.07. These numbers indicate that investors may be giving McDonald’s more value than the company deserves (P/E ratio and PEG ratio were both previous Trillionaire Terms of the Day). Investors are essentially paying a premium for the value of the McDonald’s brand and future growth.

The main question becomes: Is the stock worth the extra premium? We’ve learned that McDonald’s is enormous in both size and popularity. The company is constantly evolving internally while expanding internationally. MCD was one of two stocks in the Dow Jones Industrial average that actually increased in value in 2008 (the other was Wal-Mart (WMT)). We know the company can survive, if not thrive, in a down economy. All else aside, McDonald’s will always retain value from its brand name and the reputation that goes along with it. Even though we do not know the motivations behind insider selling, all of the benefits appear to outweigh possible disadvantages.

The stock is near its 52-week low price point and is currently trading in the low $50s. The situation surrounding McDonald’s makes for a tough call. If you’re in the investment for the long run, the company definitely presents a great ‘buy and hold’ opportunity. Despite this, I doubt that the stock has seen its bottom and I would not be surprised if the stock price continued to move downward throughout the next few months. I’d rank MCD to be a conservative buy as of right now because of a beneficial 3.8% dividend yield, but definitely be on the lookout for opportunities in the near future to pick up the stock at a better price.

Matt Schwartz

College Trillionaire

Market Recap - March 2, 2009

2009-03-02T13:35:00.000-08:00

The Dow Jones Industrial Average fell below 7,000 for the first time in more than 11 years in another disheartening and depressing day on Wall Street. The markets were pulled down by continued fear of financial companies and more uncertainty about the deepening recession. The Dow Jones fell 299.64 points (4.24%) and the S&P 500 also plunged 34.27 points (4.66%).

The biggest news of the day came from insurance company American International Group (AIG), as the company posted an unbelievably huge $61.7 billion quarterly loss. AIG will receive another $30 billion bailout loan from the government, but investors wondered whether that would even be enough.

With this news about AIG and rumors still floating around about Citigroup (C) becoming nationalized, many investors feel like they underestimated how problematic our financial sectors actually were. With this new realization of how bad things actually are, the sell-offs will continue.

Warren Buffet also posted a letter to investors over the weekend telling Berkshire Hathaway (BRK-A) investors that the company had its worst year ever in 2008, and that he expects that economy to remain in “shambles” in 2009 and probably beyond.

How low can the markets go? Will the Dow break 6,000 soon? Have we reached a bottom in the stock market? These are all very legitimate questions, but the markets are so volatile and unpredictable these days, that the only way to find out is to wait and watch.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - March 1, 2009 - QCOM

2009-03-01T16:10:00.001-08:00

Qualcomm Inc. (QCOM)

Qualcomm (QCOM) is the company that makes the chips inside of your cell phone. The company, which is the largest supplier of wireless chips, introduced the high-speed CDMA technology that allows smart phones to function at 3G speeds. There are many reasons why I think QCOM is a great company, and I believe that the factors that make QCOM a great company also make it a great investment opportunity.

The first thing that catches my eye with QCOM is the company’s spotless financial situation. QCOM currently holds around $14 billion in cash, and it has no long-term debt. The company’s current assets outweigh its current liabilities by 5 to 1, meaning that QCOM is very financially well positioned and will not have any problems paying back its near-term debt obligations.

But, QCOM is much more than a stable value company, and with so many growth opportunities, it would be unfair to label it strictly as a large-cap value stock. The company expects demand for 3G mobile devices to grow 20% annually, and the long-term earnings growth rate for the company is also expected to be at around 20%. So, how does QCOM make money, and where will the company’s growth come from?

Qualcomm makes its money by licensing and selling its wireless chips to phone manufacturers such as Motorola, Samsung, Research in Motion, and almost every other cellphone maker. Since QCOM patented the CDMA technology that is used in almost every single smart phone, every time a 3G phone that contains a QCOM chip is sold, the company that sold the phone has to pay QCOM royalties of $4 to $8. This is a very low cost business for QCOM, and it makes a profit margin of around 90%.

QCOM’s growth potential is very correlated to the growth of smart phones and 3G technology across the world, so it is great news that 3G penetration is expected to increase from 40% now to between 70% to 80% in 2012. With QCOM’s dominant share of the wireless chip market, as more and more people start buying smart phones and upgrading to faster mobile devices like BlackBerrys and iPhones, the company’s sales and profits will continue to grow.

Another very interesting growth driver for Qualcomm will come from China. China’s government recently passed a huge stimulus package that will boost consumer spending and spend a lot on the country’s infrastructure. The stimulus package includes a $40 billion investment to upgrade the country’s telecommunications system. QCOM will most likely be a huge part of this telecommunications plan, and the company has a lot to benefit from, as it will begin to move into China and greatly expand into a country that is trying to become more technologically advanced.

Qualcomm will also benefit from its new partnership with the world’s largest cellphone maker, Nokia (NOK). QCOM will supply Nokia with chips for its smart phones starting in 2010, and this deal will give QCOM access to an even bigger share of the smart phone market. The partnership will boost QCOM’s chip sales and increase the company’s profits, as Nokia will try to penetrate the U.S. phone market with phones that are powered with QCOM technology.

For the short-term, sales and profits will continue to be choppy as a result of the global economy. The company lowered expectations for 2009, as it announced that the global economic slowdown has slowed demand for its chips. Many mobile carriers have also released statements saying that they are preparing for a tough 2009, and Nokia is expecting the downturn to be long and deep.

Having said this, QCOM is still the best long-term play if you believe that smart phones will continue to gain popularity in the future and if you believe that more and more phones will run on 3G and eventually 4G technology. As 3G infrastructures expands, and as more phones use QCOM’s technology, the company’s licenses and royalties will continue to grow.

QCOM has a very strong economic moat (Term of the Day on Feb 26^th) due to its license on the CDMA technology that is used in smart phones, and due to its ability to mass-produce chips at low costs. The company has a dominant position in its industry, and it should continue to maintain its dominance and grow at least 20% every year. While it might be smart to wait a couple months for cellphone demand to reach a bottom in mid-2009, QCOM has too much long-term growth potential to not consider investing in it at some point soon.

Niki Pezeshki

College Trillionaire

Market Recap - February 27, 2009

2009-02-27T17:26:00.000-08:00

February was absolutely terrible for Wall Street. The Dow Jones industrial average dropped 11.7% this month. It was the worst February since 1933, when the Dow fell 15.6%. Today was no exception. The Dow dropped 119 points, or 1.7%, to 7,063 and the S&P 500 lost 17.74 points, or 2.4%, to settle at 735.09. Investors dumped shares of financials as the U.S. government announced that it would be taking a larger stake in Citigroup (C), while General Electric (GE) announced a dividend cut.

The U.S. government announced today that it would be converting $25 billion of Citigroup’s preferred stock into common stock. While the U.S. already owned the preferred shares, the conversion will raise the government’s ownership from 8% to 36%. Investors were terrified by potential dilution of value in Citigroup’s shares, and the company’s stock price plummeted by 39%, losing 96 cents to fall to $1.50.

Citigroup wasn’t the only financial company to suffer. Wells Fargo (WFC) lost $2.30, or 16% and Bank of America (BAC) dropped $1.37, or 25.75%. Similar plans to the Citigroup deal may be enacted for Wells and BAC, and the fear of that happening led to the big sell-off for both of those companies.

The Government’s GDP report that was released today showed that the production of the U.S. economy fell at a 6.2% annual pace at the end of 2008. This means that the value of all the goods and services in the United States is falling at a faster pace than expected. Major companies are taking hits as a result. GE reported that the company would be cutting its quarterly dividend by 68% in an effort save $9 billion per year. This is the first time that GE has cut its dividend since 1950!

Wall Street handled the surge of bad news fairly well today, especially considering the severity and volume of bad news that was thrown at investors today. February was horrible, but let’s hope that March will be better.

Until next week,

-Matt Schwartz

College Trillionaire

Stock of the Day - February 27, 2009 - TM

2009-02-27T17:10:00.000-08:00

Toyota Motor Corporation (TM)

The Toyota Motor Corporation (TM) surpassed General Motors (GM) in total worldwide auto sales in for the first time ever in 2008, and the Japanese automaker is currently the top dog in the car industry. But is now a good opportunity to buy shares of Toyota? Declining macroeconomic conditions, higher manufacturing costs, and lowered consumer demand will probably drive the company’s share price lower in upcoming months.

The auto industry is hurting. Badly. The “worst recession since the Great Depression” has beaten up many sectors, but it has put car sales on life support. Toyota said sales fell 32% in January, while Chrysler and GM reported drops in sales of 55% and 49% respectively. Layoff scares, the credit crisis, and a general lack of confidence in the economy have caused consumers to tighten their wallets and avoid purchasing cars.

Toyota realizes that demand will decrease significantly in 2009, and the automakers worldwide production fell 39.1% this January compared to January of 2008 in response to this steady drop in demand. Toyota posted a loss for the first time since 1950 in the quarter that ended in December. The company is forecasting a $5 billion loss for its fiscal year ending on March 31, 2009. The automaker is also being hurt by the higher price of the Japanese Yen, as a higher Yen equates to higher manufacturing and material costs.

Toyota may change its attitude towards expansion and growth during recessionary times. Three major executives are leaving the company, including current president Katsuaki Watanbi. Akio Toyoda, grandson of the company’s founder, will be the new president. Toyoda plans on eliminating the ‘revolutionary change’ that his predecessor was noted for creating. It appears that Toyota worked in excess and spent money inefficiently, but that was permissible when time were good and there were large amounts of income. Lower margins in this economy will force the company to act more frugally.

The demand for Toyota’s vehicles tends to increase when gas prices are high. The Prius hybrid and other vehicles are more economically feasible when oil is expensive. The recession has caused oil and gas prices to drop to low levels. Interestingly, the drop in Toyota’s sales may not be a result of the fall of the general car market. Lower gas prices may be partly responsible for Toyota’s car sales to decrease.

Although there are many short-term problems for Toyota, there is no doubt that the company knows how to make cars that consumers value. Toyota came out on top in the Consumer Reports’ annual review last week of the best cars and trucks. Toyota won best midsized SUV for the Highlander, best small SUV for the RAV4, best minivan for the Sienna, best Green car for the Prius, and the best value for the dollar with its Prius Touring edition.

Toyota is currently trading around $63. And while this number is 43% lower than its 52-week high of $111.47, I can’t rule out a further decline in price. The short-term staying power of the company is what concerns me. I expect stock prices to fall in the short term and rise dramatically when macroeconomic conditions improve. It’s very difficult to tell when the fall will start and the rise begins, but Toyota will definitely be a great deal when signs begin to turn up. I believe Toyota is currently the best carmaker around, it still has a great brand name, and it will definitely succeed in the long term. Having said this, I would wait a few months to watch Toyota’s new leadership, changing oil prices, and general economic conditions and then reevaluate the company. We could be missing a bargain by holding off now, but I don’t believe buying is currently worth the risk.

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - February 26, 2009 - Economic Moat

2009-02-26T17:53:00.000-08:00

Economic Moat

An economic moat refers to the long-term competitive advantage that one company has over other companies in the same industry. Just as a water moat would keep enemy soldiers from a castle, an economic moat keeps competitors from stealing profits from the industry-leading company.

Clearly, the bigger economic moat a company has, the larger its competitive advantages are. Economic moats could come in the form of a strong brand name, lower production costs, and many other factors that give a business the ability to maintain competitive advantages over competitors in order to protect long-term profits.

Some of the biggest and most stable companies, such as Coca-Cola and Wal-Mart, are famous for their giant economic moats. Because Wal-Mart has so many competitive advantages over its competitors, it is very hard for other retailers to compete directly with Wal-Mart.

Warren Buffet actually made the concept of economic moats famous, and much of his long-term investing success is due to his ability to find companies with large economic moats and by taking advantage of the fact that these companies would stay safe from intense competition. So, as a young investor, make it a point to find companies that you think have large economic moats, and try to find companies that perform a certain aspect of their businesses much better than the competitors in the same industry. By doing this, you can ensure that the company you have invested in will continue to bring in large profits, and your investment will surely bring you profits as well.

Niki Pezeshki

College Trillionaire

Market Recap - February 26, 2009

2009-02-26T17:52:00.000-08:00

Healthcare stocks pulled down the overall market today, as the White House proposed cutting payments to private insurance plans as part of the new government budget. The Dow Jones Industrial Average ended the day down 88.81 points (-1.22%) and the S&P 500 also fell 12.07 points (-1.58%).

Obama’s proposed $3.55 trillion budget will cut government funding of health insurance programs like Medicare and Medicaid. This decrease in funding will directly hurt healthcare companies, as many of their customers and much of their revenues come from government healthcare plans. Pharmaceutical company Merck (MCK) was the worst performer in the Dow Jones today as a result of this news, and the company’s stock price fell 6.7%.

Bank stocks traded mostly higher today on news that the government could provide up to $750 billion more in support of struggling banking companies. While the money will be held just for emergencies and will not be immediately injected into the banking sector, investors were glad that the government is taking more steps to save the banking sector.

A lot of poor economic news was also announced today, as jobless claims continue to rise more than expected, home sales are falling to record lows, and U.S. factory activity is also declining every month. This continued bad economic news quells any chance for optimism, as the news gives investors a dose of reality and shows that an economic turnaround might not come for a while.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Trillionaire Term of the Day - February 25, 2009 - Earnings

2009-02-25T19:29:00.001-08:00

Earnings Estimates

Earnings estimates are analysts’ predictions of a company’s future quarterly or annual earnings. Investors, companies, and analysts alike have recognized the enormous effects that earnings estimates have on stock prices. It is absolutely critical to have a good understanding of what estimates are, how they are made and influenced, and how they are compared to actual earnings.

