Best Stocks For 2011: Let the Money “Stream” to You
Remember those days?¬† Yeah I’m sure you do.¬† Remember digging through your 5 foot tall stereo cabinet looking for “Weekend At Bernies”?¬† Those days are gone.¬† Long gone!¬† Technology has given us extra living room space by getting rid of your VHS collection, and technology is also making it faster for you to find what you want.¬†¬† Just type it, and you got it.
¬†Think about it… ¬†it took a while for the world to switch from VHS to DVDs.¬† Then there’s Blu-Ray, but, DVDs will continue to own the market since the cost for “blue-ray” quailty (and price) seems to be easily forgone.¬† However, downloaded and streaming content will be the biggest threat to the mighty DVD in the future.¬†¬† It’s already there, we are just waiting for the hardware to catch up.¬† I mean, the hardware practically already penetrated the market unexpectedly, we are just waiting for the technology to make it more reasonable and affordable to use.¬† For example, pay attention to how NetFlix is changing the market for movie consumers.¬† Of course, there’s the mailbox DVD you’re waiting for in the mail, but NetFlix has already launched apps for their streaming content to be available on your Wii, PS3, and iPad.¬† That is where technology is taking us in this industry.¬† The internet is already available in most homes, the next step is to increase the bandwidth so that high definition movies and shows can be streamed and played instantly.¬† When that happens, I can see DVD-rentals, NetFlix mailorders, Red Box kiosks, become less popular; they won’t entirely become obsolete and thrown in the museum with the betamax display, but once streaming content becomes reasonably available on your TV (there’s a difference between on your TV and on your computer), then I can see products like VUDU becoming a household name.¬† Anyway, streaming media has proven to be a technology that makes sense, just look at Pandora.
¬†¬†¬†¬† One of my readers (Miked)¬†asked me about VUDU on my post where I speculated that GameFly would be a great stock for 2011.¬† Well, VUDU actually applies to streaming techonology, so I’m glad he brought it up.¬† A simple way to appreciate any product or service is to simply ask yourself, “Do I use it?”¬† So for me, the answer for Vudu would be, no, I don’t.¬† But I can tell you, one day I probably will.¬† You too.¬†
It’s All About Timing¬†¬†¬†
¬† There’s several problems with Vudu in the market right now.¬† What Vudu is suffering from is being a little ahead of its time.¬† What Vudu does is provide 1080p quality movies on demand to your TV, provided you have a compatible player.¬† You don’t actually download the content, but it streams.¬† Therein lies the blessing and the curse.¬† The idea to download/stream and watch movies and videos at HD-TV qualities is something everyone dreams of.¬† Vudu over the past few years made that possible, however, the hardware in today’s market standards is just a little¬†behind.¬†
The Time Has Come
¬†¬†¬†¬† In order for you to get a good stream you’ll need a connection of about 5 mb/second, at least (I’d say quadruple that).¬† How many people do you¬†know have an ethernet cable¬†plugged into their¬†televisions?¬† Not many!¬†¬†The plug is there, but people just don’t use it.¬† ¬† That is why other ways to watch videos have been doing much better;¬† NetFlix is the obvious case, then there’s RedBox, and there’s the option to just buy the DVD, Hulu, and AppleTV (most similar to VUDU).¬†¬† Many of these services do what people feel is perfectly acceptable.¬† Hence, the alternative costs is¬†too high for the general public to move over to Vudu.¬†¬†¬†¬†Just recently, VUDU has upgraded their systems to take advantage of social networking, maybe that will get them on the map.
Stream Between the Lines!
¬†¬†¬†¬† Pay attention to what the big names are doing to get a piece of streaming content.¬† WalMart actually bought VUDU last year for $100M.¬† Google bought YouTube, and is in the works for making money somehow on streaming content.¬† Apple is slowly promoting Apple TV.¬† Also pay attention to the revolutions in hardware that makes streaming content make¬†sense.¬† 1)¬† Video game consoles now have ethernet cables.¬† There’s no need to buy a separate Boxee box, or other console.¬† 2)¬† Smart phones are benefitting from 4G networks, which makes streaming¬†reasonable.¬† Smart phones also can¬†convert¬†to a wireless hot spot which means you can connect all kinds of devices to the internet, ¬†3)¬† MPEG-4 formatting allows for faster streaming, and further research is being done in compression technology, 4) iPads and tablet PCs have yet to penetrate the market, and when they do, streaming content will be in higher demand, I mean I do enjoy watching my NetFlix videos on my iPad, but the quality of the streams do not take advantage of my iPads resolution; and 5)¬† cloud computing is becoming an important tool for supporting mass web applications.
