Bachar Samawi

Investment advisor, portfolio strategy, macro, long/short equity
Bachar Samawi
Investment advisor, portfolio strategy, macro, long/short equity
Contributor since: 2011
Company: Bachar Samawi Ventures
The premise that Saudi Arabia does not want to leave oil in the ground is weak and makes no sense: If Saudi Arabia has a total of 100 barrels in the ground, it would much rather pump 50 of it (and leave 50 in the ground) and sell it at $80 dollars/barrel, for a net revenue of $4,000, than pump the whole 100 barrels and sell them at $20 for a net revenue of $2,000.
Saudi Arabia's move has only two credible explanations: A- It is political in order to weaken Russia & Iran, B- In the current weak demand environment, It has somewhat lost its swing producer status to shale...
You make a good point CrusaderPete. Let's say I was simply being diplomatic...
Thank you for your comment Jaxon Research.
We have amended the language in the second paragraph to reflect the words "outperformance" and "underperformance" for one stock vs. the other on spread trades, in order to address your comment.
Thank you for your comment les2005.
A company's weakness is a negative factor if such factor cannot be overcome. When Facebook first went public, its shares got hammered due to its weakness in monetizing mobile users. Yet, as time progressed, Facebook showed improvement in such area, and hence it became a potential for opportunity. Had investors simply totally written off Facebook due to its early weakness in monetizing mobile users, they would have simply missed the gains that Facebook ultimately realized...
You should probably read some of the skeptical comments that were posted on our first article referenced above recommending buying LinkedIn in 2012...
LinkedIn does not have a weakness; it has potential for substantial growth in ad revenues, as its demographics provide it a better opportunity for effective targeted advertisement throughout its media publishing.
Michael it is always important to read between the lines... Especially from Politicians... Naimi is a Politician...
The quote you provided says "Naimi spoke about market share rivalry with the United States...". First , it is a second hand quote... Second, the quote says he "spoke of". I have not seen a first hand report, where an official from Saudi, whether Naimi or other, has actually said that they are maintaining output for market share... Furthermore, even if such statement was made, I would not believe it, as I believe that given the current political situation in the GCC/Middle East, such topic takes the back seat to current political concerns with respect to Iran/Syria/Russia etc...
Now, with respect to "if Russia falls off a cliff, Putin will make sure to bring others down ", I believe your assessment is not accurate. Historically speaking, the west has never operated on the premise that it should preserve its adversaries in fear of what would happen if such adversaries were to fall. Look at the end of the Soviet Union, Vietnam, Germany (WWII), Libya, Iraq, Syria, etc... Furthermore, the west (and Saudi Arabia as it is a US ally) are always more interested in the risks of a current foe, than they are interested in the threat of the alternative... In general, if the west feels that an adversary is overreaching, the west wastes no time to put plans in place to clip such foe's wings....
Did Saudi Arabia actually announce that they are defending their market share? Or is this speculation by everyone on their motivation?
The only motivation that makes sense is a political one, as some have conjectured. Lower oil prices will hurt Russia more than anyone else; hence, it is no surprise that such move by Saudi coincides with geopolitical issues relating to Russia.
When it comes to political motivations, cost becomes less important...
This is a very good article, but its basic assumption of Saudi Arabia's motivation for its move, linked to market share, is not necessarily true, and hence quantifying it takes the back seat to possible political motivation...
We believe Micron is a better valuation. We published an article on our website: http://bit.ly/1yiP3aJ
Thank you everyone for your comments. Very often, whenever we write something that readers disagree with, we get the same type of comments written above. That is exactly why we wrote this follow-up article; when we recommended buying SWKS one year ago, many disagreed with our assessment, and yet it is up more than 169%. There are some good comments here, but from a risk/reward perspective, we believe SWKS is no longer as compelling as it used to be as a buy at this time.
Why did some believe that "valuation" was expensive one year ago (when SWKS stock was much cheaper), and cheap today? Always remember that forward P/E ratios already incorporate rosy future expectations...
As per article, from a long term perspective, SWKS may still look good, but in the near term, we would prefer to invest elsewhere.
If you examine our past articles, you will note that we have a very good track record... We will soon provide on our website an actual measurement of such track record for all our past articles.
Thank you for your comment buyandhold2012.
You make a good point in reference to the broader market current record levels...
I do agree that the next major market correction will drag down most stocks, although from a cyclical perspective, I prefer not to bet against the broader market between November and May...
Thank you for your comment Zipper0. You provide some good points.
From a longer term perspective, you are right, as provided in the article we published and referenced in the reply to ultraz2@aol.com .
As a technology company, while in the past I do not believe Apple shares carried a "differentiation" PE adder, that is no longer the case today; an expansion in its forward PE ratio as well as in its free cash flow multiple have already occurred; although they may still have a little more room to go...