Earnings are after-tax net income. Earnings are incredibly important because they directly indicate a company’s profitability. Financial professionals, called analysts, create estimates in the process of determining stock recommendations. These recommendations include “buy”, “sell”, and “hold.” By recommending hold on a security, an analyst means you shouldn’t buy, and if you already own it, don’t sell. Other ratings include “outperform”, which means a security is expected to do slightly better than the overall market. Similar to outperform is “overweight”, which means that the security should fare better than its particular industry, sector, or possibly the entire market.

When analysts create these recommendations, they also estimate earnings to an exact dollar amount. Right now, analysts estimate that The Coca-Cola Company (KO) will report earnings of $1.5 billion (an earnings per share of $.65) for the current quarter. They come to this dollar amount by estimating revenues and costs. They take the estimated revenue and subtract estimated costs to come to estimated earnings.

Accurately estimating earnings for a company of any size is a complicated and imperfect process. Analysts attempt to predict revenue by implementing forecasting models that implement growth rates, macroeconomic factors, and fundamental information. They predict costs by looking for any possible expected changes of cost including wages, raw materials, sales expenses, interest expenses… the list goes on. Some analysts will even talk to a company’s customers, competitors, and suppliers. The main question that runs through an analyst’s head is, “What might cause revenue and costs to be greater or less than last quarter?” They are looking for change.

Estimating earnings is not a perfect science. Ten different analysts can easily come to ten different dollar amounts for earnings. Even if they come to the same number, they probably considered different factors to get there. To illustrate this point, the lowest analyst estimate for Coke is $1.43 billion and the highest is $1.6 billion. Wall Street factors in the differences of opinion by considering the ‘consensus estimate.’ The consensus estimate is simply the average of all analysts’ estimates. Wall Street adds the estimates together, and then divides them by the total number of estimates. The current consensus estimate for KO is $1.5 billion. The consensus is the number being considered when you read articles or hear the word “estimate”.

When you hear people say, “a company beat earnings” they mean that the company’s actual earnings were higher than earnings estimates. The comparison of actual earnings to earnings estimates is the single greatest short-term driver of stock prices. In most circumstances, if a company beats earnings, stock price will shoot up. Likewise, if a company falls short of expected earnings, the stock price normally falls. This direct impact is why estimates are considered to be so important.

Successful companies usually have a lot of smart people working for them. Smart people know that the estimates are important, and they’ve done a lot to try to alter or influence them. Companies often attempt to drive estimates lower! While at first this strategy may seem counterintuitive, it’s much easier to beat estimates when they are lower than they should be. Companies can influence earnings estimates by delivering ‘guidance’ or reporting bad news early. If a company gives negative feedback on itself or reports bad news, analysts will factor the information into their estimates.

The necessity to beat estimates has become such an essential element of a company’s success on Wall Street that some businesses are driven to acts of desperation. The use of accounting manipulation to boost earnings is widespread. While ethically questionable, companies can use a wide variety of techniques that are legal under GAAP (the set of financial rules all publicly traded companies must comply with) in order to alter their earnings and financial statements in order to make them more suitable for their various agendas.

There is a vast wealth of information regarding earnings and earnings estimates. I hope that this article has helped you gain a basic understanding of estimates and why they are so important in the world of investing. I encourage you to read more articles about estimates by searching for them on our favorite financial websites.

-Matt Schwartz

College Trillionaire

Market Recap - February 25, 2009

2009-02-25T16:10:00.000-08:00

Wall Street was extremely volatile today, as stocks drastically climbed and fell throughout the trading session, but eventually ended with a loss. The Dow Jones Industrial Average fell 80.05 points (-1.09%) and the S&P also ended down 8.24 points (-1.07%).

One of the main factors that pulled stocks down came from an unexpectedly bad home sales report. Home sales in January fell to their lowest levels since 1997, as potential buyers worried about their job security and many potential buyers held off until they could hear more from Obama’s housing market plans. In order to try to boost demand in the housing market, government officials announced a new $8,000 tax credit for first-time buyers today.

Factors that pushed came mostly from government help to the banking and financial sector. The government confirmed that it would buy preferred shares from banks using TARP money, thus giving the banks more capital to work with. In addition, Federal Reserve Chairman Ben Bernanke reassured investors by claiming that banks will not be nationalized.

The volatility today came from a sense of uncertainty, as investors just don’t know where to look for clues anymore. With horrible housing numbers but reassurance from the government for banks, there are many factors pulling some stocks down and other factors simultaneously pushing other stocks up.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Trillionaire Term of the Day - February 24, 2009 - Order Methods

2009-02-24T16:43:00.000-08:00

Market Orders vs. Limit Orders

When placing an order to your broker to either buy or sell a stock, there are two main methods that you can use in order to complete the transaction. A market order is a buy or sell order in which the broker will execute the order at the best possible market price currently available. A limit order is an order to a broker to buy or sell a specified number of shares at a specified price.

For a market order, your stock order will automatically be matched up with the current market price. Let’s say you want to buy 100 shares of McDonald’s (MCD). If you place a market order to buy 100 shares, your order will be executed at the current market price at the time of the transaction. While market orders are simple due to the fact that you allow the market prices to determine the price you will buy or sell the stock at, the problem with market orders is that you might not get the price you originally wanted when the transaction finally goes through. Because stock prices rise and fall almost continuously, especially for very volatile and highly traded stocks, it often happens that you place an order to buy shares at a certain price, but in the few seconds after you placed your order, the stock price has either increased or decreased. For example, if you placed your order to buy MCD when it was trading at $55 per share, and your order gets executed after MCD has jumped 50 cents to $55.50 per share, you will be forced to pay $55.50 per share instead of the desired $55.00. While this might not sound like a big deal, if you are buying large amounts of shares, the 50 cent fluctuation can translate into a lot of money.

A limit order is different than a market order, as it is an order to a broker to buy shares at or below a specified price or to sell shares at or above a specified price. Let’s say you want to buy 100 shares of McDonald’s (MCD) at $53.00, but shares of MCD are currently trading at $54.95. So, instead of patiently waiting and staring at your computer until the price falls to $53, you can simply put a limit order to buy 100 shares of MCD at $53. Once MCD reaches $53, the transaction will automatically be executed and you will have 100 shares of MCD at $53. Limit orders are great because they insure the price that you will buy and sell shares for, and you do not have to worry about a stock’s volatility when making a transaction. The big downside for limit orders is the possibility that an order will never be executed. For example, you if you really wanted MCD at $53 and it never fell to that level, you would never get your shares of MCD.

Overall, limit orders are much better for investors than market orders. Limit orders provide investors with a sense of certainty, and they allow investors to dictate the prices at which they want to buy and sell instead of having the market determine the prices for them.

Niki Pezeshki

College Trillionaire

Market Recap - February 24, 2009

2009-02-24T13:59:00.000-08:00

Stocks traded higher on Tuesday, as Federal Reserve Chairman Ben Bernanke gave investors some hope. The Dow Jones Inudstrial Average shot up 236.16 points (3.32%) and the S&P 500 also climbed 29.81 points (4.01%).

Bernanke made a bold prediction that the recession will at the end of this year. Although he said the economy will continue to contract for the first six months of 2009, investors were very excited about his optimistic prediction for the end of 2009. Investors are also highly anticipating Obama’s speech on how he plans on stabilizing the financial system and his plans on further stimulating the economy. Wall Street will be looking for specific details in Obama’s speech, and if investors are happy with the details, the markets could continue to push upward from their multi-year lows.

The economy is still very shaky, and today’s upward movement in the markets were mostly due to a prediction by the Fed Chairman, anticipation over Obama’s speech scheduled for tonight, and some investors taking advantage of stocks that have possibly been oversold. Until the markets go higher based on concrete positive economic news, the stock market fluctuations will continue to be very unstable and volatile.

Obama’s speech tonight should be very interesting, and the markets tomorrow will definitely reflect what investors thought of his speech in terms of how specific it was and whether his detailed plans will actually be positive and help stimulate the economy and the financial system. So, definitely try to watch the speech tonight and decide whether or not you think he does a good job of instilling hope through specific plans.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Trillionaire Term of the Day - February 23, 2009 - Free Cash Flow

2009-02-24T00:30:00.000-08:00

Free Cash Flow

One of the single greatest tools you can use to determine the profitability of a company is Free Cash Flow. Free cash flow is a measure of a company’s cash after it has taken care of all expenses. It represents the money that a company can use to expand, improve, and advance.

You can easily calculate free cash flow by using statements of cash flows. These statements can be found on many investing websites, as well as the investor relations portion of any company’s website you’re researching. The equation used is simple:

Cash Flow from Operations – Capital Expenditures = Free Cash Flow

A good way of analyzing a company’s performance over time is to calculate the free cash flows over several years. By discovering trends, you can gather insight as to how a company has generated profits for specific periods of time.

Before a company can invest and make capital expenditures, it has to pay the bills. Free cash flow represents the cash that a company has after paying off all expenses. The “cash flow from operations” portion of the equation above is generated in statements by slightly altering net income. This means that when you look at a free cash flow number, you’re looking at a company’s cash after all expenses are paid and investments are considered.

You should also know that a negative, or low, free cash flow may not always spell trouble. Free cash flow can become negative if a company makes many capital expenditures. Capital expenditures are funds used by a company to obtain or improve assets. In other words, a low free cash flow can be attributed to a company’s investments.

So what does a company do with its extra cash? It can be used to increase shareholder in a number of ways. If deemed profitable, a company can use the extra profits to expand or diversify. It can increase the value of its stock by buying back stock at prices considered to be low. Companies can also use the cash to increase dividends. All of these options are incredibly beneficial to you as a current shareholder or potential buyer of stock.

Analysis of free cash flow should be a staple in your process of purchasing stock. Although it is a simple number to calculate, the knowledge you can gain from it is invaluable. You will instantly benefit by adding free cash flow to your arsenal of investing tools.

-Matt Schwartz

College Trillionaire

Market Recap - February 23, 2009

2009-02-23T23:09:00.000-08:00

The markets closed today at the lowest levels since May of 1997. The Dow Jones industrial average dropped 250 points, or 3.41%, to settle at 7114. The Standard & Poor's 500 index fell 26.72 points, or 3.47%, to end the day at 743.33. A major lack of clarity has led investors to fear the future, and the actions of major indexes today reflect their concern.

The government attempted to pacify worries about the struggling financial system today by announcing new plans to help banks. Under the most recent plan, the government would buy convertible preferred shares (preferred shares that can be converted into common shares) to inject capital into needy banks. If executed, the plan could leave the government with up to 40% ownership of Citigroup (C).

While the announcement shows a solid initiative to make improvements, the increased government involvement is also scaring investors. Alarming rumors of complete government takeovers and nationalization of banks have been widespread. The White House and President Obama have maintained their backing of a privately held banking system to ease the worries.

Amidst the announcements of financial stimulus, Obama also publicized his plan to cut the government's annual budget deficit in half by the end of his four-year term. President Obama inherited an estimated yearly deficit of $1.3 trillion from Past President Bush. The total current government debt is estimated to be $10.8 trillion. As a country, we're paying over $250 billion in interest on the national debt every year. Obama plans on lowering the debt and slashing the deficit by phasing out the Iraq war, raising taxes on the wealthy, and making government programs more efficient.

Still, announcements of government aid and proposals were unable to quell the overwhelming amount of pessimism on Wall Street. The gloomy mood will be here to stay until the economy and Main Street show signs of improvement.

Until tomorrow,

-Matt Schwartz

College Trillionaires

Stock of the Day - February 23, 2009 - BRK-A

2009-02-23T13:00:00.000-08:00

Berkshire Hathaway, Inc. (BRK-A)

Berkshire Hathaway (BRK-A) is one of the most interesting companies and stocks on Wall Street. The company is run by CEO Warren Buffet, one of the richest men in the world. Berkshire is considered to be a holding company, which means that it does not produce goods or services itself, but it owns shares and has ownership stakes in other companies. Berkshire owns a mix of more than 60 companies, including insurance companies, furniture companies, restaurants, jewelry companies, and many other types of businesses. The company also owns huge common-share stakes in many publicly traded companies, but its biggest three investments include Wells Fargo (WFC), Coca-Cola (KO), and American Express (AXP).

Berkshire Hathaway’s stock is the most expensive stock in the United States, even at its currently extreme low levels. In December 2007, each share of Berkshire was trading at $151,650! Today, the stock is trading at 5-year lows at around $76,000 per share. Warren Buffet’s personal fortune is highly correlated to Berkshire’s stock price, as much of his wealth comes from owning shares of Berkshire. Buffet’s wealth from Berkshire stock is currently worth about $32 billion, down drastically from $62 billion in March 2008!

The 4^th quarter of 2008 was extremely tough for Berkshire’s stock portfolio, as its overall investment portfolio lost 25% of its value. The company’s three biggest stock holdings fell 70% in the 4^th quarter, and this huge drop in stock price for the three companies cost Berkshire an estimated $11 billion. Concern about Berkshire’s stock portfolio has been one of the biggest reasons for the company’s own drastic fall in stock price.

Berkshire Hathaway is a very tough company to analyze, as there are so many different pieces to its business. Because the company owns so many businesses and makes much of its money through investing in the ever-changing stock market, it is hard to evaluate the company as a whole. Berkshire also has a massive insurance business, and this business is one of the biggest ways that the company brings in cash. Through the insurance premiums that Berkshire charges its clients, it uses the extra cash to invest in the stock market and buy ownership stakes in other companies.