3 Ways To Stream Your Money
So why does this matter to you?¬† Well, we’re tyring to stay ahead of the game here.¬† Anticipate where demand will be in the next 5 years, and you can be in investing in the right industries.¬† If you believe streaming content will be an important utility in technology, then start thinking about investing in them now.¬† Here’s a few categories that consumers will be trending towards, and a few companies that will benefit from the demand.¬† Many of these you will notice are already in uptrends..
Category 1:¬† Cloud Computing-¬† In order to satisfy the insatiable appetite for data storage, and just simply living your life on the internet, cloud computing servers will become a requirement for almost every application.¬† iPads, iPods, movie streaming, FaceBooking, photo uploading, online shopping… it all will be serviced by cloud computing.¬† My favorite cloud play is still Rackspace (RAX), which was brave enough to take on Amazon through cloud computing.¬† SalesForce.com (CRM) and Accenture (ACN)¬†¬†are also good cloud plays.¬† ACN guided higher for 2011.
Category 2:¬† Stream Team-¬† Look for small companies that have been around for a while to get hot.¬† I like Limelight¬†Networks (LLNW)¬†which streams content;¬† they have been in legal battles recently, so let’s see how they proceed from here.¬† Akamai (AKAM) is the clear leader here, and still continues to grow.¬†¬†¬†¬† In-stream advertising is something to also think about, for that check out MediaMind Technologies (MDMD), very nice technology there allowing interaction with advertisments and promotion campaigns.¬† I could go on and on about MDMD because in a way it brings together localization and streaming concepts together, but before I do, get familiar with their “Dear Mr. President” campaign they ran with Pepsi.¬† And finally, to make sure everything is secure while things are being streamed, you must check out VirnetX Holdings (VHC)… impressive stock.
Category 3:¬† Hardware-¬† Whether you’re running the latest 4G network, fiber optics, DSLs, you’ll have to call the IT guy to fix it.¬† Look for the companies that fix these things to get big.¬† Take a look at EXFO Inc., my favortie play on the super geeks.¬†
Hopefully this will give you an idea of what’s in store for us the next few years.¬† It’s 2011, we haven’t quite created real estate on the Moon, but at least we’re reaching for the clouds.¬† So in summary,¬†¬†streaming content has been around for a few years, but like I mentioned earlier, only recently has the hardware been¬†catching up with it to allow it to be acceptable for consumption.¬† And only recently have¬†larger companies have been paying extra attention to it. ¬† Invest in the invisible.
(I’m using “SOTY” for my Stocks of The Year list.¬† I have a few picks in the past few weeks called “Best Stocks for 2011″, and BSFTTE didn’t seem like a good acronym.)
First of all, the number 2 is still broken on my keyboard, so I went and got a 10-key plugged in.¬† Yay.
Okay, now open this in a new window and mess around with the moving averages, because I’m trying to figure out the next breakout point for DANG.¬† Fly mentioned using the 20 moving average as a good spot for most momentum stock, and I’m assuming it applies here too.¬† Anyway, tell me what you think.
Based on price-to-volume measures, DANG is a buy as of January 6, and today’s follow-through is good news for you DANG longs, dangit. I’m guessing next lift-off point is at 30.50.
Why do Asians love the word “Joy”? I see it on every campaign.