Nevertheless, there are still some short term headwinds. Investors and traders often get carried away; when Apple had retreated in 2013 by over 45% from its previous high, dropping form over $100 in Sep 2012 to about $55 in April 2013, many were expecting it to drop even further... Yet now that it has appreciated by over 116% from its April 2013 low, many now are expecting Apple to possibly increase by over 20% to 50% in a relatively short period...
There is one top, and one bottom, and thousands of trades, estimates and predictions. For such reason, I do not necessarily try to pick the top or bottom, but mainly evaluate based on risk/reward scenario. In the near term, current headwinds make a 10% drop more likely than a 10% appreciation. Furthermore, in case Apple does appreciate by 10% or more from current levels prior to dropping by such amount, I do believe that investors would still have the opportunity to purchase Apple at current levels, as any such appreciation would also raise the likelihood of a subsequent drop to current levels...
Once again, from a longer term perspective, I agree with you, and I do believe that Apple is the best candidate out there to breach $1 Trillion market cap.
Thanks you for your comment richbar. The market cap referenced in the article implicitly takes buybacks into consideration, as it is calculated based on current outstanding shares.
As for the stock price, split or no split, no adjustment is needed for buybacks. Adjustments are typically made for comparison basis for dividends and splits only, which have economic effect on holders of shares.
For example, suppose you buy a stock at $100 in 2012, and then the company engages in buybacks, but the stock price remains at $100 in 2014, with no dividends & no splits, then if you sell the stock in 2014 at its price of $100, you have no gains and no losses despite the buybacks.
We typically don't. In this case, we are simply putting it in perspective of the Apple series of articles we had previously published, as referenced in the article, as a courtesy to those readers.
This article provides both prices within (pre-split and post-split), and serves as transition for future Apple articles, which, as you suggest, would always provide post-split prices.
For how they may get to $1T see article I referenced in reply to ritam2001
From a longer term perspective, I agree, as per article I published on October 22, 2013: Will Google Beat Apple to $1 Trillion http://seekingalpha.co...
From the nearer term perspective, there are some headwinds, as per article...
Facebook valuation metrics have already incorporated increased display ad monetization by FB. Yet, despite such expectations, FB is still trading at a forward P/E ratio of about 44 for 12/2014 and 35 for 12/2015. Such ratios are too high, despite FB's expected growth rate, given the current macro environment, as well as FB's accumulation of substantial goodwill on its balance sheets due to its acquisitions (which can easily be written off at least partly in the future). Furthermore, FB can also be easily disrupted, while with a market cap of over $162 billion, it can easily lose half its market cap in a heartbeat.
In summary, given macro risks, disruptive risks, excessive forward P/E ratio risks, future goodwill write-off risks, additional use of FB stock as currency for future acquisitions risks, Facebook is overpriced at these levels and can easily drop between 20% to over 40% in a heartbeat if any such risks materialize....
If this transaction takes place, it will have very profound implications on what Apple stands for, and can potentially raise a valid question about Apple's future.
Apple is about creativity, innovations, design and marketing among other matters. As long as one believes that Apple is on top of its game in such regards, then one can justify current 1/2 Trillion Dollar market capitalization for Apple, and can possibly make a case for a higher forward P/E ratio x-cash for Apple.
Beats is primarily about design, innovation within a limited scope, and some marketing. If Apple buys Beats, it is not about the $3 billion it will spend. It is about the message that can be interpreted by investors: is Apple losing its MOJO...
It can easily be argued that if Apple buys Beats, it is an indication that Apple may be losing faith in its own ability to remain on top of its unique proprietary creativity, design and innovation game... That can cause serious erosion of investor confidence in Apple.
What made Apple succeed is primarily Steve Jobs. When he passed away, many, including myself, felt that he must have left behind a culture that can continue strive on his legacy; whereby he may have been able to insititutionalize, or "Jobalize" Apple.
Much of what he stood for is currently being challenged, and is slowly changing: a- bowing to specific investors, b- parting with substantial cash, c- pursuing inorganic growth, etc... If such trend continues, Apple will slowly evolve into becoming commoditized, both in terms of product, as well as in terms of a company and hence investment... In such case, Apple's lifespan will become greatly diminished...
What Apple needs is a continuation of coming up with new, ingenious products, and to be the design trendsetter, not the design follower....
Yes short ratio is high again, even higher than before, as stated in the article, and hence I cautioned against shorting Tesla. On the other hand, the macro environment can provide headwinds, which was not the case in October 2013. Hence, the high valuations along with the negative macro environment along with the dilutive nature of the convertible notes somewhat offset the allure of the potential for another short squeeze to develop. If Tesla shares drop further from these levels, then there will come a point where there may be a favorable entry point again....