Economic times like these are usually the exact times that Warren Buffet takes advantage of bargain stock prices and distressed companies in need of cash. Buffet is famous for being able to find undervalued and stable companies that bring in very nice returns over the long term. Now that stock prices have been so beaten down, Warren Buffet is using all of his company’s extra cash in order to make wise investments in companies that have been unfairly crushed. But, Buffet invests in companies differently than the average investor. Because he has so much money, and because companies believe that receiving money from Warren Buffet will bring them positive publicity, Buffet gets extremely favorable deals when he invests money in companies.

In the past few months, Berkshire Hathaway has invested over $10.9 billion with a guaranteed return of 10.6% through preferred stock dividends and fixed income deals. Some of the companies that Buffet has invested in recently include Goldman Sachs (GS), General Electric (GE), Harley Davidson (HOG), Tiffany’s (TIF), and Swiss Re Bank. Just to give a couple examples of the kinds of deals that Buffet has been getting for Berkshire Hathaway as a result of his investments, one must only look to his investments in Harley Davidson and Swiss Re. He lent $300 million to Harley for 5 years at an interest rate of 15% per year, and he lent $2.6 billion to Swiss Re at a guaranteed return of 12%. So, as you can see, Warren Buffet is really setting up Berkshire Hathaway’s cash situation nicely for the future. He is taking advantage of companies that are desperate for some cash by lending large sums of money to them in return for great interest rates. While Berkshire might be losing cash today, the great deals that Buffet has been making will help Berkshire continue to rake in huge returns for many years to come.

Berkshire Hathaway still has a lot of free cash flow left to take advantage of great deals in the market and to lend out money to cash-strapped companies in return for unusually high interest rates. Although it is hard to argue against Warren Buffet, as he is considered one of the greatest investors to ever live, his short-term performance on his stock purchases have been extremely shaky. His bad investments have led to Berkshire’s enormous fall in stock price, but many investors will argue that the short-term is irrelevant, and Buffet’s investments will thrive in the long term.

As ridiculous it is to say that the most expensive stock in the U.S. is cheap at $76,000, I really think it is. Times like these, when stock prices have been depressed and greatly deflated, are when Warren Buffet is famous for setting himself up extremely nicely for the future by taking advantage of undervalued stocks. Berkshire Hathaway will be making very nice returns from its loans to companies such as Goldman Sachs and General Electric for many years to come. And, while the short term has been rough for Berkshire’s stock portfolio, it would be foolish for me to doubt Buffet for the long term. The man is an investing genius, and it would be ridiculous to say that he has lost his investing touch after one rough quarter, especially considering how unbelievably successfully he has been for so many decades. Buffet will continue to use Berkshire’s ample free cash flow to make wise long-term investments, and Berkshire’s stock will eventually thrive once again.

Niki Pezeshki

College Trillionaire

Stock of the Day - February 21, 2009 - SBUX

2009-02-21T14:05:00.000-08:00

Starbucks (SBUX)

Maybe we should have listened to the disgruntled comedian, Lewis Black. “There is a Starbucks across the street from a Starbucks. And that, Ladies and Gentleman, is the end of the universe.” Well, it might not be the end of the universe, but the overexpansion of the premium coffee chain Starbucks (SBUX) has led to its dramatic recent downturn.

Times were great for the economy, and for Starbucks, in the early 2000s. The economy was booming, consumers were spending, and no one could live without their 3 to 4 dollar coffee every day. So the coffee maker capitalized. By the end of 2007, there were over 15,000 company-operated and licensed stores worldwide. But, Starbucks soon realized that rapid expansion is a double-edged blade.

2008 struck, and with a new year came a new competitor: McDonald’s (MCD). The fast-food giant introduced a coffee blend designed for customer value. The coffee, while missing the Starbucks brand name and premium quality, was cheap. While prices varied on location, stores were selling a 12 oz. cup of coffee for $.99. The new competition has been absolutely devastating for Starbucks throughout the current recession, as coffee drinkers could shave off several dollars from their morning meal by purchasing coffee at McDonalds instead of Starbucks. The stock was trading in the high $30s in early 2007, and has since dropped to $9.58. Same store sales for Starbucks dropped a discouraging 10% in 2008, while the same statistic for MCD rose by 5%.

Starbucks quickly cut costs and announced plans in July of 2008, to close 600 stores. The closures eliminated an estimated 12,000 jobs. It was the beginning of a recurring downward trend. SBUX reported its 1^st Quarter earnings on January 29, 2009. Net income dropped 69.1% year over year to 64.3 million, or $.09 per share. Revenue fell 5.5% to $2.6 billion, and same store sales fell 9%. The company announced plans to close an additional 300 stores: 200 in the U.S. and 100 internationally. Shutting down the stores would leave 6,000 workers without jobs. The coffee brewer hopes to save $500 million with the cuts.

To the company’s credit, it isn’t taking the beating lying down. CEO Howard Schultz announced two new innovations to invigorate sales. First is a sort of ‘value meal.’ Starting in March, the company will sell a tall coffee in combination with a breakfast item for $3.95. Second, is the release of a new instant brew named Starbucks ‘Via.’

Unfortunately, I don’t think that either new release will bring back the company’s glory days. Starbucks has made its money off of its brand name and the premium value that is associated with it. By lowering its standards with value meals and instant brews, the company is only eliminating future profits. People will come to expect cheaper products, and after the recession ends Starbucks will not be able to bump its prices back up.

This is the ultimate dilemma that Starbucks faces: the company sells a luxury product at a time when people cannot afford luxuries. Consumers will reject more expensive brands to save on more affordable products. As solid a brand as Starbucks is, I highly doubt the company’s stock price will do well in the short-run, and I think the chances that the stock price will ever reach the high $30s again are very slim.

-Matt Schwartz

College Trillionaire

Market Recap - February 20, 2009

2009-02-20T20:18:00.000-08:00

The markets capped off a horrible week with another dismal day. Investors are timidly selling off because of a general lack of confidence. People are realizing that the rally that occurred in late 2008 was based on hope and unfounded government promises. A lack of good news has caused pessimism and a lack of tangible results from government initiatives has caused a lack of trust.

The Dow Jones industrial average quickly tumbled 200 points early today, but took on a late day rally to end down 100.28 points, or 1.3% on the day. The S&P 500 lost 8.89 points, or 1.14% on the day. The Dow and the S&P fell 6.2% and 6.9% respectively for the week.

The losses today were mainly the result of a struggling financial sector. Shares of Citigroup (C) dove over 20% on the day, and Bank of America (BAC) lost 3.56%. Talk of government takeover, or nationalization, of these major banks has been widespread throughout the week. Investors fear nationalization because government takeover would cause shareholders to lose everything. Free market advocates are terrified by the potential, as any government takeover would be a large step away from capitalism.

Investors were reassured late in the day when White House press secretary Robert Gibbs spoke on behalf of the Obama administration and said they maintain a belief in a "privately held banking system." Stocks briefly shot up after this statement, giving the Dow a quick look at the green, but then fell back to their current level.

Trouble in the financial sector equates to trouble for all sectors. The banks can no longer pump credit out into the markets, and consumers have less money to spend. The government has pinned itself by dolling billions of dollars to banks that were 'too big to fail.' The banks still need more money, and the government won't let them fall. Investors and the general public are going to need some reassurance from the financial sector before we will see a recovery from the economic recession.

See you next week,

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - February 20, 2009 - Capitulation

2009-02-20T17:25:00.000-08:00

Capitulation

Capitulation is defined in the dictionary as “the act of surrendering or giving up.” On Wall Street, capitulation is also associated with giving up, as the term refers to times when almost all investors sell their stocks in order to get out of the market and into safer investments such as bonds. True capitulation is characterized as having very high volume and steep declines. Capitulations are also very quick, and it usually takes at most a few days for the sell-off to occur.

Capitulation is basically a form of panic selling, as investors who have stayed in the game and continued to slowly lose money in the hopes of a rebound give up all hope for a turnaround and decide to just give up on stocks and move into other investments. To explain capitulation through a sports scenario, imagine a basketball team that has been losing the whole game by around 15. The coach is the investor, the starting players are the coach’s individual stocks, the reserves are the bonds, and the basketball game is the stock market. The coach will keep his losing stocks (starters) in the game (market) until he finally gives up hope that there is a chance for a comeback. After surrendering and seeing no hope, the coach will take out his starters (stocks) and put in his reserves (bonds), because he knows that it is not worth getting his starters (stocks) hurt more than they already have (That last analogy might have been a little bit of a stretch).

Because of the panic selling that goes along with capitulation, many people believe that it is the true sign of a bottom in the market. Thus, a lot of investors think that there are great bargains to be had right after a capitulation, as the price of stocks should bounce off the exaggerated lows.

Niki Pezeshki

College Trillionaire

Stock of the Day - February 19, 2009 - NKE

2009-02-19T23:37:00.000-08:00

Nike Inc. (NKE)

Nike (NKE), the world’s largest athletic shoe and clothing maker, is one of the most well known companies around the globe. Nike Inc. also owns famous shoe and apparel brands such as Converse, Umbro, Cole-Haan, and Hurley. The company embodies stability and strength, and it has remained relatively strong even in this global economic downturn. I believe Nike is an extremely solid long-term investment that will reward you for being patient and loyal.

Nike’s share price is currently trading at $42.81, very close to its 52-week low and around 30% lower than its 52-week high of $70.60. This drop in share price is understandable, as much of its apparel and footwear is considered expensive and its products are classified more as discretionary items rather than necessities. But, Nike is still doing much better than its competitors. Adidas, the world’s second largest sporting goods maker, has experienced around a 60% dip in stock price. The fact that Nike has stayed relatively strong compared to its competition says a lot about the company, as it proves that Nike’s brand image and influence amongst its customers is very powerful.

One of the most intriguing aspects of Nike is the company’s worldwide reach, as the company operates in over 180 countries. While the U.S. is Nike’s biggest market, only one-third of the company’ revenues come from the States. China, which provides Nike with over $1 billion in revenue, is the shoemakers second biggest market, and the company’s stake in China is growing rapidly. Nike recently announced that it will build a logistics center in China, and this new center will help direct the flow of Nike shoes and apparel in the heavily populated country. With aggressive growth in China and other opportunities in up-and-coming countries like Russia and Brazil, Nike is poised to experience solid growth for a very long time. Not only does a global reach give Nike growth potential, but it also protects it from a single country’s poor economy. For example, if China’s economy began to go sour, Nike would have the ability to focus its business on other countries with stronger economies.

Not only is Nike intriguing due to its worldwide reach, but the company also seems like a good investment due to its focus on cutting costs and becoming even more profitable in this economic environment. Nike recently announced that it would cut 4% of its workforce in 2009. While this might sound like a bad thing, Nike is doing it for the right reasons – to cut costs and improve its profitability. In addition to cutting jobs in 2009, Nike has pledged to cut some advertising and marketing costs. Currently, Nike spends 32 cents of every sales dollar on selling and marketing, and the company’s North American marketing budget is around four times the size of what Adidas spends. With such a strong brand across the globe, Nike has realized that it can spend less on marketing and still maintain its pristine and powerful brand image. While the company plans to continue sponsoring and spending on its marquee athletes like Kobe Bryant, it will cut sponsorship spending on lesser known athletes that might not bring customers to the brand. Nike understands that slowing down sponsorship and endorsement spending can be done without hurting its dominant position, and that slowing down marketing costs will help boost company profits.

In the end, there is no doubt that Nike is a first-class company that will be successful and dominant for many years to come. The company has a good combination of stability and growth, and its $2.72 billion in cash compared to $794 million in debt makes it a very financially healthy company as well. Because Nike sells mostly discretionary items in a global recession, the short-term performance of the stock will probably continue to hover in the low-to-mid 40’s. But, if you are investing for the long term, there aren’t too many companies that are as enticing as Nike. If you are planning on buying Nike, just buy some shares and hold on to them forever.

Niki Pezeshki

College Trillionaire

Market Recap - February 19, 2009

2009-02-19T17:32:00.000-08:00

Things just keep getting worse on Wall Street, as the Dow Jones Industrial fell to its lowest level in more than six years. It was the lowest close for the Dow since October 9, 2002! The Dow finished the day down 89.68 points (-1.19%) at 7,465.95, while the S&P 500 also fell 9.48 points (-1.20%) and remained in the 700 range at 778.94.

Falling to record lows is very disheartening, and it has filled the stock market with immense pessimism. Factors that have continued to pull the markets down recently include a sense of uncertainty in the search for an end to the recession, continued depressing news from financial and bank companies, and the stale economic stimulus package and mortgage relief plan that have been heavily criticized recently.

A lot of incoming news today also heightened the pessimism on Wall Street. The number of workers receiving unemployment benefits hit a record high of nearly 5 million. Both Citigroup and Bank of America also fell around 14% on increased concerns that the government will nationalize the two banks. And, Hewlett Packard also dropped 7.9% after it announced disappointing 4^th quarter earnings.

Having reached new lows today, we are now in uncharted waters moving forward. Will the psychologically depressing news from today continue to pull the markets down, or will the new lows from today signal a bottom that will lead to a huge rally? No one really knows the answer to this question, but almost every investor is extremely curious to find out.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Trillionaire Term of the Day - February 19, 2009 - CS vs. PS

2009-02-19T09:39:00.000-08:00

Common Stock vs. Preferred Stock

Common stock and preferred stock both represent partial ownership of a company. While both variations serve a similar purpose, there are key differences that distinguish the two forms of stock.