We like DANG for its growth potential.¬† A recent survey by Visa¬†shows that online spending is increasing in China, ranking second behind Taiwan.¬† We don’t really like Mecox Online (MCOX) right now, at least until they set things straight with investors.¬†
Have fun with DANG.¬† Meanwhile, as much as I like DANG, I can’t wait to invest in this company…¬†;)
Need a lotto play? ¬† Next week, we catching the wave on REE and SHZ.¬†¬†Basic materials is¬†one sizzling sector to be trading right now.¬†¬†¬† A buddy of mine banked a quick 15% on REE last week.¬†¬†¬† You can buy these on the panic, or on the uprise, as long as you get tons of volume, but hold it only for a day or two.¬† The daily volume on REE is insane.¬† These are definitely short term momentum stocks.¬†¬†In reality, a better play would be to swing short REE with a high stop.¬† The longs in REE are very weak and will dump it on almost any negative news concerning rare earth minerals.¬†
REE-diculous Materials Watch 5-day :¬† REE, SHZ, CGA, NR, GMO, AVL
REE-diculous Materials 3-month
Why short REE here?¬† Well, for one, buying it now puts you in the chasing category (stock is way overbought etc).¬† You’ll declare victory on 5% gains, but you’ll mourn when it drops 15%.¬† So, in the end, chasers win small battles but lose the war.¬†
However, the real reason you would want to short REE is that the company in itself does not hold enough substance ath the moment.¬† The risk is too huge to bear for reasonable investors:
Risk 1:¬† REE its Canadian.¬† Haha, jk.
Risk two:¬† REE has only one significant mine for rare earth minerals, Bear Lodge.¬† Although it is the largest known deposit of rare earth minerals in North America, it probably won’t reach full mining capacity for another 3 years.¬† Anything miniscule like permit issues, environmentalist strikes (is that a word?), or stalls can turn into a heavy loss in stock price.
Risk 3:¬† Rare earth minerals are skyrocketing due to export limitations by China.¬† If lifted, or even the speculation that it will be lifted, REE will get destroyed.¬†
Risk 4:¬† January twenty five is the end of the lock out period for REE, which means investors in it will be allowed to take their profits.¬† I’m expecting REE to get hit sometime before that day in anticipation of the end of the lockout period.
Risk 5:¬† Rare earth mineral dependance is about 80% speculation, and it gets increasingly popular the more oil prices go up.
The biggest question is, “is this the top?”¬† Wow that’s tought to answer, everyone wants it to be the top, and for that reason, it’s making it hard to declare it the top, and REE is up like a billion trillion percent.¬† I’ve seen a lot of people try to short REE, but they’ve been ignoring volume, which is a total rookie bear mistake.¬† ¬† All I can do is point out the signs, the catalysts, that will break REE up (my list above), and often overlooked, don’t forget to count the high volume selloffs.¬† So far,¬†we had our first significant high¬†volume selloff a few days ago (see chart), which¬†has created a flagging pattern.¬† It’s kind of like a ticking bomb… 3,¬†two, 1… boom.¬†¬†¬†And from the looks of it, the count down only now began…
What does this mean?¬† Well, usually after the first high volume selloff you can get big spikes, or short term rallies, or, if buying stalls, you can see more dumping on the second wave.¬† So, it’s actually a pretty good play here to short REE with a generous stop around 15.xx.¬† By the end of the three waves of selling, I think REE will be trading back in the single digits.
The rare earth minerals story is an intriguing one, and I enjoy watching it.¬† It involves multiple countries (U.S., Canada, Japan, Australia, and Japan), and illustrates how supply and demand can cause panic.¬† When you come to think of it, it’s just one big game of Texas Hold-Em, or should I say, China-Hold Em.¬† REE, I’m calling your bluff.
More social networking news is causing localization stocks to extend winning streak.¬† Goldman Sachs (aka, “Gold Sox”) once again shows how wonderful it is to be in their club.¬† Goldman’s wealthy clients have until tomorrow to decide if they want to drop a couple of mil on Face Book, which Goldman values at $50 billion.¬† According to their financials (which only Goldman’s special clients received), FaceBook earned $355 net income in the first 3 quarters of two thousand ten¬† (the #two on my laptop is not working.¬† lol.), or another way to look at it, is $4 per user.¬† You really have to get into the habit of thinking “per user” when you think about investing in social networking companies.¬† The¬†market does not care about what these companies spend their money on, what they care about is that the bigger the customer base, the bigger the revenues in a very short time.¬† You see, right now this industry is very imbalanced.¬† You have millions and millions of people, and two websites that they log in.¬† It’s no wonder then that Goldman is making a heavy investment in FaceBook.¬† You can argue that FaceBook or Twitter can’t make money, but once again, I counter that there are two ways (1) localization, and (two) product awareness for those local companies.¬†
Amidst the news, some of my localization stocks are up today:¬† OPEN, RLOC.
