Happy 2014, everyone. This year is sure to bring the same excitement as the previous few years, given the record-setting closing months of 2013 and the renewed sense of enthusiasm from both new and experienced investors. As always, some key political and geopolitical events are likely to influence trading this year, namely the tapering off of Washington's bond-buying stimulus program. The market responded nicely late last year to news that the tapering would be slow in order to avert any quick and drastic impacts on the economy, but reports indicate that the program is likely to be gone by the end of the year. Washington has no desire to see the end of the stimulus program put a dent in the record progress of 2013, but some investors will remain wary that the full-steamed recovery can continue without the ever-present crutch that the bond-buying provided.
Debates have also started to rage in the wires as to whether or not stocks are now overvalued at their record levels. Such talk, regardless of which side of the fence one stands on, is likely to lead to just a bit more of an antsy investing community - one more inclined to pull profits from the table at the first sign of trouble.
That leads us into a nice theme for ushering in the new year - beware of overconfidence.
Without a doubt, investors of all types made bank as the markets soared to new highs in 2013. Small investors playing the percentages are sure to be sitting a lot prettier now, having taken advantage of the market climb to pay off some bills and/or enjoy that well-earned trip to Los Cabos, while the larger investors padded those portfolios, too. The only negative associated with such market action is that overconfidence can set in, having an investor believe that he or she holds a "magic touch," when the reality has it that everyone makes money in a bull market and winning streaks can come to an end just as easily as they began. It's important to remind ourselves that it's never a bad idea to pull some of those paper profits from the table in order to actualize those hard-earned gains. The bills you may have been looking to pay cannot be paid with unrealized paper gains and neither United nor Delta (DAL) take an eTrade statement as payment.
Just because the entire portfolio is green right now, that doesn't mean those individual stocks and stories can't turn on a dime, so remember to entertain levity, even at a time when it looks like everything you touch turns to gold.
It's been my opinion over the years that - although still tough - it's easier to sit there with realized gains in your bank account while missing out on additional gains as your stocks go higher than it is to sit there regretting not having sold at least a few shares into a big run because you had the mindset that the run will never end. Just like gravity, nothing goes up forever, so there's nothing wrong with rewarded yourself with some of those profits. For those that can't completely let go, it is a sound strategy, I believe, to at least pull some profits from the table after a nice run, while also potentially leaving a few shares on the table to take advantage of any future gains, should a run continue. That'll keep an investor honest and free of the overconfidence that can set in when everyone is making money in an all-out bull market, and it'll go a long way towards that trip to Cabo, too.
With that in mind, let's take a look at a few stocks and stories playing out on Wednesday, 8 January, 2014 that have well-rewarded investors lately, but may have already registered their biggest percentage gains for the near term future ...
Twitter's Warm Welcome to the Big Leagues
Twitter Inc. (TWTR) proved to be the anti-Facebook (FB) when its IPO last year was hugely successful for both the company and its investors, who were able to enjoy a quick double. There was no Kardashian-sized drama associated with the launch of TWTR as there was with the FB launch and many investors have regained their confidence in the IPO process as a result. As such, Twitter is trading on the big boards now and will have to answer to the shareholders publicly, which will have this one as a much-watched stock in 2014.
In less than a month - on 5 Feb, to be exact - the company is slated to issue its first earnings report following its IPO, but extra attention is already hitting the stock, given a recent downgrade by Morgan Stanley (MS). That didn't take long, did it? Welcome to the big leagues, buddy, here's a big bank downgrade to kill your celebration party.
The effects of the downgrade carried over into Tuesday's trading session, when shares dropped by over seven percent. With short interest growing, additional downward pressure could be applied if the shorts become overly-emboldened with the negative action. If nothing else, volatility is likely to set in leading into the early-Feb earnings report as a result of these events of early 2014. Traders may enjoy playing that action for the time being, but long investors will be itchy waiting for any news and numbers on the earnings front that could potentially reverse that trend.
Twitter remains unprofitable at the time, so the numbers alone probably won't be enough to reverse any downward or volatile action, but advertising trends and projections giving us an idea of what's in store probably can. The key for Twitter at this point is to prove that it can compete with the big boys of the sector - namely Google (GOOG) and Facebook - in securing those heavily-desired advertising dollars. The company will also have to show that it can continue to register significant and steady user growth worldwide. Those that rode the IPO wave to more than a double are betting that Twitter can come through, although the growing short interest indicates that there is a good sect out there that won't believe it until they see it.
Given the already huge percentage gains that were had after the IPO and the uncertainty setting in since the downgrade, there's nothing wrong with pulling some profits from the table in order to realize at least some of those gains. Many probably already have, and hopefully that crowd didn't spend the cash on NY Giants tickets.
There's a stock that went south fast - ELI.
Twitter proved to those who had lost faith in the IPO process after Facebook that the system can still work, and the stock handsomely rewarded its initial investors for their faith. But the pre-season is over now and it's game time. Although TWTR was a straight ride up during the closing months of 2013, there's a good chance that the best percentage gains have already been had for the time being.
One to watch on Wednesday, given the downgrade and recent trading action, but even more worthy of the attention as we draw nearer to the earnings date.
SIRI Spikes on Sweet Subscriber Growth, But Higher Highs are History
SiriusXM (SIRI) is another one who has continued to defy the critics and whether the storm to higher highs over the past few years. Long and short investors of have waged war quarter after quarter over the future possibilities of the company, but the bulls consistently prevailed as the subscriber base soared and the share price recovered from the nickel where it traded as bankruptcy loomed in 2009.