The biggest distinction between the two is priority of dividend payments. Dividends are paid out to preferred stockholders before common stockholders. Additionally, if a company goes bankrupt, the preferred shareholders have priority in the distribution of a liquidated company’s assets. If a company goes under, the preferred shareholders will usually get a piece of the assets and common shareholders will be left in the dust.

Common shareholders have voting rights that go along with holding common stock. For each stock they hold, they get one vote for various types of decisions. Examples of issues that companies use votes for include approval of stock splits, election of board members, and support of general company movements. Preferred stockholders don’t have the right to vote. Those that hold preferred stock sacrifice the right to vote for priority in dividend payments.

In general, investing in preferred stock is less risky than investing in common stock. The fluctuation of preferred stock prices is based mostly on changing interest rates, while the rise and fall of common stock prices is based on investor demand for the stock. This means that common stock prices will be much more volatile than preferred stock prices. Buying preferred stock can be a great method of defensive investing, as investing in preferred stock instantly adds stability to your portfolio. You can avoid the volatility that goes along with common stock and guarantee dividend payments in harsh times.

With this said, it’s important to know that common shares are true to their name… they are much more common than preferred shares. When you see a stock on a ticker or look at a stock index, you are looking at common stock. At this point in your investing career, when you consider buying shares of a company you will generally be buying common shares. Nevertheless, it’s important to understand the difference between common shares and preferred shares if you will be investing in either variation.

Matt Schwartz

College Trillionaire

Market Recap - February 18, 2009

2009-02-18T18:34:00.000-08:00

The markets were stagnant today as investors shrugged off a mix of news that included new plans for the government to help homebuyers and a weakened outlook for the economy by the Federal Reserve. The Dow Jones industrial average gained 3 points (.1%) to settle at 7,555.63 and the S&P 500 fell .75 points (-.1%) to end the day at 788.42.

President Obama has announced a $75 billion Homeowner Stability Initiative today with the intent of motivating lenders to allow borrowers to refinance mortgages. Obama said that the new plan will save up to 9 million homeowners from foreclosures. The initiative was shrugged off by investors on Wall Street, though, as stocks were sent lower in the beginning of the day.

The Federal Reserve lowered its estimates for general economic numbers for 2009 today. It is currently projecting that the unemployment rate will reach between 8.5% and 8.8% this year. The Fed forecasts that we will see general economic contraction for the entirety of this year at a rate of .5% to 1.3%. This would mark the first full year of economic contraction since 1991.

General Motors (GM) announced that it would need additional aid from the government. The automaker is asking the government for $21.6 billion, and the company has already received $17.4 billion. Government officials are faced with a dilemma: either fall into a slippery slope of handing out cash, or allow GM to fall and lose hundreds of thousands of jobs.

It appears that investors had already anticipated the gloomy economic conditions that are forthcoming, as the bad news from the Fed didn’t hurt the market today. It also appears that investors have a general lack of confidence in the government’s attempts to save the economy. The market has fallen since Obama signed the economic stimulus bill, and we didn’t see an upswing today after the President announced the Homeowner Stability Initiative. It’s difficult to tell whether the indifference will be a good or bad thing for the markets in upcoming days.

-Matt Schwartz

College Trillionaire

Stock of the Day - February 18, 2009 - TKTM

2009-02-18T10:26:00.000-08:00

Ticketmaster Entertainment, Inc. (TKTM)

Ticketmaster (TKTM) is the world’s leading live entertainment ticketing provider. The giant e-commerce website boasts over 10,000 clients located in 20 global markets. Ticketmaster has been the source of a lot of talk recently, as it has accepted a merger deal with Live Nation (LYV), the largest live concert producer in the world. I’ll analyze the merits and weaknesses of both the merger and Ticketmaster as a company to determine whether or not the stock is worth buying.

Both Ticketmaster and Live Nation have agreed to the merger, but it’s possible that the partnership could violate antitrust laws. Many are worried that combining the world’s largest concert producer with the world’s largest ticket seller could cause a destruction of competition that would be illegal. Live Nation is 3 times as big as its nearest competitor, and most of its competitors use Ticketmaster to sell tickets to their concerts. Naturally, this merger would provide a large advantage to Live Nation that would further extend their market leadership.

The fact that the deal is being looked into for causing an unfair advantage should key you into how great a deal it would be for the two companies. Ticketmaster would instantly gain a monopoly on all of the concerts that Live Nation produces. As of right now, a substantial number of tickets put on sale for live events are not sold. If the two companies combined, they could sell more seats with the competitive advantage of having artists, concert producers, and ticket sellers all collaborating.

So, does the deal have a shot at being approved? I think that it’s possible. I base my belief on the fact that the two companies do not perform the exact same function. While they both operate in the live entertainment industry, one works with artists to produce concerts, and the other sells tickets to concerts. The companies provide two different services, so the potential joining would be a vertical merger. Vertical mergers tend to fare better with legal determinations than horizontal mergers (joining of companies that provide the same service).

Let’s ignore the possibility of the merger and focus on Ticketmaster’s business. I’m concerned about the company alone because it provides a service that is a customer luxury, and we’re not currently in an economic situation that supports luxuries. It wouldn’t surprise me for the two companies to use this argument to create a survival theory in the courtroom, as they will claim that they need to merge in order to survive in these harsh market conditions.

But some people argue otherwise. The average concertgoer attends a live performance one and a half times a year. Attending a concert is already a rare luxury, so people may not cut back as much as expected. The third quarter revenue of TKTM may support this theory: the company brought in 16% more revenue in the 3^rd quarter than the corresponding quarter a year earlier. Additionally, the massive ticket seller still dominates its competition with 70% of the market share.

So how will the potential merger and recessionary conditions affect the company’s stock price? If the merger with Live Nation were guaranteed to be approved, TKTM would be a sure buy. If the merger doesn’t happen, then Ticketmaster still resides on solid fundamentals and a great business. You’d certainly be taking on some risk by buying now, but without some risk there is no potential for reward. I personally believe that the merger has a good shot of being approved, and as a result, I’m in favor of investing in Ticketmaster. I encourage you to do some homework on the subject and decide whether or not you believe there is money to be made.

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - February 17, 2009 - ROA

2009-02-17T16:31:00.000-08:00

Return on Assets (ROA)

The Return on Assets (ROA) ratio describes how well a company uses its total assets to make a profit. The ratio is a great indicator of a company’s efficiency, as a higher number indicates that a company is generating a higher profit relative to its total assets. The formula is simple, as it compares net income to total assets:

Net Income

ROA = -------------------

Total Assets

A company’s ROA is highly dependent on its industry, so when using ROA as a comparative measure, it is most useful to compare a company’s ROA against its own historical ROA numbers or to compare it against the ROA from another company in the same industry. A higher ROA number is better, as it implies that the company is earning more money with fewer assets. If a company’s ROA is low, it means that the company is not using its assets to bring in enough income. For example, if company A has a net income of $2 million and total assets of $10 million, it has an ROA of 20%. If company B has a net income of $1 million and total assets of $10 million, it has an ROA of 10%. So, it is clear that company A has a higher ROA. Company A is using its $10 million worth of assets more efficiently, as it is making two times more income than company B, even though it spends the same amount on assets.

ROA is extremely important in judging a company, as you should invest in a company that spends its money wisely on its assets and knows how to use its assets efficiently. A company that can make two times more income from the same amount of assets clearly understands how to allocate resources and knows how to make large profits from little investments. While a company’s ROA should not be the only factor that you consider when doing research on a company you are thinking about investing in, this crucial ratio should definitely make a difference in your final decision.

Niki Pezeshki

College Trillionaire

Market Recap - February 17, 2009

2009-02-17T13:48:00.000-08:00

Reality is setting in, and investors across the world sold their stocks today as they began to realize that the global recession is getting deeper and will last longer than expected. The Dow Jones Industrial Average fell a massive 297.81 points (-3.79%) and the S&P 500 plummeted 37.67 points (-4.56%) to 789.17. Both indexes finished very close to their multi-year lows, and the S&P closed in the 700’s for the first time since November 20^th.

One major factor that pulled the markets lower today was the health of U.S. automakers General Motors (GM) and Chrysler. With both companies turning in their restructuring plans to the government today in order to prove their financial viability and their future profit-making ability, many investors are questioning whether these two companies can convince the government that they can repay the billions of dollars that they have borrowed. Investors are worried that the restructuring plans will not be good enough, that the companies cannot prove their financial viability, and that both automakers could potentially file for bankruptcy. As a result, GM shares were down more than 11% on the day.

Obama signed the $787 billion economic stimulus package today, and he also prepared a $50 billion proposal to help homeowners fend off foreclosure. Clearly, these big announcements from Washington did not help the markets from plummeting. Investors have realized that these stimulus plans can only do so much, and that the recession will just have to run its natural course. As people begin to lose faith in the government’s ability to get us out of the economic slump, people are worried because they now have no basis or ability to predict when we are going to get out of the recession.

Everyone is focusing on the horrible state of the economy, and investor confidence is extremely low again. The only company in the Dow Jones to move up today was Wal-Mart (WMT), as it climbed 3.68% to $48.24 on better than expected 4^th quarter earnings.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - February 13, 2009 - RIMM

2009-02-13T10:30:00.000-08:00

Research In Motion, Ltd. (RIMM)

Research in Motion (RIMM), the company that makes Blackberrys, has been in the news a lot this past week. The news has been negative though, as the company reported on Wednesday morning that its 4^th quarter earnings would be at the low end of analyst expectations. RIMM’s share price, which was barely under $60 as recently as Tuesday, plummeted 14.5% on Wednesday to $48.76. The company, which is now trading in the high-$40’s, has had an unbelievably volatile year, as it has experienced a 52-week high price of $148.13 and a low of $35.09.

So, what led to the 14.5% drop in stock price, and was it justified? RIMM, which was expected to obtain 4^th quarter earnings in the range of 83 to 91 cents per share, forecasted that its earnings would be at the low end of the expected range. The company cited that lower profit margins due to its more costly new smartphones, the Bold and Storm, were the main cause for being at the low end of earnings expectations. Simply put, the Bold and Storm are more expensive for RIMM to make, and this has caused the company’s profit margins to slip from 45.6% in the third quarter to lower levels of 40-41%. This means that instead of making a 45.6% profit on every phone the company sells, it now only make a 40% profit. If you think about how many phones the company sells, it is easy to see how this could really affect RIMM’s net income.

But, the 4^th quarter report wasn’t all that bad. While the company did report that earnings would be on the low side of the expected range, RIMM also announced that it added 3.5 million more subscribers in the 4^th quarter, 20% more than the 2.9 million that the company was expecting! This number tells me that the company is clearly growing its customer base, and it is growing faster than anyone thought. With Bold and Storm sales doing very well, and with the new Curve 8900 expected to come out soon, the growth should continue at a strong pace for a while. RIMM’s global market share in the cell phone business has actually doubled in the past two years to 16%, and it continues to expand aggressively across the world.

So, what do all of these numbers mean for RIMM’s future stock price? First of all, I think the market totally overreacted to RIMM’s earnings forecast on Wednesday, as the company was still within the expected range. RIMM is in a war with Apple to gain dominance of the smartphone market, and the iPhone is providing some intense competition. So, it is understandable that the company would take a slightly smaller profit margin for a while in order to obtain as many customers as possible. By taking a small sacrifice now on the bottom line, RIMM will be able to sign people up to two-year plans and get cell phone users addicted to its crackberrys. People are also underestimating the fact that RIMM increased its customer base by 3.5 million in one quarter, and that this was 20% higher than expected! I don’t really worry too much that its profit margins slightly dipped amidst the worst recession in recent memory, because as long as RIMM is growing its customer base faster than expected, I think it is an extremely positive sign for the long-term.

The sell-off on Wednesday was very exaggerated, and now an aggressively growing company is trading at around one-third of its 52-week high. With new phones that are very popular, and an extremely loyal customer base, I think that RIMM is a great investment at these discounted prices.

Niki Pezeshki

College Trillionaire

Market Recap - February 12, 2009

2009-02-12T17:57:00.000-08:00

The stock market today was volatile, as the major indexes rebounded from huge intraday losses towards the end of the day on news of mortgage payment subsidies from the government. The Dow Jones Industrial Average ended the day down 6.77 points (-.09), much higher than its lows of over 200 points earlier in the day. The S&P 500 ended up 1.45 points (.17%) as well.

Stocks were propelled higher towards the end of the trading day, as Reuters reported that the government is planning on subsidizing troubled homeowners’ mortgage payments. The plan, which has not officially been announced yet, will lower mortgage rates for borrowers on the brink of foreclosure. This news was received very well by investors, because mortgage subsidies will allow people to spend less on their home mortgage payments and will allow them to spend more on other products and services. The logical link is that with more spending on products and services by the American people, companies’ profits will increase and businesses will grow.

Another bright spot today came from the retail sector, as the Commerce Department announced that January retail sales increased 1%, the largest increase in 14 months. This January increase comes after a horrible December, in which the retail sector experienced a 2.7% decline in sales.

Oil prices also fell to their lowest level in 2009, as prices fell to $33.98 a barrel. This is usually good news for investors that don’t have money in oil companies, as consumers have more money to spend on other products when oil and gas prices are lower.

Tomorrow, the House of Representatives will vote on the $790 billion economic stimulus plan, and the Senate is expected to follow either later tomorrow or over the weekend. If the bill doesn’t get passed, considering the fact that almost everyone is expecting it to get through Congress, the markets will most likely make a sharp downturn.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - February 12, 2009 - CHK

2009-02-12T10:13:00.000-08:00

Chesapeake Energy Corporation (CHK)

The Chesapeake Energy Corporation (CHK) is the number one producer of natural gas in the United States. Natural gas, which primarily consists of methane, currently accounts for about 22% of our nation’s energy consumption. The company engages in exploration for natural gas fields and drilling at wells that are being developed. Chesapeake has gained many competitive advantages in the natural gas sector, and future macroeconomic conditions may make the company a good long term buy.