The article is very specific to its purpose, as is stated in its title. TSLA was previously recommended whereby several bullish factors, accompanied by a sizable short ratio, increased the likelihood that in case of any unexpected additional bullish news, a short squeeze would develop and shares would trade higher. That is exactly what happened, and as a follow-up, as such event has materialized, and given resulting gains and rising risks, from a risk/reward perspective, the current article recommends being flat again.
tech01x you may wish to ignore the stated risks and remain long TSLA. That is your ultimate decision. Throughout my 26 year trading career I've learned that whenever I have reaped substantial appreciation on a position, while negative risks start accumulating, that it is typically wiser to book profits and either look for a lower entry point, or possibly seek an alternate investment. You are welcome to examine my 90 or so SA articles that I have published during the past 3 years or so, and you will notice that they provide a rather good track record.... TSLA may very well keep appreciating from these levels without providing a further pull back, however, given the stated risks and current gains, I would prefer to book profits and find a better investment opportunity... If you consider this sophomoric, then I am happy to achieve superior returns in a sophomoric manner.... the position has already achieved as much as 47% since its recommendation, depending on investors' exit point, and currently are showing over 19% gain....
These shares have had substantial volatility and sizable peak to trough cycles and vice versa. Although you make a good point stewpified, I do believe in market timing, especially for shares that exhibit such characteristics. Furthermore, I often follow-up previous analysis I have written about, as I do not believe in the eternal buy-and-hold forever strategy, although there are very few stocks that I would favor holding for an extended period of time.
Although I certainly believe that Apple is a good investment proposition, the author's analysis lacks some depth; how about stock and stock option based compensation, has the issuance of such additional shares been taken into consideration in the calculations?
You have to realize that as the market was trading higher, technology shares outperformed on the notion of a stronger economy.
As signals emerged of slowing down, during the past two days, a rotation has taken place out of technology and into financial shares. For example, on Friday, BofA, GS traded higher, while high risk Tesla, Lnkd, nflx, gmcr, etc... traded lower.
If such rotation is indeed taking place, then it is not surprising that markets have made new highs on Friday buoyed by financial shares gains. However, once the dust settles, and if indeed the economy is slowing, then ultimately selling pressures will materialize across the board.
What does all this mean? It means that volatility will increase surrounding sensitive economic releases, with sector rotations masking major directional moves until the dust settles, and the market clearly trends in one direction or the other, upon agreement on the true state of the economy.
More important than insider selling, GMCR has substantial headwinds:
A- consumers have been making coffee at home for over 1000 years, and hence GMCR's original coffee products were naturally in demand; on the other hand, demand for home made 'coke' related products is yet to be tested, and hence the value proposition is nothing but an experiment at this stage;
B- with Fed tapering, high p/e ratio stocks are at substantial risk for extreme correction to the downside which can often exceed 50% to 70%;
C- GMCR rallied not necessarily because of pending new Coke products, but possibly because of the possibility of being ultimately bought out by Coke. What many Bulls do not realize is that Coke's entry price for 10% stake is about 40% below current price. First, if demand for home made Coke related products proves limited, it is unlikely Coke will proceed with buying out GMCR, and Second, it is unlikely they would make such purchase at a price of 40% higher than original purchase - otherwise, they would have purchased a much larger stake to start with... But Coke itself knows the associated risks, and hence was simply buying an insurance, and was not interested in a larger stake until the concept of home coke-related products is proven....
In essence, it is not surprising that insiders are selling, and GMCR can easily drop over 30% in the blink of an eye....
Your five reasons are quite weak...
The market indices are at their current levels despite your reasons 1 to 4 having been there for many months.
For such reason, downside risks are quite large in an era where money printing is decelerating.
As for reason 5, it is quite hard to argue that there is too much fear, especially where many of the leading stocks trading at very elevated P/E: FB, Amazon, Google, etc.... Many such stocks will experience decelerating growth and have substantial wind that can be taken out in case reasons 1 to 4 reverse...
Facebook is under-priced relative to Twitter. Facebook revenues for year ending Dec 2014 are expected at $10.35 billion while for Twitter revenues are expected to be $1.14 billion (10% of Facebook). Meanwhile, FB EPS are expected at $1.12/share for year ending Dec 2014 for Facebook, while for Twitter they are expected to come in at a loss of 2 cents.
As it is unlikely that Twitter shares will fall down substantially due to limited Float, and given the above metrics, then there is a substantial likelihood that Facebook shares can actually gap higher by no less than 30% to 50%.
Remember, prior to Twitter's IPO, many analysts were claiming how Twitter would be fairly priced at about $23 relative to FB. Now that Twitter is priced at over $41, what does that say about Facebook?