I came up with a short activity to train you to see the market the way I do, in trends and dollar signs.¬† What is the overall connection between the following?¬† Apply mind managing (use arrows, dollar signs,¬†and stuff, draw circles.¬† Use the “FaceBook Application” diagram above to make get ideas flowing):
-¬† Mark Cuban, Lady Gaga
-¬† Google Maps
-¬† Bejeweled, Angry Birds
Waiting for a stock that will fly?¬† Well I’ve been waiting much longer than you.¬† In February 2010, GameFly.com filed for an IPO, and all year long I’ve heard nothing over the wires on when this stock will go public.¬† Well, now that almost a year has past, I’m expecting GFLY to finally spread its wings and fly…
What is GameFly.com?¬† Well, best way to describe it, they are the NetFlix of video games.¬† And you know how much we here at iBC love NetFlix as a company!¬† Again, I like to invest in companies that have unique and game-changing concepts.¬† NFLX pioneered the idea of mailbox dvd rentals, and with that came the end of BlockBuster video.¬† Will mailbox videogame rentals do the same?
Probably not as epic, but still stellar… I can see GameFly becoming a household name if they continue to prove to consumers the cost benefit of renting video games.¬† I’m not saying that GameFly will make companies like GameStop irrelevant, but they are the first to this hot market, and they will be the strongest.¬† So, watch how this one develops, and see if GameStop tries to copy GameFly, then you’ll know that GameFly is indeed a company that is scaring the industry.¬†
Gamefly is relatively a new company, founded in 2002, with heavy investment by Sequioa Capital.¬† According to the February announcement, Lynch and Pipar are to handle the $50 million offering.¬† I think the offering will be increased however because looking at the year over year revenues up until March 2010, GameFly was growing at least 20%, $50 mil is not really going to give them enough capital for a 10 year window.¬† Maybe an amendment to the S-1 or a secondary offering?¬†¬†Or maybe they¬†keep the $50 mil.¬† It’s just odd that¬†it’s taking GFLY¬†so long to go public, especially since they are¬†burning cash on advertising (see their commercials on TV?¬† Fun stuff.)¬†¬† Anyway, I’m still waiting for their financial statements to be released for 2010 so I can get a better idea.
Meanwhile, we don’t have to know too much about the accounting side to speculate that GFLY will be a hot stock.¬† Investors will be thinking, “hey, it’s the next NFLX.”¬† And even though it will not be close to what NFLX is doing, people will still buy the stock on opening day.¬† So I want you to play this one as a trader for the first month (think of it as “renting the stock,” lol), then transist into an investor after all the nonsense bidding goes on after the IPO.¬† It’s really hard to predict price action if there’s no history, so only aggressive traders here.¬† But if you believe that GFLY is indeed the video game version of NFLX, then investing in it for a few years is definitely a viable approach to diversifying your portfolio.
And it the concept makes sense… it’s cheaper to rent a game, pay about $10 a month, play it, beat it then return it.¬† How many games does your kid have just laying around the living room because they already got tired of it.¬† The monthly subscription that GameFly charges is far far far cheaper than the depcreciation cost of games.¬† I’ve read a few forums on people who use GFLY, and right now it seems like most of the products rented are the “lower end” games.¬† I’m not sure what that means, but I think what GFLY cannot replace, is the blockbuster titles, the ones that people prefer to buy and keep for the entire year.¬† I really hope management at GameFly can figure a way around this.¬† Maybe offer a more creative way to renting games?¬† Nevertheless, their revenues are growing so they are doing something right.¬† Oh and don’t forget, there’s always the possibility that a giant like Amazon, Best Buy, or NetFlix might buy them out.¬† GameFly is already partnered with Best Buy (not really a fan of that), so at the least, they are gaining product awareness.¬† Remember too, Electronic Arts (ERTS) bought social networking game company PlayFish Inc for $1 billion, so you know that this industry is hot.¬† I still look at PlayFish’s website and shake my head, wondering who in the world plays these games.¬† Can’t argue with the industry, people are just weird.