Before we can analyze where CHK is headed, we need to take a look at the company’s history. 2008 was a year of extreme highs and lows for Chesapeake. CHK was trading at around $40 at the beginning of the year and steadily rose until it hit its 52-week high in July at $74. The increase in value was the direct result of increased demand for natural gas and rising natural gas prices: natural gas was selling for around $15 per mcf (unit of measure for natural gas) at that time.

The upsurge was short lived. Since July, natural gas has dropped to $4.50 per mcf, and CHK hit its 52-week low in December at $9.84. Since hitting the low in December, Chesapeake has bounced back up to $18.03. In order to determine the value of CHK as a company, we need to find out how it will respond to lowered natural gas prices in the short term. We also need to clarify the long-term demand for natural gas from a macroeconomic viewpoint.

It’s very important to note that Chesapeake has hedged about 82% of their gas sales at a price of $7.50. This means that even though the going rate of natural gas is $4.50 on the general markets, the company will be selling their gas to buyers at $7.50. CHK believes that it will gain 1-2 billion dollars for each of the next two years as a result of this hedge. The extra cash will be helpful while short-term macroeconomic demand for natural gas is low.

In reaction to the decrease in demand for natural gas, the company is also bringing down the number of operating rigs by 20-30%. Despite the decreased number of rigs being used, Chesapeake still estimates that it will increase production of natural gas by 5-10% in 2009. The company can maintain growth of productions because of recent acquisitions of four major natural gas fields. The gigantic fields will provide Chesapeake with growth potential for years to come.

Now we have to discuss the factors that are out of Chesapeake’s control. National and international demand for natural gas has decreased as a result of the widespread economic recession. Both industrial and residential usage of natural gas has declined. Even though the U.S. experienced an unnaturally cold winter this year, natural gas consumption did not increase. It is my belief that the demand for natural gas will remain low until at least the end of 2009 as a result of ongoing recessionary conditions… with one exception.

The exception has a name: Obama. The President has stated on numerous occasions that he wishes to decrease American dependence on foreign oil. Although he has not stated it explicitly, one way to dramatically lower our dependence on oil would be to increase our reliance on natural gas. If President Obama decides to press the issue on natural gas in an attempt to bolster the U.S. economy, shares of company’s like Chesapeake would skyrocket. Despite this, playing on the potential for government aid alone would be speculative at best.

Here’s the major point for Chesapeake: when natural gas prices begin to pick back up, they will do so dramatically. The trend of cutting back on natural gas production does not solely apply to CHK, as many other energy companies are lowering their natural gas production levels as well. So when the recession ends, and natural gas demand picks back up, supply will be very low. This is where I see money to be made: very high demand + very low supply = HIGH PRICE. It will take a while for the increase in demand to form, but when it does, expect prices to go up in a big way.

Short-term conditions will cause Chesapeake to struggle and long-term conditions will allow the company to thrive. As a result, I believe that you should wait a few months before buying CHK and allow the stock price to pull back a bit. The potential for this company in the long-run is limitless, as an economic recovery will undoubtedly cause an increase in demand for natural gas. Get in before the demand jumps, and you’re bound to make a profit.

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - February 11, 2009 - GDP

2009-02-11T23:12:00.000-08:00

Gross Domestic Product (GDP)

Simply put, gross domestic product (GDP) gauges the size and health of a country’s economy. GDP represents the total dollar value of all goods and services produced over a specific time period. GDP is calculated in two ways: The income approach and the expenditure method. The income approach adds up what everyone (companies and people) earned in a year, and the expenditure method adds up what everyone spent (roughly similar numbers).

Knowing a country’s GDP is important because it allows people to compare the sizes of different countries. The European Union, as a whole, now has the largest GDP in the world. The U.S. is number two, with a 2008 GDP of $14,580,000,000,000. China is also right behind the U.S. at number three now, with a GDP of $7,800,000,000,000. According to these GDP numbers, the United States produces almost two times as many goods and services than China in 2008. Obviously, these GDP numbers will be huge, as they account for all of the goods and services produced in a country throughout an entire year.

But, GDP is also very useful in determining the health of a country. By comparing a country’s GDP yearly or quarterly trends, one can learn a lot about the country’s economic situation. For example, if the year-over-year GDP increases by 5%, that is interpreted to mean that the economy has grown by 5% compared to the previous year. When a country’s GDP increases at a higher rate than the period before, it usually signifies a growing economy. In a growing economy, the unemployment rate is usually low as more businesses are thriving and hiring more people. But, if a country’s GDP declines compared to the previous period, it means that the country’s economy is shrinking. For example, U.S. GDP fell 3.8% in the 4^th quarter of 2008. As most of you know, our economy is shrinking, people are losing jobs, and we are in a recession. A recession is actually defined as two consecutive quarters of negative growth in GDP. The U.S. had a declining growth rate of -.5% in the 3^rd quarter of 2008 as well, which explains why everyone says we are now officially in a recession.

How does a change in GDP affect the stock market? As you can imagine, a shrinking GDP will have an adverse affect on the markets, as businesses and people are producing and spending less than the period before. An increase in GDP will have positive affects on the markets, as businesses are growing and increasing profits and consumers are spending more.

Knowing what GDP is and understanding how GDP trends affect the stock market are crucial concepts for any investor to understand.

Niki Pezeshki

College Trillionaire

Market Recap - February 11, 2009

2009-02-11T18:53:00.001-08:00

With news coming out of Washington towards the end of the trading day that lawmakers in Congress had agreed on a $790 billion economic stimulus plan, stocks managed to finish the day slightly higher. The Dow Jones Industrial Average increased 50.65 points (.64%) and the S&P 500 also was up 6.58 points (.80%).

The Congress and the White House didn’t take long to make the necessary compromises to pass the $790 billion economic stimulus bill, and Obama is expected to sign the measure within the next couple of days. About one-third of the bill will be used to provide tax relief for families, as 95% percent of American workers will have their taxes cut. The bill is also meant to create 3.5 million jobs in order to boost the economy and fix our high unemployment rate. The bill also includes sections regarding health coverage, food stamps, and federal funding for distressed state budgets.

Even with such positive news coming from Washington, it is clear that investors were not fully convinced, as the Dow only made a moderate climb of 51 points. While investors might have been acting overly cautious, they have the right to be. The government has been slow and inefficient for the most part in dealing with the recession, and even with all of the government intervention in the private sector that has been going on recently, we are still in the heart of one of the worst economic times in our country’s history. So, while it is impressive that the economic stimulus bill was agreed upon this quickly, it will definitely be a while until we start seeing the effects of the government spending.

Tomorrow is the first time all week that there are no huge announcements expected to come out of Washington. This lack of news from the government will likely lead to more people focusing on the economy and 4^th quarter corporate earnings.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Trillionaire Term of the Day - February 10, 2009 - SEC

2009-02-11T00:37:00.000-08:00

Securities & Exchange Commission (SEC)

In reaction to the Crash of 1929 and the Great Depression, Congress passed the Securities Act of 1933. Many people believed that a lack of regulation was the main cause for the crash that led the Depression, and the Securities Act of 1933 was made to cure this issue. In 1934, Congress also passed the Securities Exchange Act, which created the Securities and Exchange Commission (SEC) to enforce the rules of the Securities Act of 1933.

The responsibilities of the Securities and Exchange Commission are diverse and numerous. Every security that is traded on any stock market must be registered with the SEC. If you want to your company to become a publicly traded company, the SEC is responsible for analyzing and permitting an Initial Public Offering (see Trillionaire Term of the Day for IPO’s). If you ever purchase over 5% of a company’s shares, you would also have to report the transaction to the SEC.

The Securities and Exchange Commission’s main purpose is to regulate the securities markets and prevent companies from committing fraud and manipulation. The SEC requires publicly traded companies to submit quarterly and annual reports that contain financial statements. The publication of financial statements prevents fraud: having millions of eyes inspecting them makes it much harder to lie. These reports allow common and institutional investors alike to gain insight on the inner workings of a company.

Interestingly, the SEC requires publicly traded companies to publish a management discussion and analysis (MD&A) each year. In these statements, a selected executive will discuss the events of the year leading up to the report. The best part about these statements is that the executive usually explains the tough process behind major decisions. These statements are available to everyone (that means you), and they are a great way of understanding how a company does business and how it reacts to specific events.

The recent economic crisis has put the SEC in the public spotlight. The SEC has the power to bring civil enforcement actions against individuals and corporations that commit fraud. In the aftermath of the crash of the housing market they used this power to bring over $51 billion in settlements to individuals and institutions that bought auction rate securities from banks including Merrill Lynch, Bank of America, and Citigroup. Recently, the failure to discover Bernard Madoff’s $50 billion Ponzi scheme has been attributed to the SEC. Congress and the SEC are looking to change the rules that govern the Commission to prevent more fraudulent activity from occurring.

As a future investor and market player, you will constantly be dealing with the actions and regulations of the SEC. The legitimacy of the markets and investments lies in the Commision’s hands. It’s important to learn about the SEC because to play by the rules, you must first know them.

-Matt Schwartz

College Trillionaire

Stock of the Day - February 10, 2009 - GOOG

2009-02-10T23:19:00.001-08:00

Google, Inc. (GOOG)

Google Inc. (GOOG), the search website that helps people find basically any piece of information they want, is currently trading at $360.81. It is considerably lower than its 52-week high of $602.45, but it is also well above its 52-week low of $247.30. Google is a huge part of all of our lives, as we use the company’s services multiple times every day. I believe that the company’s sheer size and our reliance on its services makes the company a solid long-term investment, but the faltering economy makes me hesitant to call it a buy for the short-term.

Before I talk about Google’s current situation, we must identify how the company makes money. 97% of Google’s revenue comes from selling online ads! The company makes money when people like you and me click on the ads scattered all over the internet. So, as you can tell, Google relies almost solely on the ability and the desire for companies to advertise online and the willingness of internet users to click on ads. This reliance on companies spending money on advertising and consumers being interested in buying products amidst one of the worst recessions in history is what makes me question Google’s upside potential for the near future.

Efficient Frontier (EF), a company that helps marketers run search campaigns on sites like Google, announced that spending on search ads by its biggest corporate customers fell 8% in the 4^th quarter of 2008. This is the first drop in spending for online advertising that EF has ever recorded! EF’s smaller search spenders paid even less for advertising last quarter, as its smaller clients cut their online advertising spending by 23%. What’s worse, the company reported that the number of clicks that ultimately resulted in a sale, a ratio called the conversion rate, also dropped drastically. If companies are paying Google for every time someone clicks on their ads, they expect that a solid percentage of the people that click on their ads will buy their products. So, when consumers click on ads and don’t buy anything, it becomes unprofitable for companies to advertise online.

But, why are people buying fewer products than usual when they click on ads? With this economy, and with people spending less than ever, it is pretty easy to understand why people are spending less online. Consumers are preserving their cash, and they are looking less and less at online advertisements as a result. So, if 97% of Google’s revenue comes from online advertising, and if fewer people are clicking on ads, and fewer companies have incentive to pay for online advertisements due to lower conversion rates, it becomes clear to see how Google is dealing with some major issues in this economic climate.

Google actually announced its 4^th quarter results on January 22^nd, and the results were better than expected because of the very low expectations that analysts had for the company. While the company’s sales rose 18%, the number was considerably lower than the growth experienced in previous quarters. The company’s 4^th quarter EPS was 1.21, over 60% lower than 2007’s 4^th quarter EPS of 3.79. Many analysts are expecting earnings and revenue to decline again in the 1^st quarter of 2009. If this does happen, it will be the first time Google has posted a decline in earnings and revenues in two consecutive quarters!

While it is clear that Google is currently struggling due to its reliance on consumer spending and corporate advertising budgets in this recession, the long-term outlook for Google looks very solid.

Google has a very firm grasp on the U.S. search market, and it is growing in international markets. In December, 72% of U.S. internet searches were done on Google! I believe Google will remain the online market leader for many years to come, and it will continue to aggressively expand into global markets. Another positive that makes Google intriguing for the future is the expected online spending and advertising trends. According to market research firm IDC, total U.S. internet advertising spending is expected to nearly double from $16.90 billion in 2006 to $31.40 billion in 2011. In addition, the number of U.S. online shoppers is expected to grow from around 115 million in 2006 to around 200 million in 2012. These numbers indicate much higher revenue for Google in the future!

Google’s many services and applications, such as Gmail, Google Maps, Google Earth, Google Talk, Google Finance, Google Chrome, Google Check-out, etc., have also increased the company’s customer base and have made the world even more reliant on Google and what it has to offer.

In the short-term, I think the macro economy will continue to negatively influence Google’s earnings and revenue. The stock price for Google will most likely remain stagnant or be pulled slightly down for a while. But, when we get out of this recession and companies begin spending on advertising again and consumers start buying stuff online, Google will continue on its path towards domination.

Niki Pezeshki

College Trillionaire

Market Recap - February 10, 2009

2009-02-10T20:08:00.001-08:00

A barrage of bad news created a gloomy mood on Wall Street today, as uncertain investors sold off stocks. The Dow lost 382 points (-4.62%), and the S&P 500 lost 42.73 points (-4.91%). Earlier today, Treasury Secretary Timothy Geithner announced his plan to help troubled banks by taking up bad assets. In other news, the Senate passed its version of the stimulus bill today, two weeks after the House passed Obama’s proposed economic stimulus package. Also, Federal Reserve Chairman Ben Bernanke participated in a question and answer session in front of Congress.

