All Quiet on the Facebook Front

Things have certainly calmed down since May 18^th when I spent almost two straight hours on the phone talking with folks about Facebook.  It was THE thing in the week leading up to its IPO and it seemed like everybody wanted a piece of the action.

At the time, our advice was to be “cautious, not euphoric,” because there is usually something that can be said for not following the crowd when it comes to investing.

By now, we know what happened.  To call Facebook’s IPO a “mess” would be an understatement.  After briefly passing $45 on the first day of trading, it took FB just two and a half weeks to fall 43% to $25.52.  All of a sudden, nobody wanted it.

Then a funny thing happened.  Facebook’s stock started to rise, reaching $33.43 at one point Friday, June 22, 2012, an increase of 31% since hitting bottom in early June.  As of mid-afternoon Friday, FB had risen just over 4% for the day alone.

Now, I am not saying that just because Facebook’s had a nice run that we should all start to “Like” it.  The point is, when you follow the crowd, it can be tough to make money.

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Facebook (the company) vs. Facebook (the stock)

So much has been written about the recent Facebook stock offering that I am reluctant to add to the stack (though I did, once), so I’ll keep it short.  After going public at $38/share last Friday and climbing briefly to $45, the stock has reversed, closing Tuesday at $31.11, for a loss of 18% from the offering price.  Most investors on that first day of trading paid more than $38, and over 500 million shares changed hands.

In the weeks before the IPO we (along with most other investment firms) received many calls from clients or would-be clients interested in the killing to be made by investing in Facebook.  And why not? Facebook has nearly a billion  users worldwide (I am one) and has become useful for keeping in touch and generating ad revenues for its parent company.  Something used by 15% of the world’s population is a huge deal – so why hasn’t it been a good investment?

First, it’s only been a few days, and Facebook may ultimately prove to be a fine investment. But inside baseball is a game seldom won by the public, and for the last four years, institutions and hedge funds have been buying Facebook stock at much lower prices than the public paid last week. Shocked? You didn’t really think that Wall Street  - with its big bailed-out brokerages and banks – would really give the little guy a break, did you?  The media didn’t help much, with plenty of ballyhoo (see paragraph 12 for the $50 prediction).

So far, the IPO has been a fiasco for investors. That’s because more than just a share of stock, Facebook buyers bought something else – something we try to caution investors against buying: hype.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

FACEBOOK

Well there certainly seems to be an awful lot of chatter about the pending IPO (initial public offering) of Facebook’s stock.  First and foremost please know that as of the writing of this post the IPO has not even occurred.  The IPO is scheduled for the week of May 14^th.

 Currently the offering price talk is $28- $35 per share.  It has been reported to be “over-subscribed” which simply means there are plenty of folks, institutions and individuals,  who would love to buy the stock at the offering price.  Trust me everyone who wants to buy it at the offering price will not get it.  I suspect that if you are one of the lucky folks to get it at the offering price you stand a better than average chance of turning a profit.  For everyone else here is my advice:

 Just wait and see how this company and its stock do after it starts trading for a few days or weeks.  Based on its current earnings estimates the offering price is about 99 times its earnings.  Which in financial jargon means it has a P/E ratio (price to earnings) of 99x.  Historically not cheap.  Apparently from the analysis that I have read Facebook’s profit growth is slowing not accelerating, not good for a company with a 99x multiple.  I am not bashing Facebook here, many companies have shown the ability to adapt their business model and Facebook may well be able to do just that. 

 My approach here is to remain cautiously optimistic and if the stock presents an agreeable entry point then perhaps an investment can be made, but it strikes me that at this offering price you are not getting a great bargain and if the stock does rise after the offering it’s even less of a bargain.  I just do not see the need to rush in and buy anything, ever, Facebook included.

Doug Hendee, CFP^®

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Crowd Funding vs. Fat Cats

We regularly get questions from people wanting to invest in “hot” new companies. Lately all the media buzz about a looming public offering of shares from Facebook has more people than ever wondering how they can get in on the action.

The answer usually is: they can’t.

Think about it: people are interested because they expect that an investment in something like Facebook could make them some quick cash, maybe a lot of it, and there’s a good chance they could be right.  So ask yourself this – would the big Wall Street underwriters who bring such firms to market really let the average investor make some easy money, or would they share the bounty with their favored fat cats? Remember who we’re talking about. These are many of the same firms who brought us the financial crisis, took huge bailouts, then paid millions in bonuses to retain their “best” people. They don’t exist for the average investor.

That’s where “crowd funding” comes in. The theory is that small startups can go to the public – the average investor – and get investment capital to start and grow businesses.  NPR’s Morning Edition did a story about crowd funding this week.  Sounds like a fine idea, but lurking behind it s the ever-present specter of securities fraud. Stock scammers are not new, and a hallmark of their crooked trade is to prey on the unwary, often in modest amounts. It’s not hard to imagine a website touting plausible-sounding “up-and-coming” companies and encouraging the unwary to make a small investment.  Plenty of people might “invest” $5, $100, $1000 hoping for a long-shot win. After all, people throw away money on lottery tickets every day. Experience suggests that such sites would pop up, collect money, and disappear, leaving investors with nothing and regulators hunting a thin trail.

Crowd funding sounds like a good idea, but without adequate safeguards for the investing public, it won’t be a path to Fat Cat status.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Bankrupt

 Kodak, bankrupt. How can it be? Who would have thought, ten years ago – even a year ago –  that this would come to pass. And yet here we are.  Our firm has been busy holding Community Resource Meetings for Kodak employees and retirees, helping to provide clear information at a time when rumor, half-truth, and urban legend have all circulated throughout the community.  We have another session tomorrow night here at our office and one a week from tomorrow in Greece, home of the largest concentration of current and former Kodakers.  

Here’s a quick rundown of what to expect – and what not to:

1. Bankruptcy means reorganization for Kodak – not liquidation. The company will try to sell its patents and some business units with a plan to slim down and emerge a smaller and more profitable company. Estimated time in bankruptcy: about 18 months.
2. For retirees who are receiving monthly pensions, no worries. Your pensions are safe and will continue to be paid. Some special executive plans will probably suffer, and current employees may find available pension options curtailed.  But KRIP pensions are well-funded and safe.
3. SIP, Kodak’s well-known 401k plan, is also safe. Kodak cannot touch those assets and neither can its creditors. There should be no meaningful short-term change in investment options, including the Fixed Income Fund (still known as “Fund D” to many).
4. Health insurance benefits are safe – for now. Since Kodak will operate under bankruptcy protection, the company cannot terminate or alter retiree health benefits without court approval. It’s true that Kodak could move quickly and ask the court to approve a prompt termination, but we see that as highly unlikely. Current view: retiree health insurance will not end prior to the end of bankruptcy.
5. Employees will keep their jobs and benefits – for now. Kodak will try to sell businesses (consumer is high on the list) but even if sold a lot of jobs will remain.
6. Many of the upbeat projections rely on a sale of patents for the higher end of the range, $2 – $3 billion. A strong patent sale will lubricate the entire process.
7. Still waiting to hear a realistic, believable scenario from the office of the CEO.  Because this time last year, here was the story

Stay with us on Facebook and Twitter for the latest.  For Kodak employees and retirees with questions, our hotline is 585-340-2246.

 

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).