So, I’ll keep yall posted when I start hearing more about their offering.¬† Just make sure you keep them in your radar.¬† In the meantime, don’t forget that CoinStar (CSTR) is going to be a fun stock to trade during 2011.¬†¬† It’s the closest thing to GameFly right now. ¬†It’s so much cheaper to rent than to buy.¬† Only now our dumb population is starting to figure that out.¬†
GameFly boosted sales 21 percent in the six months through September to $47.7 million, according to the filing. The company made a net profit of $732,000, down from $1.48 million in the year-ago period.¬† (2009 FS)
The concept of renting items is becoming a powerful force in today’s economy.¬† Many entertainment rental companies are doing great.¬† For example, RedBox dvd kiosk parent company, CoinStar (CSTR) moved up 183% last year if you got in at the low.¬† Again, this illustrates why I believe the content/entertainment rental companies will be big in 2011…
… oh yeah, I am NOT a customer of GameFly.¬† Lol.¬† How nerdy you think I am?
¬†¬†¬†¬† Finally there’s a viable way to make money off social networking web-para-sites. I mean, we all saw how the popularity of Facebook, and Twitter made it a virtual gold mine, the problem however, was how to mine it. We waited a few years to see just how this social trend would create investing opportunities, and I’ll tell you exactly what it is. The formulas is quite simple, its so simple you’re going to slap yourself.
¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬† Profiling + advertising, multiplied by a really really lot of people.
¬†¬†¬†¬†¬† It’s a concept that Google built it’s empire on, and it’s a concept that made a lot of people a lot of money. I remember sitting in my economics class shortly after the turn of the century, my professor teaching us that globalization and customization were the wheels that moved the new economy. Unfortunately, my professor failed to mention that this economy was borrowing a lot of money, or to illustrate, it putting the pedal to the metal on an empty tank of gas. The result, a lot of unemployment, foreclosures, less investment, re- educating, restructuring today. Yeah, we’re changing the tires and slowly filling up the tank. Slowly. Therefore, if I were back in my economics class, I would argue that the “come-back” economy was moving toward localizing. Keep that term in mind for the next few years, because localization, not globalization, is what will have a big impact on the economy. I’m not saying that globalization is dead, but based on the trends following the aftermath of 2008, I’m beginning to see businesses, especially small businesses growing faster due to focusing their target markets on local markets first. This is not new, but the magnitude of it is alarming.
¬†¬†¬†¬† What event was the alarm? For me, the alarm went off when Google, the god of the masses, made a huge bid for social networking coupon company Groupon. Don’t ignore this. When google goes shopping, you get in line. For those of you who don’t know what Groupon is, it’s basically an intermediary between mass consumers and local companies. Naturally, the birth of this concept came from social networking websites because that’s the best forum to connect consumers with local businesses.¬† How does Groupon work? Sign up for an account and you’ll learn fast. Basically, everyday it advertises one or two small businesses of a certain State, offering a coupon for sale. If a certain amount of people commit to buy the coupon, then the coupon is valid. From an accountants point of view this is genius. Basically what you are saying is that, I will give you 50% off only if 1,000 people agree to buy this product or service too, hence the term Group-on coupon. Therefore, from the retailers standpoint, you know that you will break-even or make money. Think of it as eBay’s “reserve” amount. But the real value that the retailer gets is not from the sale of 1,000 items, but that he has made his product or service aware to at least 1,000 consumers! Amazing concept… I don’t know why I never came up with this idea before. Actually I’m sure the idea has been alive for a while, but only became profitable and realized with the arrival of giant social networking websites. Again, localization will be a goldmine in 2011 and for the years to come.
¬†¬†¬† To get a users point of view I actually joined Groupon and have alerts sent to my smartphone. So far without purchasing anything I was able to discover a few nice breakfast places on the other side of the island. I can see why Google wanted to buy Groupon ( for $5 billion though? That’s a bit pricey). Anyway, whether you like Groupon or not, what I’m try g to illustrate here is the success story of localization… Craigslist, Vistaprint, etc.