Timothy Geithner’s plan to help distressed banks was supposed to invigorate the markets by easing the currently tight credit situation. Instead, Geithner failed to relay specific details to listeners, and gave only a general outline of his plan. Investors that had previously led financial stocks upwards in anticipation of the announcement were disappointed by his lack of precision. As a result, the financial sector led today’s large sell off.

Head chairman of the Fed, Ben Bernanke, was grilled in front of Congress today. Representatives asked the chairman about the current situation of the economy and the steps that the Federal Reserve is taking to fix it. Investors were let down by Bernanke’s hesitant responses, as he stated “any fix to the worst credit crisis since the 1930s would take time to work.”

It appears that investors weren’t placated by the Senate’s passage of an $838 billion economic recovery package that includes $293 billion in tax relief and $546 billion in spending. The House passed its version of the bill two weeks ago with a total of $820 billion split between $182 billion in tax relief and $638 billion in spending. A committee of Senators and Representatives will reconcile the two packages to have a bill on Obama’s desk by next week.

Additionally, General Motors (GM) announced today that it will be cutting 10,000 salaried jobs this year.

Today was a horrible day on Wall Street, and the reaction to Timothy Geithner’s financial bailout plan was extremely negative. It seems like many investors have lost faith in the government’s ability to make quick decisions to fix our current economic crisis, and the stock market represented this lack of confidence today.

Until tomorrow,

-Matt Schwartz

College Trillionaire

Stock of the Day - February 9, 2009 - FCX

2009-02-10T00:12:00.000-08:00

Freeport-McMoran Copper & Gold Inc. (FCX)

Freeport-McMoRan Copper & Gold Inc. (FCX) explores, mines, and produces various types of metals including copper, gold and silver. It also smelts copper concentrates to sell refined copper products. Freeport-McMoRan is the world’s largest publicly traded copper company. The company’s stock has taken a huge hit recently, and I’ll discuss why its fall may present us with a great buying opportunity.

FCX traded around $120 for the first half of 2008. With July came the beginning of a gigantic drop in its stock price: by December, it hit its 52-week low of $15.70 and in doing so lost about 87% of its value. To comprehend the drop in stock price, you must understand that FCX is completely reliant on the value of commodities, mainly gold and copper. The second half of 2008 saw the U.S. dollar make a remarkable rally. The value of the dollar increased because demand for U.S. treasuries skyrocketed, and the combination of foreign and domestic support for the U.S. currency led to an uptick in its value.

Because of the inverse relationship between commodities and the dollar, an increase in the value of the dollar equates to a decrease in value of commodities. Copper was trading at an average of $3.61 per pound for the first 9 months of 2008, and by December it was trading at a four-year low of $1.26 per pound. The 65% decrease in value spelled bad news for Freeport-McMoRan, as the company relies heavily on the sale and refinement of copper. Its 4^th quarter earnings report for 2008 was disastrous: the company posted a loss of $14 billion, or $36.78 a share. In order to compensate for the steep losses, FCX suspended its dividend in December and plans to cut capital expenses.

I hope that I haven’t scared you away from the company at this point, because FCX has a huge amount of upside. The company is sitting on reserves of 3.2 billion pounds of copper and 41 million ounces of gold. This means that FCX holds billions of dollars worth of solid assets (literally). The company still owns gigantic mines on four different continents, and it plans on producing 3.9 billion pounds of copper in 2009 and 3.8 billion pounds in 2010. FCX has not slowed production of gold either: The company expects to produce 2.2 million ounces of gold for each of the next two years. It should be clear by now that the industry leader (FCX) will maintain through adverse times.

I believe the horrible times for commodities are ending, and this is where the amazing upside for FCX begins. Due to a decrease in demand for U.S. Treasuries and an increase in money printing from the Federal Reserve, the dollar rally is coming to an end. As a result, commodities such as gold and copper are beginning to gain. Additionally, if Obama’s enormous stimulus bill passes we will see a hike in government spending. Increased government spending, increased money printing, and a decrease in demand for U.S. Treasuries will add up to INFLATION. Inflation is a beautiful thing for commodities because a decrease in the value of money equates to an increase in the value of solid assets.

In the end, FCX is a commodity play. If you agree with me and believe that we will see a period of monetary inflation in the times ahead of us, then Freeport-McMoRan will be a great investment. The company is cutting costs while still producing massive amounts of copper and gold. If the value of copper and gold goes up, FCX will be cashing in on major profits. You owe it to yourself to do some research and determine if you want to buy some shares of FCX and profit with the company.

Finding an upside to every downside,

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - February 9, 2009 - Ponzi Schemes

2009-02-09T20:44:00.000-08:00

Ponzi Schemes

Ponzi Schemes are a type of illegal pyramid scheme that basically take money from new investors to pay off earlier investors until the whole scheme collapses. The fraudulent investing scam promises high rates of return at little risk, and works on the “rob peter to pay paul” principle. The scam actually works if you are an early investor and new investors continue to be duped into joining the pyramid scheme. The problem with the scheme is that eventually there are not enough new investors coming in to produce enough money for the earlier investors. At this point, the whole scheme unravels and the people that came into the scheme late lose everything.

Let’s do an example of a Ponzi Scheme with 4 investors (Investor A, B, C, and D), and me as the head of the whole illegal operation. I go to Investors A, B, and C and tell them, “I promise you will each make a 30% rate of return on your investments if you each invest $1,000 with me. So, at this point, I owe Investors A, B, and C their $1,000 principle plus $300 worth of returns each. I know I can’t possibly make $900 ($300 in returns X 3 investors) to pay them their promised returns by doing anything legal, so I go to investor D and tell him the same thing I told the previous three investors. I tell investor D, “I promise you will make a 30% rate of return on your investment if you invest $1,000 with me.” So, I use Investor D’s $1,000 investment to pay off the $900 in returns that I owed to Investors A, B, and C. Now, in order to continue paying Investors A, B, and C their 30% returns every year, and now also Investor D’s 30% return, I have to keep on bringing new investors into my Ponzi Scheme to pay them their promised returns.

As you can tell from the example, the only way that this system can continue to work is if the head of the scheme consistently brings in new investors to pay off the earlier investors. Also, it is clear that the early investors can earn a lot of money through Ponzi Schemes, and later investors can be ruined. In the previous example, Investors A, B, and C all got their 30% returns from Investor D’s initial investment, so they are happy. But, let’s say that I could not find another investor to join my Ponzi Scheme after Investor D. In this case, Investor D would end up with only $100 left to his name, as $900 of his initial $1,000 investment went to paying the 30% returns promised to Investors A, B, and C.

This illegal practice is named after Charles Ponzi, who cheated thousands of people back in the 1920s with a fraudulent postage stamp scheme. Ponzi Schemes are unfortunately still used today to swindle investors, and as many of you know, Bernie Madoff was recently arrested for orchestrating a $50 billion Ponzi Scheme. Ponzi Schemes are extremely illegal, but they are definitely interesting to think about.

Don’t get any crazy ideas.

Niki Pezeshki

College Trillionaire

Market Recap - February 9, 2009

2009-02-09T20:05:00.001-08:00

The stock market barely moved on Monday, as investors patiently waited for the monumental news that is set to break out of Washington tomorrow. The Dow Jones Industrial Average finished the day down 9.72 points (-.12%) and the S&P 500 was slightly up by 1.29 points (.15%).

There are two huge announcements planned to come out Washington tomorrow. First, Treasury Secretary Timothy Geithner will come out with his new plan to overhaul the government’s $700 billion financial bailout package (TARP). Geithner’s plans will be analyzed very closely, and the movement of the stock market will definitely reflect how effective investors believe his new plans will be in fixing the credit crisis.

Second, the Senate is expected to vote on an $827 billion stimulus bill tomorrow. Even if the bill passes in the Senate, the government will be faced with the challenge of matching the Senate’s bill with the House of Representative’s $819 billion bill that was passed a couple of weeks ago. While it is widely expected that the bill will pass through the Senate tomorrow, there is still some worry that the Senate Republicans might come together and defeat the bill. Obama strongly warned the Senate Republicans from voting against the stimulus package, as he said that failure to pass the bill “could turn a crisis into a catastrophe.”

Today’s action in the stock market was the perfect example of the calm before the storm. And, with all of the government news coming out tomorrow, the storm has the potential to be epic. Whether the markets go up or down tomorrow is anyone’s guess, but with the monumental announcements about the stimulus package and the bank bailout plan set to be announced, it will definitely be an interesting day on Wall Street.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - February 8, 2009 - FWLT

2009-02-08T11:37:00.001-08:00

Foster Wheeler, Ltd. (FWLT)

There are just so many reasons to like Foster Wheeler (FWLT)! The stock price is ridiculously cheap, the company is experiencing unbelievable growth, and Obama’s stimulus plans will keep this company in demand for a long time. Foster Wheeler is a global engineering, construction, and project management contractor and power equipment supplier. Foster Wheeler operates through two groups: The Global Engineering and Construction Group, and the Global Power Group. The E&C Group constructs oil and gas processing facilities and many other types of infrastructure facilities. The Global Power Group makes equipment for electric power generating stations and industrial facilities.

The first influence on Foster Wheeler’s stock price that I will analyze is Obama’s stimulus plan. If you have checked out the news for over one minute in the past three months, you know that one of Obama’s first goals as president is to spark the United States’ economy by passing a bill that is worth between $800-$900 billion. The stimulus package will focus mainly on tax cuts, creating jobs, and spending on infrastructure. Obama has pledged that the infrastructure spending will be used to improve and build roads, highways, bridges, and other public works. As an energy and construction company, Foster Wheeler will undoubtedly benefit from this part of the stimulus package, as the Government will need companies to help build more power plants and power lines to support the building of public works projects.

But, the question becomes: Have the positive affects of the stimulus plan already been factored into Foster Wheeler’s stock price? Well, the low point for the stock was $13.86 on November 20, 2008. But, as news of the stimulus plan started to heat up, Foster Wheeler closed at a high of $27.60 on January 6, 2009. While this is a huge jump, you must understand that the entire stock market has come back since the lows of Nov. 20^th, and that Foster Wheeler’s stock price is still way down compared to its 52-week high of $79.97. In addition, the stock has come down again since it reached $27.60, and is now at $22.40 and has been hovering in that range for a while. So, while the news of Obama’s stimulus package did bring up Foster Wheeler’s stock price, I don’t think it has been brought up enough. Investors are still underestimating the positive impact that the infrastructure spending will have on Foster Wheeler, for now and for the long-term.

What makes Foster Wheeler so intriguing, though, is that it has so much more to look forward to than just the stimulus plan. The company is set to win contracts for eight megaprojects across the world in 2009! These projects, which include building oil refineries and huge industrial facilities, are each worth billions of dollars and will keep Foster Wheeler busy for many years to come. If the company is able lock up even half of its megaprojects (although the CEO sounds confident that it will sign contracts to do all eight), Foster Wheeler’s stock price will shoot through the roof. So, while this might sound a little speculative, it seems like the odds are that Foster Wheeler will be signing huge contracts throughout 2009, and that can only mean great things for the stock price!

The third and possibly most important aspect of Foster Wheeler that makes me so impressed with the company is its overall health. The company’s balance sheet is very strong, and it has very low debt-levels. Foster Wheeler is spoiled with cash, as it currently has an absurdly high $9 of cash per share! Even cash-rich Microsoft (MSFT) only has $2.28 of cash per share, a number that is still considered very solid. In 2008, Foster Wheeler had earnings growth of over 30%, and the stock price fell from almost $80 to the $20’s. The company expects to have over 30% earnings growth again this year with help from its megaprojects and the stimulus plan, and if there is any logic and rationality left on Wall Street (which I question at times), Foster Wheeler’s share price will increase based on these growth numbers. The company’s PEG Ratio (read Term of the Day, Jan. 30) is also a ridiculously low 0.28, meaning that the stock is undervalued when comparing it to the company’s future growth potential. The company’s very smart and well-polished CEO, Ray Milchovich, has also recently announced that he will lead Foster Wheeler for another 3 years, a very positive indicator that he is expecting good things to come.

Foster Wheeler has a strong balance sheet and it will continue to deliver strong earnings growth as a result of its potential megaprojects and its participation in Obama’s infrastructure spending agenda. The company is releasing its 4^th-quarter results on February 24^th, and I would suggest buying it before then. At $22, Foster Wheeler is a definite buy!

Niki Pezeshki

College Trillionaire

Trillionaire Term of the Day - February 6, 2009 - Beta

2009-02-06T22:27:00.000-08:00

Beta

Beta is a measure of the amount of correlation between a stock and the overall financial markets. The number provides an understanding of the performance of a specific security in comparison to the movement of an entire market. The benchmark for markets, the S&P 500, is the most common choice for calculating beta.

Stocks with positive betas follow the movements of the market. If the market improves the stock will rise. If the market falls the stock will decrease in value. Stocks with negative betas move inversely when compared to the market. If the market goes up, the stock loses value, and vice versa.

The exact numerical value of beta is important to understand as well, because it allows us to interpret the volatility of a stock compared to the market. Because the number is calculated by comparing a stock to the market, the market has an unchanging beta of 1. If the beta of a stock is less than 1 it is less volatile than the general market. If the beta of a stock is greater than 1 it is more volatile than the market.

A stock with a beta of 2 will rise when the market rises, but twice as much. A stock that has a beta of -2 will gain as the market declines at double the rate. Let’s compare the betas of previous Trillionaire Stocks of the Day, WuXi PharmaTech (WX) and The Coca-Cola Company (KO), to understand the use of beta.