Given the overriding relatively muted economic environment for the last several years, IBM has actually done OK. As for the slowdown in China, this could be seasonal and related to China as opposed to IBM, while it can reverse itself in the coming months.
Is it possible that IBM would have a pull back equal to your 6% target? Absolutely it is possible. As a matter of a fact, it is possible for the entire market to pull back by 6%. However, I do not believe the thesis is strong enough, and given IBM's reasonable P/E ratio, I would rather be long....
Paulo lack of profitability is shown to be structural in your model because Amazon has not fully executed its strategy yet. To date, discounting, and selling at a price to undercut others even if it leads to losses has been their model, and yes, in a sense, as such strategy has been maintained, it is structural.
Amazon investors who support Amazon believe that there will come a point where Amazon will be able to boost its profits simply by raising its prices by a small percentage or decreasing shipping subsidies. That point would come when it had driven most of its competitors out of business. Many believe believe that at such point Amazon would have achieved such scale that it would be difficult for others to compete.
When such point comes, your model will no longer seem structural, as initially profits will boom. But then the decline in Amazon's stock price will become structural. At such point, their revenues would decelerate substantially, and as competition slowly re-enters, despite the scale barriers that Amazon has built, ultimately profits will be capped and will start declining again...
As I have said it before, they have a very simple model, full of embellishments and whistles; they are merely undercutting prices and selling below cost when incorporating shipping and other administrative expenses, counting on drowning the competition.
This is not a viable long term business plan....
Inkyx my insight into Amazon is based on my own experience at launching an internet business in the late 90's and failing. Naturally, I did not have nearly the scale of Amazon but what I learned is simple:
1- when selling products on the internet, it is very difficult to overcome the cost of shipping and advertising, if you are competing on price with other internet businesses and brick and mortar businesses
Amazon is learning it the long way. First they had assumed they can only have a few shipping centers in the US. Later they realized they need more than a hundred fulfillment centers. Guess what they may learn next? They will possibly also need brick & mortar Amazon shops, which will provide them exposure and free street advertisement. At the end of the day, I believe Amazon will come a full circle and will be either a retailer or a wholesaler such as Costco/Sam Club.
Now if you want to look forward 5, 10, 15 years, then their model is even less compelling. Energy prices in the future are sure to go much higher, and cost of shipping will become even more prohibitive....
From the consumer perspective, I love Amazon! It's cheaper than everyone else... As a consumer, I also hope they will always be in business.... As an investor, I would not touch them with a 10 foot pole....
Paulo there is a difference between conceding defeat and being wrong. You were not wrong about Amazon. You were defeated and lost a battle, but the war will end when one day Amazon falls off a cliff.
Amazon's business model is unsustainable. It has been able to gain market share and increase revenues by undercutting everyone else's prices, and selling at a loss. In international trade there is a term for that; it is called 'dumping' and it is illegal.
If I was to offer something for free, say a free coke, wouldn't I generate phenomenal revenues and lose money? Or if I was to offer it under everyone else's price, wouldn't everyone want it and I would still generate revenues and lose money?
The Amazon story is a simple story. They undercut everyone else, lose money, and once the competition exits, Amazon hopes to start to make money, either by charging true cost of shipping, or raising their prices. As soon as they start doing that, their revenues will decelerate, and Amazon will fall off a cliff, because their margins would still not justify Amazon stock valuation.
Timing is everything. I believe Amazon shares will fall off a cliff one day. I do not know when, but I certainly am not interested in owning Amazon shares while it happens.
Given Boeing's earnings release where it beat estimates by quite a bit, and has done so previously, it is very clear that such beat was not reflected in its price. Furthermore, their current forward p/e ratio of 17.7 will likely drop once analysts revise their earnings estimates higher. Boeing's earnings blew most estimates away, and their outlook is even better than anticipated.
Boeing has a duopoly on passenger aircraft (with airbus), and its market cap of about $97 billion can grow phenomenally.
Boeing shares can easily add another $30-$50 to reach $160 to $180 within a very short time span. You simply cannot bet on the aircraft industry through GD and LM.....
Thank you for your comment bjnflicks. You make a good point that Apple makes most its money from being able to sell its products to customers, as opposed to giving them away for free... It is a different business model: one that generates revenues from selling advertisements, vs. another that sells products (and pays for advertisements...) .
Yet Google's model is still a compelling one, and aside from private email data mining (which I find controversial), Google has done an incredible job and will have a great future; I just don't think it will overtake Apple in revenues and profits within the next 5 to 8 years, if at all, while Apple continues to be under-appreciated based on its adjusted forward p/e ratio ...
Maxi_G It will be tough with Amazon's current margins.... It would have to increase such margins before investors lose patience...