It seems that as much excitement as the stock market has generated since the dawn of the New Year, it is becoming frustratingly more apparent that the U.S. economy is unable to escape the constraints of Europe. Remarkably, it seems any progress that is made in the U.S. economy is tempered with certain restrictions abroad. If you are like me you are both amazed and disappointed at the same time. After all, there is something to be said about autonomy or lack thereof. Because at some point, one has to wonder, what exactly is the point of getting excited about a decline in the U.S. unemployment rate or an increase in GDP if it all weighs evenly with failed foreign policies?
Fear of default
On Wednesday it seems the investors were unimpressed by the plan to resolve the Greek debt crisis. Many sent the financials lower as the S&P 500 appeared to have stalled near its 10-month-high when news broke suggesting that there yet may be a recession overseas due to weak European business activity - this prompted Fitch to cut Greece's sovereign debt rating by two notches, from "CCC" to "C", leaving it just one grade above formal default.
If this news wasn't bad enough, it did not help that the collection of recent corporate earnings failed to inspire any confidence that the highly anticipated market pullback was avoidable. The reality is, it's coming - history says it will and so does logic as well as the laws of physics. The only question is when. U.S. banks were the S&P 500's worst performing sector. Investors feared that weak euro zone growth would hamper countries dealing with heavy debt loads and the banks exposed to those debts. This is understandable and certainly is something worth monitoring.
As far as the indices were concerned, the Dow lost 27.02 points to close at 12,938.67 while the S&P 500 and Nasdaq dropped 4.55 points and 15.40 points, respectively. While all three remain at close to record highs, it would be a mistake to continue to think that the upside potential still favors over the downside risk. This would have been factual 6 months ago, today caution and prudence should be M.O. To that end, here are some stocks that I think are worth discussing
One of the more controversial stocks of late has been that of streaming movie giant Netflix. The company is loved by many and loathed by many more. But it seems that the tug of war between the two sides over its fate (whatever it shall be) marches closer towards being revealed. For me, I continue to think that its demise is just right around the corner when I caught word that that Comcast (NASDAQ:CMCSA), the top cable operator in the U.S., plans to take Netflix head-on with its own Internet movie streaming service. Over the past two sessions, the stock has dropped from $121 to $112 on the news.
There is little doubt that Netflix was the king of online content. But as I've said previously, content is not always enough as competition, innovation and costs are typically the drivers of any market. This same competition allows the content creators such as Comcast to either figure out a way to become their own means of distribution as or they shop around for whoever is willing to pay them the most money for their content. Since Netflix is unable to (arguably) deal with all three, it is certainly not going to end well. The only question is how much time does it realistically have left?
Sirius XM (NASDAQ:SIRI)
Having Sirius XM follow Netflix on this article is not by coincidence - because as I've said, I think Sirius is also following down the same path as Netflix towards possible extinction if it is not careful. I recently argued that "content is not always the king that it is said to be." I think that is one of the most overused clichés on the market used by many people who have absolutely no idea what it means. But interestingly, over the past year or so, Sirius has been actively cutting content costs and then seemingly bragging about it during conference calls - to the extent where it even played Russian roulette with its primary draw Howard Stern in a very public contract dispute before the two eventual came to terms.
I've been accused of not being fair of late when it comes to Sirius so let me add that the company has had no choice but to seek to be "more discriminative" in its content relative to their perceived value. The result has been a more fiscally responsible company that generates decent cash flow on a quarterly basis. But as with Netflix, the question for Sirius is, where is the innovation? And where is the marketing? And how will it deal with the assault that comes from the competition from seemingly all angles? At what point will it free itself from the confines of the automobile during the average 20 minute commute? Is that length of drive enough to pay for a service when there are free alternatives?
So many questions that needs to be answered - which leads to - does it have enough time answer them? Or will Liberty (NASDAQ:LMCA) step in from being just a speech writer for Sirius and actually start being the one delivering the speeches? Something needs to happen to revive the stock price as it currently sits at $2.09 and has now been delivering lower lows and lower highs. $2.00 was the target the Barclays placed on it a couple of weeks ago and it appears that is where it is heading.
Bank of America (NYSE:BAC)
Investors have to appreciate where Bank of America is today and match that with realistic long-term horizons. I think it is still too early to say with any degree of certainty that the bank is back on track. But the stock is getting very interesting. I've discussed Bank of America quite a bit because the stock has the potential to double from current levels. But it is going to require a great deal of patience to make money.
Before I delve deeper into Bank of America, I want to first point out that I think the stock is going to $10. I have not changed my stance on this and I think its fundamentals are improving enough to justify this (long-term) valuation at some point during the year. Having said that, the premise here being "trading", I think there are some opportunities to both lock in gains and buy at lower levels in anticipation of its upward movement toward $10.
The stock is currently trading right around $8 while its 50-day average is right at $6. However, considering how impactful the Greece situation is with banks in general, I think for investors, it might be wise to take a little bit off the table with BofA until the issues in Europe become a little bit clearer. But for Bank of America it should serve as a positive that any concern with its valuation has to do with exterior factors and not its fundamentals - that proves that it has come a long way.
Research In Motion (RIMM)
The question is, who is still holding shares in Research in Motion at this point? The stock should be sold for no other reason than the fact that it competes head-on with Apple (NASDAQ:AAPL). "Compete" is a term that I use very loosely. The fact of the matter is RIM has been anything but competitive over the last couple of years. Remarkably, though the company has recently made a leadership change, there is evidence that maintaining the status quo will be its method of operation. I'm not sure what the point of the change really was since the company's former co-CEOs still hold board seats.
Instead, until RIM can come to terms with the error of its ways and forget about its past, the stock becomes highly speculative, its fundamental position in terms of cash notwithstanding. With the stock currently trading at $14, I continue to think that it will be at $10 and possibly below within a couple of quarters absent any new attainable competitive strategy. For anyone that is still holding the stock, if you were lucky enough to have been in the green by its early gains since the start of the year, it's time to lock in some profits in my opinion.
Disclosure: I am long AAPL.