WuXi is a speculative stock: it has a very low market capitalization of 397M and hasn’t been around for a long time. Its beta is 2.3. If the market were to increase by 3%, then WX should increase by 6.9% (2.3 X 3). Coke is a stable blue chip stock: it has a very high market cap of 100B and is an established company. KO has a beta of .63. If the market were to increase by 3%, Coke would increase by 1.89% (.63 X 3).

Stocks with higher positive betas or lower negative betas are volatile. So we would consider WX to be a volatile stock, as it exaggerates the movements of the market, up or down. KO is less volatile than the general market, and it increases less than the market increases and decreases less than the market decreases.

A stock with a high beta can provide higher returns, but also bigger losses. So when you buy a stock with a greater beta you take on more risk with the intention of larger profits. A stock with a low beta will provide smaller returns and lesser losses. Buying stocks with lower betas can help you add more stability to your portfolio and allow you to invest defensively.

-Matt Schwartz

College Trillionaire

Market Recap - February 6, 2009

2009-02-06T16:06:00.000-08:00

What a day on Wall Street! Amid another horrible jobs report for the month of January, the major indexes were up big today on hope that the Government’s stimulus plan will be passed through the Senate and will provide the economic spark that the United States desperately needs. The Dow Jones Industrial Average jumped 217.52 points (2.70%) and the S&P 500 also increased 22.75 points (2.69%). The huge gains today helped the major indexes achieve their first winning week after four weeks of straight losses.

There was definitely enough bad news to justify a drop in the markets today. The Labor Department said that 598,000 jobs were cut in January, the most since 1974! The unemployment rate is at an astounding 7.6% now, the highest since 1992. But, this depressing news didn’t keep investors from looking forward to see what the Government will do about the country’s economic issues.

The Senate is expected to vote on a $937 billion stimulus package either tonight or sometime this weekend. The Senate bill will focus on tax cuts and government spending. Timothy Geithner, the new Treasury Secretary, is also planning on announcing some changes to the $700 billion financial rescue fund (TARP) on Monday. Investors are optimistic that these changes will influence banks to begin lending again, and as a result, boost consumer spending and spark the economy.

Monday will definitely be a very interesting day for the markets, as the news over the weekend about the stimulus plan will definitely make a huge impact on what happens. If the stimulus plan passes, the markets will most probably jump higher. But, if the stimulus plan does not pass in the Senate over the weekend and gets stopped in its tracks by the fiscal conservatives, the markets will look ugly on Monday.

Have a great weekend

Niki Pezeshki

College Trillionaire

Stock of the Day - February 6, 2009 - CSCO

2009-02-06T12:41:00.000-08:00

Cisco Systems, Inc. (CSCO)

A technological expert in connections and communication, Cisco Systems (CSCO) provides hardware, software, and service offerings to individuals and businesses of all sizes. The company has maintained a leadership position in the development of internet-based network technologies. But, Cisco has been under the public spotlight recently, as it released its 2^nd quarter earnings report before the market opened yesterday.

Cisco’s fiscal year ends in July, so their 2^nd quarter ended on January 24, 2009. The company reported a 27% decline in second-quarter earnings from the 2^nd quarter the year before. Their net income was $1.5 billion, equating to earnings of 26 cents per share. These numbers beat analysts’ expectations. But this was not the most surprising aspect of Cisco’s earning report. CFO Frank Calderoni stated that the company is expecting a 15% to 20% drop in revenue for the upcoming quarter. This came as a shock to Wall Street analysts that expected 3^rd quarter revenue to drop only 3%-7%.

Despite the lowered revenue guidance and decrease in 2^nd quarter earnings, CSCO gained 51 cents on Thursday, or 3.22%, and last traded at $16.35. It’s uncommon for a stock to gain on the day of a negative earnings report, so we have to ask why the gain occurred. One possibility is that investors appreciated the fact that the earnings report exceeded analysts’ expectations. But this still leaves the lowered revenue guidance unanswered. A more likely possibility is that investors appreciate Cisco’s strengths.

And there are many strengths. Cisco has an enormous stockpile of $29 billion in cash. The company isn’t just letting the money rest, as it has financed $2.1 billion in their own sales for the last two quarters. While a certain amount of risk goes along with allowing customers to buy on credit, lending has also helped them produce a steady cash flow in harsh economic times. Although they’ve suffered no major harm from defaulted loans, it’s important to note that losses are possible.

It seems that investors also listened the words of CEO John Chambers today. The executive officer stated that cost cutting will “accelerate” in the upcoming quarter. Cisco will attempt to cut $1 billion in costs by managing their discretionary spending. It appears that investors approve of the proactive steps that the company is taking to weather the current economic downturn.

Cisco resides in the technology sector, and many analysts on the Street consider this to be an issue for the company. Their fear of tech may be well warranted, as the sector underperformed market averages from February to September for 17 of the last 18 years. Additionally, tech stocks are very cyclical, they go up when the general market improves and decrease when the markets weaken. We don’t know when the end of the current economic recession will be, so we don’t know when an upturn can be expected for the technology sector.

With all factors considered, I would rate CSCO a conservative buy. The company traded around $24 before the markets fell in late 2008. The stock has lost a third of its price since then, and I don’t think that this drop is completely justified. The company will suffer in the short run as economic conditions will hurt the overall tech sector, but Cisco still rests on solid fundamentals and a strong balance sheet. Cisco is bound to succeed when the markets improve. If the stock pulls back or if the technology sector perks up, I would definitely recommend snatching up the stock.

-Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - February 5 2009 - After-Hours Trading

2009-02-05T21:36:00.000-08:00

After-Hours Trading

After-hours trading refers to the buying and selling of stocks before and after the markets normal operating hours. Most stock exchanges, such as the Nasdaq and the New York Stock Exchange, are open for normal operating hours between 9:30 a.m. to 4:00 p.m. EST. After-hours trading happens on most exchanges from 7:30 a.m. EST until the markets open, and also from the time the markets close until around 8:00 p.m. EST.

Until the summer of 1999, After-hours trading was open only to institutional investors, such as hedge funds and mutual funds, and individuals with high net worth. But now, a law has been passed that allows even average investors like you and me to trade after-hours. But even with fewer restrictions than ever on who can invest before and after the markets are closed, after-hours trading only accounts for about 1% of overall trading activity.

Why so little after-hours activity? Simply put, there are a lot of risks and dangers that come with trading during off-hours. First of all, because there is not as much trading activity compared to regular-hours trading, the price fluctuations for share prices become much more severe and volatile. Also, because of the lower trading volume during after-hours trading, there is usually a wide spread between bid and ask prices for stocks. As a result of the wide spread between bid and ask prices, it becomes harder for investors to buy and sell stocks at a favorable and predictable price. There are also many more risks, such as less liquidity, competition with professional traders, and potential for computer delays.

After-hours trading is a pretty confusing concept to grasp, and there are a lot of specific rules and issues that must be acknowledged in order to fully understand the process. But, as long as you have a simple understanding of after-hours trading, you should be confident enough to make the occasional investment after the market closes or before it opens.

Niki Pezeshki

College Trillionaire

Market Recap - February 5, 2009

2009-02-05T16:51:00.000-08:00

The stock market provided investors with some solid gains today, as the Dow Jones Industrial Average increased 106.41 points (1.34%) and the S&P 500 also climbed 13.62 points (1.64%). Financial and technology stocks pushed the market higher, while poor economic data kept the gains moderate. Retail stocks also rose today, as many retailers came out with good January numbers.

Wal-Mart sales beat Wall Street’s January sales forecasts, as the company noted that shoppers focused more on necessities like groceries. Macy’s also beat expected January sales figures, even amid recent news that it would be cutting 7,000 jobs.

The better-than-expected company reports beat out the bad economic news that came out today. Unemployment benefit claims rose last week to a 26-year high, and factory orders also fell again for the month of December. On Friday, the Labor Department is coming out with January’s employment report. The unemployment number will undoubtedly be depressing and huge, and some economists are predicting that the unemployment rate rose to 7.5% in January. If we are faced with 7.5% unemployment, it would be the highest rate in 17 years.

I’m very excited to see what the unemployment numbers will actually be, and I am curious to see how investors will react to the announcement by the Labor Department.

Until Tomorrow,

Niki Pezeshki

College Trillionaire

Stock of the Day - February 4, 2009 - S

2009-02-04T23:52:00.000-08:00

Sprint Nextel Corp. (S)

Sprint Nextel Corp (S) is a tricky company to judge. Although the company has a bunch of problems right now, it is doing some positive things to steer itself into the right direction. It is a company with solid potential, but it would be nothing short of a speculative investment right now.

Sprint, which is currently the number 3 mobile service provider in the United States, has been stuck in a rough patch for a while. The company is currently trading at $2.40 per share, more than 75% lower than its 52-week high of $10.36. It also just recently announced that it would cut up to 8,000 jobs (14% of its workforce) by March 2009 in order to reduce costs by $1.2 billion. While the company had $4.1 billion of cash at the end of the 3^rd quarter 2008, Sprint owes $600 million of debt in May 2009 and $2.4 billion in 2010. When you consider that Sprint has a negative earnings per share of $-10.75 and a ton of debt due soon, it is clear to see that its cash situation is becoming dangerous.

Another factor that is absolutely killing Sprint is that its competitors are stealing its customers. Sprint, which provides wireless service to only about 10% of Americans, has lost a ton of customers to both AT&T (T) and Verizon (VZ). Although we will not know exactly how many customers Sprint lost in the 4^th quarter until it comes out with results on February 19^th, it is estimated that Sprint lost 1.1 million to 1.3 million wireless customers. It is clear that many of Sprint’s customers are going to either Verizon or AT&T, as AT&T recently reported that about 40% of its new iPhone users in the 4^th quarter came from outside AT&T.

While all of this news might sound horrible (which it is), Sprint is doing a lot of things right to turn things around and start becoming more competitive again.

The company has started to put an emphasis on customer satisfaction in order to begin rebuilding its image and to change the perception of the company. Beginning in 2008, CEO Daniel Hesse made it clear that improved customer satisfaction would be the number one priority for Sprint. Since then, the company has greatly improved its customer service, it has improved its call quality by upgrading its network, and it has also received higher customer satisfaction ratings for service and repairs. Improving customer satisfaction will definitely help the company’s image in the long run, and an improved reputation could potentially bring in new customers for Sprint.

Sprint also recently launched one of the cheapest service plans ever. The new wireless plan charges $50 a month for unlimited voice, texting, web access, and push-to-talk services. While the new plan will definitely hurt Sprint’s profit margins, at least it will keep some more customers from switching over to Verizon and AT&T. The plan is so cheap that it will undoubtedly convince some people to switch over to Sprint as well.

The third positive for Sprint is its partnership with Palm (PALM) for the company’s new phone, the Palm Pre. Sprint will be the exclusive provider for the much-anticipated Pre, which is expected to be sold to the public in May. I have heard a lot of positive reviews about the Pre, and this is great news for Sprint. If the Pre is a hit in stores, as many expect it to be, Sprint will clearly benefit as a result of being the exclusive service provider for the phone. I think this partnership with Palm is the positive factor that gives Sprint’s stock price the biggest upside potential.

So, while Sprint is currently experiencing continuous profit losses, massive amounts of debt, and huge layoffs, the future does look brighter. The company is working out its problems, slowly but surely. Having said this, I am not a buyer of Sprint right now, because I think it will be a while before the company becomes competitive again. But, at some point in the future when it pulls itself out of its current situation, I will definitely be more interested in purchasing some stock in Sprint.

Niki Pezeshki

College Trillionaire

Trillionaire Term of the Day - February 4, 2009 - ETFs

2009-02-04T22:38:00.000-08:00

Exchange Traded Fund (ETF)

In order to have a solid understanding of Exchange Traded Funds (ETFs) you must have a good grasp on Indexes. If you aren’t sure what an index is, or how indexes are created and run, feel free to check out our Trillionaire Term of the Day on Indexes (January 9, 2009).

An index is a group of securities, such as stocks or bonds. An Exchange Traded Fund is basically all of the stocks that are in an index grouped into one tradable stock. You can buy and sell ETFs just as you would buy any other company’s stock. Simply put, an ETF is a representation of all of the individual stocks that you would find in an index.

Take SPDRs (SPY) as an example. This particular ETF tracks the S&P 500, which is a benchmark index for large cap U.S. stocks. Investors buy and sell SPY when they see value or a lack of value in the S&P 500. PowerShares QQQ (QQQQ) is another ETF, and this fund holds all of the stocks in the Nasdaq-100 Index (e.g. Apple, Intel, Amgen, etc…). So, when you buy QQQQ, you are basically buying a little bit of each stock in the Nasdaq-100.

Adding an ETF to your portfolio is a great way to diversify quickly. One share of an ETF essentially contains the all of the different shares in an entire index, so when you invest in an ETF, you’re investing in numerous distinct companies.

Matt Schwartz

-College Trillionaire

Market Recap - February 4, 2009

2009-02-04T21:56:00.000-08:00

The markets failed to continue the rally that began yesterday, as important consumer discretionary companies announced poor earnings reports. The Dow Jones Industrial Average lost 121 points (-1.5%) to settle at 7956 and the S&P 500 fell 6 points (-.8%) to end the day at 832. Investors and consumers are still looking towards Washington to see the results of an ongoing debate over Obama’s economic stimulus package.

Earnings reports from Time Warner (TWX) and Disney (DIS) came out after the market closed yesterday. TWX reported a fourth-quarter loss of $16 billion resulting from a write down on lower valuations of their cable, publishing, and AOL assets. Disney stated that its profits declined by 32%. The reports from the two entertainment giants made investors fear that consumer spending has been further weakened.