The culmination of the story may be quickly unfolding this week, however, as Liberty Media (LMCA) - which came in at the eleventh hour to save the company from bankruptcy those years ago - is making a move to obtain one hundred percent ownership of the company in a deal that would ultimately net SIRI shareholders a value of $3.68 per share. Given the continued growth rate in both subscriber count and cash flow - and the solid line sloping upwards that paints the SIRI share price trend - this buyout deal doesn't look like the best one that shareholders were hoping for, and some believe that the Liberty buyout will move to a higher price.
Investors sticking around at this point are doing so holding onto those hopes, although others are possibly looking to gain the Liberty shares that would replace the SIRI common shares as a result of the buyout. Those wanting a piece of Liberty after SiriusXM is fully absorbed into the company, then fair enough, although SIRI is small potatoes in the Liberty empire and is not likely to influence the trading action of Liberty shares much, but those betting on Malone upping the ante on the buyout price may be disappointed.
General analyst sentiment values shares in the mid four dollar range - the area where shareholders would see a buyout as more fair - but it's not likely that Malone will bend to the will of minority shareholders and pay out that much of a higher premium than the currently-offered price. It's also unlikely that this deal does not become finalized, given Liberty's methodical moves to acquire full control of the company over the years and Malone's old school, dog-eat-dog business style.
That said, shareholders who have been in for the long haul won't have much to complain about when considering the gains that have already been had, but those who bought in more recently based on what the future could have held were SIRI to remain a traded symbol on its own won't be too satisfied at all with the current offer.
Reports out on Tuesday afternoon provided an initial look at the 2013 numbers and hinted at what the full new year is expected to bring, too. Cash flow is expected to role in at the rate of four billion dollars - maybe more, according to analyst projections - which is a demonstration of how far the company has come since Howard Stern put it on the map.
At this point, this is a story to watch for entertainment value, as this is another one whose greatest gains have already been had, barring any near-miraculous change in plan by Malone's Liberty Media.
Facebook a Proven Winner, But Some Concerns Still Exist
There is no doubt that investors who held onto Facebook shares following the catastrophe that became of the months following its IPO were well-rewarded for their patience, but with the record-setting rally of 2013 now in the rear view mirror and the market set for a potential slowdown, it's worth re-assessing all of our investments with a new look for 2014, and that includes a new look at FB - a stock that is sitting at prices more than double where they were last summer.
Facebook's run to its current price was well-deserved, as the company did what it had to do to win over the investors who were bailing out in droves after the IPO - prove that it could succeed in taking its advertising platform mobile. The company has been successful enough in that regard that many are now doubting whether Twitter can compete for online and mobile advertising dollars, given Facebook's newly-found foothold in the market and the steadfast grasp that Google also has on the market.
The highest highs of Facebook certainly may not have yet been seen, and many analysts have started to jump on board and agree, but there is enough justification out there now to give investors some reason to pause and maybe start thinking about realizing some of the gains that have launched the stock into its current territory.
One of the biggest fears that the skeptics will look to implant into the minds of the casual long investor is that Facebook, like many social media giants before it (remember MySpace?) is doomed to be passed over in favor of the 'next big thing' - once that 'next big thing' hits. One cannot predict when that might happen, but history has shown that it can happen quick. Facebook killed MySpace, for instance, and bulky cassette player and weak cell phone were just fine before Apple (AAPL) made us wonder how we ever lived without an iPod nano and a smartphone. Trends and Fads are everything when you're monetary income is based on where the consumer is looking at any given time, and Facebook is well aware of that - evidence of such is that the company is looking to purchase any start-up and well-established social media outlet that could potentially become a competitor later on down the road.
That strategy may be a sound one, but can lead to over-paying - as Google, and now the cash-flush Twitter - will always enter the picture if only to drive up the final deal price for a competitor (like Scott Boras uses the Mets) - and there is always the danger that another start-up could quickly outpace the one you just bought for billions, as recently outlined by another Seeking Alpha author.
Trends are a dangerous game for social media and a European report - outlined by yet another SA author - describing how Facebook's hold on this generation is not translating into the next cannot be ignored. After all, the younger generation doesn't want to hang out where mom, dad, uncle Bill and grandma are hanging out, too.
Judging by the company's M&A efforts, such reports are not being ignored and Facebook will continue to look to gobble-up anyone who could become a threat to its livelihood.
Another item to consider is that quite a few analysts and Facebook followers who were negative on the stock for quite a while following the IPO - even into the run last year - are starting to change their tune and go positive. That's a good thing, right? It could be, and that's how some investors are attempting to sway the news, but it always makes a guy or gal nervous when the analysts start jumping on board AFTER a big run has already happened. That's a good sign, in my opinion, that many of the big investors were already in before the run started - as they should be - and are looking to take some of their own profits off the table, and that could be a sign that the best gains were already there to be had.
Even the most enthusiastic analyst estimates state that the gains left that could be had will not even nearly equal the percentage gains that have already had, so those jumping in now are assuming much greater risk for not as much reward.
Another factor to consider is that the Facebook rally coincided with the stock market rally to record highs, so if the market were to falter, or slide, it's likely FB would be along for the ride.
We've got to entertain levity when euphoria is high after a bull market run.
Roundup: Overseas shares spiked on Wednesday morning, following suit of the upbeat US trading action on Tuesday, which resulted from positive American export and trade deficit numbers. The dollar strengthened, too, as a result of that data and economists around the world continue to provide rosy outlooks for the US economic recovery. Some of that depends on continued action (or non-action) by the Fed, so the release of Fed minutes later Wednesday afternoon could provide a trading catalyst for the day, while also giving investors an idea of how much longer we can expect the stimulus actions to last.
Have a happy trading day!!!