¬†¬†¬† So how do we make money off this? Well, I have two stocks for you, oneI already raved about last month, the other, a new company that has lots of room to grow.¬†¬†¬†
(1)¬† OPEN-¬†¬† Open Table is already over a billion in market cap, so you definitely want to consider adding OPEN to your portfolio if you’re more on the conservative side.¬† Open Table is a leader in the localization concept of consumption.¬† As I’ve mentioned before, what Open Table does is provides “product awareness” by promoting deals, coupons, specials, reservations for local restauarants.¬† I’m actually waiting for them to gain more popularity, but the concept of networking restaurants is going to make them bank money in the future.
(2)¬† ReachLocal (RLOC)¬† – okay, this sucks because I wrote this piece over the weekend, and it’s up 7% today.¬† Anyway, ReachLocal i the company I really wanted to get in on this post.¬† ¬†I believe Reach Local (RLOC) will have a huge year in 2011. Reach Local is the closes thing to Groupon, and I believe Groupon will go public in 2011. However, when it does go public, everyone who knows about Google’s bid for it will be investing in Groupon. Which means Groupon, will be way overpriced. If you can get a good price, then good for you. Meanwhile, I think this opens an opportunity for RLOC to make a move.¬†¬†
What is Reach Local and what do they do? RLOC provides search engine marketing to small to medium sized businesses. Last year they ranked 39 on Inc magazine (yes I subscribe to that magazine lol).¬†¬† In a sense, their model is quite similar to Groupon:
So, you could view them as another advertising company, but I like them more because they target local markets.¬† They have a very impressive resume on growth, probably because they are a new company prospering at the right time when the localization concept is blooming within the¬†small to mid size business markets (SMBs)….¬†
For FY2009 with year ended 31 December 2009, the company reported revenues of $203.1 million, up 38.4% from $146.7 million in revenue for FY2008. Furthermore the company had $10.0 million in net income for FY2009, a large increase from a net loss of $7.0 million for FY2008. 
RLOC is a small company, so the ride will be bumpy.¬† But the marketcap of 600M means there’s a lot of room to grow.¬† I’m waiting for more big buyers, so be patient as you buy this one.¬† I suggest buy slowly on profit taking, and aggressive on high volume rallies, aka, momentum stock status.¬†¬† Remember, the just because RLOC targets SMBs, that doesn’t mean they can’t make money.¬† It’s the power of large numbers, much like our Chinese picks.¬† And for proof that you can make money in this sector, just look at the story of VistaPrint (VPRT).¬† We love VPRT for making everything cheap, but we hate them because now everyone and their grandmother has business cards.¬† Nevertheless, that illustrates that the market is hot in the SMBs, and I blame the new “come-back economy” on that.
So what am I trying to say here?¬† There’s some major trends happening behind the scenes, and if you pay attention to them, you will see where the money is flowing:
1)¬† American economy is in recovery mode after housing and bank crisis, tax crisis, Dancing With the Stars crisis.
2)¬† Unemployment numbers up
3)¬† Enrollment in supplemental education
… all of this are small pieces that shows our economy is shifting;¬†¬†due to loss of jobs, change of employment etc, SMBs (small to mid-size businesses) are becoming a major play.
4)¬† social networking is finally becoming a source of cash flow.¬† Think…. ¬†Groupon, Yelp, Open Table, and Reach Local
5)¬† therefore, localization is becoming a significant play, as we are hearing less of globalization
6)¬† Google and Yahoo willing to spend billions on mass social websites, but social websites saying “no thank you”, says to me that there’s something big in store for this unique “industry”
7)¬† Power to the masses!
Anyway, I’m pretty excited about companies like Reach Local, Open Table, and maybe even Groupon.¬† I mean, as stupid as Groupon “sounds”, you have to admit, the concept is genius.¬† Again, look for any news of Groupon being bought by Google, or for Groupon to go public.¬† This will cause RLOC to move fast.¬†¬† As for OPEN, it is relatively priced high, but it’s moving fast on the IBD 100 so I can live with that.¬† Anyway, I’ll keep yall posted on any news with RLOC so stay tuned.¬†
Surf is up, I’m outta here!