President Obama invoked a $500,000 salary cap for executive compensation for companies that are receiving taxpayer bailout money. The controversial interference of government into business has received mixed reactions. Proponents of Obama’s move argue that executives should not be rewarded for failure. Critics worry that the new measure will cause companies to avoid government help and that executives that have provided legitimate help for their companies will not receive fair compensation.

The movements of the markets for the past few days, while affected by earnings reports, seem to be the result of investors patiently looking towards Washington. It will be very interesting to see what will happen when the massive economic stimulus package either passes or gets rejected in the Senate.

-Matt Schwartz

College Trillionaire

Stock of the Day - February 3, 2009 - KO

2009-02-04T11:10:00.000-08:00

The Coca-Cola Company (KO)

1886: Drink Coca-Cola. 1939: Coca-Cola has the taste thirst goes for. 1979: Have a Coke and a smile. 2009: Open Happiness. Since the beverage-makers inception in 1886, The Coca-Cola Company (KO) has grown and evolved dramatically. Now, the American originated thirst quencher reaches over 200 countries and doles out 1.5 billion servings a day. Even with the company’s long-term success, the shock taken by the markets in late 2008 has left Coke undervalued. KO is resting at a bargain price, just waiting to be scooped up.

Coca-Cola was trading around $55 to $60 in the beginning of 2008. In October the stock took a dive to $41.50 as a result of general investor fear of the markets. Coke has since bounced back from that price and has most recently traded at $43.32. Follow my reasoning as I explain why the steep drop in price was unwarranted, and why I believe the company will rebound back to the upper $50s.

Coke has been, and will be successful because it has managed to do what very few companies have succeeded in doing. The company has stayed the same, while rapidly expanding and innovating. More specifically, the Coca-Cola brand still maintains a massive amount of power because of the stability of its original beverage and gains strength as it acquires new brands.

Even while Coke still dominates the market share of nonalcoholic sparkling beverages, the company has expanded internationally and currently owns 2,800 distinct drinks. KO owns Minute Made, Vitamin Water, Dasani, Powerade, Sprite, and the list goes on and on, and constantly grows. But Coke doesn’t just grow, it grows effectively. Coke currently has a Return on Equity of 27.76%. This number indicates that the capital it spends with intentions of expansion is succeeding.

Can the 25% drop in Coca-Cola’s stock price in late 2008 be attributed to any internal negative factors? I haven’t found any. Do external macroeconomic support the fall? I don’t believe so. Take the words of CEO, Muhtar Kent, who recently stated that Coke is “at least crisis resistant.” Consumers are still eating and drinking. And when they do drink, they enjoy KO’s brands. Additionally, lowered oil, freight, and other commodity costs have recently reduced Coke’s costs. Day in and day out The Coca-Cola Company will still make cash. Kent struck a soft spot with me when he said that his goal is to “execute flawlessly… and to remain strong when we come out of the recession.”

KO’s 4^th Quarter Earnings Report for 2008 will be reported on February 12^th. The average analyst estimate for the quarter is higher than the last quarter of 2007. Additionally, analysts estimate that Coke will have an Earnings Per Share of $3.12 for the year as a whole. This would be a 15% year over year increase from an EPS of $2.70 in 2007. Coca-Cola’s earnings report should be a refreshing relief from the disconcerting reports that have been all too common lately.

Finally, it must be noted that Coke rewards its investors with a dividend payout of $1.52, resulting in a healthy yield of 3.6%. The dividend percentage is defensible because of the company’s steady cash flow.

The American company that has become a staple in consumer culture deserves to become a staple in your portfolio. The Coca-Cola Company remains rock solid in a time of economic hardship and can be expected to flourish when the markets rebound. This undervalued blue chip is simply waiting for the right time to jump.

-Matt Schwartz

College Trillionaire

Market Recap - February 3, 2009

2009-02-03T16:32:00.001-08:00

Wall Street edged higher on Tuesday on some positive news regarding home sales. The Dow Jones Industrial Average gained 141.53 points (1.78%) and the S&P 500 was also up 13.07 points (1.58%).

The good news from the housing industry came as a surprise, as the National Association of Realtors reported that pending sales for pre-owned homes in December rose 6.3%, compared to home sales in November. The reason for the increase in home sales is due to the fact that buyers are taking advantage of opportunities to buy homes that are being sold for steeply discounted prices. This news could potentially be an indicator that the slump in the housing industry is subsiding, and investors on Wall Street capitalized on the news by pushing the markets higher.

Many companies came out with corporate earnings today, and the results were mixed. Motorola (MOT) lost $3.6 billion last quarter, and Disney (DIS) reported a 32% drop in profits for the 4^th-quarter. Drugmaker Merck (MRK) reported better than expected numbers, and homebuilder D.R. Horton (DHI) also reported a narrower loss than analysts expected.

Another depressing statistic came from the U.S. auto industry, as U.S. car and truck sales fell 37% in January. Sales at General Motors (GM) fell 49% and sales at Ford also fell 40%. This is a horrible start to 2009 for automakers, as people are clearly still not spending their money to purchase cars. What makes it even worse for carmakers is that home sales actually increased but car sales were still abysmal, showing that the housing industry might recover before the auto industry does.

Tomorrow, many companies are coming out with their 4^th-quarter earnings, so it should be another interesting day on Wall Street.

Until tomorrow,

Niki Pezeshki

College Trillionaire

CT Note: Today’s Stock of the Day will be Coca-Cola (KO), but it will be posted a little later than usual. Keep reading College Trillionaires!

Trillionaire Term of the Day - February 3, 2009 - Average Down

2009-02-03T11:29:00.000-08:00

Average Down

Averaging down is an investing technique for bold investors who really have confidence in their stocks. Averaging down is essentially the process of buying additional shares in a company at lower prices than you originally purchased. By using this strategy and buying on weakness, the average price you paid for all your shares comes down.

For example, if I bought 100 shares of Intel (INTC) at $20 per share, the average cost per share for me would be $20. Let’s say after owning it for a couple of weeks, Intel’s share price drops to $15. If I really believe that Intel’s share price will rebound, should I sell the stock at $15, or should I take advantage of the drop in share price? If I employed the averaging down technique, I would buy 100 more shares of Intel at $15. As a result of my new purchase, my average cost per share of Intel would be $17.50 (100 shares X $20 + 100 X $15 all divided by 200). Now, instead of Intel having to come back up to $20 for me to break even, I just need the stock to reach $17.50.

Is averaging down a good or bad strategy? Well, if you average down and buy more shares as the stock price goes lower, you will increase your profits if the stock makes a rebound. You will increase your profits because, not only do you have more shares of the company, but your new average cost per share is lower than your original cost per share. So, if you really trust the company that you are investing in and believe that its stock price will eventually come back up, then averaging down is great. But, how about if you keep averaging down and buying more shares on weakness, and the stock just keeps going down without ever rebounding? This is the danger of averaging down, as you will continue to lose more and more money every time the stock price dips.

Averaging down definitely takes a lot of courage, and you have to be willing to go against the market and buy when others are selling. But, if you are investing in a solid company for the long term and are confident that its stock price will rebound, averaging down is one of the best ways to increase your profits.

Niki Pezeshki

College Trillionaire

Stock of the Day - February 2, 2009 - EBAY

2009-02-02T22:11:00.000-08:00

eBay Inc. (EBAY)

When looking for a solid company to invest in, one of the main things you should be looking for is growth. You want to invest in a company that is growing in market share and increasing net income and revenues every quarter. Unfortunately, eBay Inc. (EBAY) is doing the exact opposite of growing. The online retailer is actually losing money and losing ground to its competitors.

EBay reported a 4^th quarter decline in revenue of 7% and a 30% drop in net income. This was the first time ever that eBay has posted a quarterly decline in revenue. Ebay.com, the marketplace unit for the company, fueled the lower revenue report, as it posted a 16% loss in revenue for the quarter. The company also reported that merchandise volume fell 12% from the same quarter last year.

But, there were some positives for eBay. Paypal, a subsidiary of eBay, increased revenue by 11% and increased its payment volume by 14%. Paypal also grew its active accounts by 23% to 70 million members. Skype, a popular voice-chat platform that is also eBay’s subsidiary, posted revenue growth of 26% and increased skype-to-skype minutes by 72% to over 20 billion. Overall though, the company struggled in the 4^th quarter of 2008, and the future looks bleak.

The biggest problem for eBay is increasing competition. With companies like Amazon (AMZN) and Craigslist becoming stronger by the day, eBay’s market share in the online retail sector has been falling. Even GoDaddy.com launched a marketplace service last week, and it offers sellers a model that charges an enticing $4.99 a month for unlimited item listings and 10% on commission from sales.

But, without a doubt, Amazon has been eBay’s biggest competitor and biggest source of problems. Amazon just recently came out with its 4^th quarter numbers, and they were nothing short of beautiful. Amazon’s revenue jumped 18% during the quarter, and international sales rose 31%. Web traffic on Amazon also jumped 9.8% compared to last year, as eBay’s web traffic dropped 2.5%. While eBay still gets more traffic than any other online retailer, Amazon is definitely catching up fast.

So, while it might seem easy to just blame eBay’s problems on the macro economy and say that the company did poorly because people just don’t have the money to shop, Amazon’s success in the past quarter puts that thought to rest. Amazon proved with its 4^th quarter earnings that it is still possible for an online retailer to be successful in this recession. I believe eBay’s problems run much deeper than macro economic factors. The company’s business model is getting old and there are too many competitors doing the exact same thing. EBay needs to spark up some magic and find a new way to entice customers. I have no clue what this might entail, but until eBay finds something new to get people excited to buy and sell merchandise on its website, the company has no growth potential. And with no growth potential, there is no good reason to invest in a company. Stay away from eBay for now, and wait until the company comes up with some new ideas.

Niki Pezeshki

College Trillionaire

Market Recap - February 2, 2009

2009-02-02T18:52:00.000-08:00

There was no major news today on the markets, but the underlying gloomy mood of investors caused stocks to decline moderately. The biggest stories of the day came early, as reports of manufacturing activity came out for January and Macy’s announced a large set of layoffs. Additionally, talk from Washington over Obama’s massive economic stimulus package is still ongoing.

The Institute for Supply Management said today that manufacturing activity fell in January, making it the twelfth straight month that the institute has reported a drop. Manufacturing activity hit an all time low during the middle of the month, but has increased since then.

Announcements of layoffs and cutbacks in spending were all too prevalent in January, and February did not start off with an exception to the trend. Macy’s Inc. (M) said today that it would be cutting 7,000 jobs, or 4% of its workforce. The company will also be cutting its dividend from 13.25 cents to 5 cents at the time of the next dividend declaration. The announcement was yet another harsh reminder to investors that retail is suffering as a result of decreased consumer spending.

Obama’s $819 billion stimulus package bill passed in the House of Representatives last week, despite not getting a single vote of support from Republicans. The stimulus package will be under debate in the Senate throughout this week and possibly the next. Senate Republicans argue that the bill contains too much waste and that the package will not cause speedy financial stimulus. Senators are trying to counterbalance the necessity for a quick passage with deliberation that will eliminate waste in the bill. This will truly be a difficult task, as the Senate bill is already estimated to contain over $900 billion in plans. That is a lot of money for anyone to manage efficiently and quickly.

Until tomorrow,

Matt Schwartz

College Trillionaire

Trillionaire Term of the Day - February 2, 2009 - Blue Chip

2009-02-02T18:50:00.000-08:00

Blue Chip

A company that is nationally acclaimed, well founded, and financially secure is a blue chip company. A blue chip company that issues shares provides blue chip stock.

Blue chip companies sell products and services that are bought by a very large number of people. They are characterized by deep balance sheets with a large amount of assets. Blue chips tend to succeed, or at least consistently bring in revenue, even in times of economic downturn. Coca Cola (KO), McDonald’s (MCD), and IBM (IBM) are some examples of blue chip companies that provide blue chip stock.

The term was coined by workers on Wall Street who compared the stocks seen on tickers to blue chips in casinos. Blue chips have the highest value in casinos. Analysts and common investors alike analyze the actions of blue chips and their stocks to estimate the general trends of the markets. So, the next time you here someone talk about a “blue chip stock”, just know that is even more simple than it sounds.

-Matt Schwartz

College Trillionaire

College Trillionaires Terms of Use and Disclaimer

2009-02-02T18:45:00.000-08:00

Hey readers, we have to post this so we can avoid getting sued. Don't let this scare you, but instead keep reading and learning!

You are responsible for your own investment decisions. College Trillionaires will not be responsible for any errors or omissions in articles or postings, for hyperlinks embedded in messages, or for any results obtained from the use of such information. College Trillionaires will not be liable for any loss or damage caused by a reader's reliance on information obtained in our area, or in a hyperlinked area. If you don't accept this responsibility for yourself, then you should not read College Trillionaires.

If you do not do independent research of industries, companies, and stocks, choosing instead to trade solely on information, "tips," or opinions found on our Site, you have made a conscious, willing, free, and personal decision to do so.

You understand that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. You further understand that none of the bloggers, information providers or their affiliates are advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published on the Site may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. You understand that an investment in any security is subject to a number of risks and that discussions of any security published on the Site will not contain a list or description of relevant risk factors. Blogs, postings or content on the Site which may or may not be deemed by you to be recommendations may have an effect on their stock prices.

You understand that performance data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete.

From time to time, reference may be made on our Site to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or opinion, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

All content on the Site is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons.

-College Trillionaires