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Justin Giles
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I have been investing in the stock market for a number of years now. I invest mostly in value and growth stocks. My financial goal in life is to always have my money working for me. Follow me on StockTwits -----> JustinGiles Follow me on Twitter -------> JustinGiles22
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  • Apple: Forget About Analyst Expectations, Look Under The Hood At These Astonishing Numbers

    On January 27, 2014, Apple posted record quarterly revenue of more than $57B, with a net profit of more than $13B. Clearly shares were trading higher after the announcement right? In the words of Lee Corso, "Not so fast my friend!"

    Shares of Apple (AAPL) were in a free fall as investors ran for the hills after the Company announced record first quarter results. During after-hours trading, shares closed down more than 8%. So what happened to cause such a sell-off? Two words; analyst expectations.

    Even though Apple beat on both the top ($57.5B vs $57.4B) and bottom lines ($14.50 vs $14.07), analysts expected bigger iPhone sales over the holiday season.

    Apple said it sold 51M iPhones, an all-time quarterly record. This comes out to more than 17M a month, or 16% of the entire U.S population. Let's not forget either that this is just one quarter of sales. Nevertheless, because of high expectations from analysts and investors, even record breaking results left many feeling a bit unimpressed.

    Hedge fund billionaire Carl Icahn seemed to be one of the few that were impressed as he continued his Apple spending spree buying another $500M worth of stock.

    Icahns latest investment in Apple makes his stake valued at more than $4B. In a telephone interview with Reuters, Icahn stated that the decline in Apple shares presented "a great opportunity" to add to his position.

    "Apple shares are very cheap. They are going at six to seven times earning. ...It's not like we are holding something that is trading at 100 times earnings." - Carl Icahn

    Analyst Upgrades & Downgrades

    Gene Munster, an analyst at Piper Jaffray, reiterated his Overweight rating on the stock and stuck with his $640 price target.

    Analyst Brian Marshall of ISI Group reiterated a Strong Buy rating on Apple with a $600 price target. Marshall noted that Apple's problem was more to do with a slowdown in China, rather than in North America. Marshall went to say that he thinks the China Mobile deal still stands to add a lot to Apple's results that aren't yet baked in.

    Not all analysts were praising Apple though as several firms such as J.P. Morgan, Goldman Sachs, and Credit Suisse among others, cut Apple's price target after guidance came in lower that most expected.

    Forget Expectations, Look Under The Hood

    Have you ever invested in a stock because analysts had price targets that were going to give you great returns? While analysts have a lot of tools and resources at their disposal that many investors do not, basing your entire investment decisions on them isn't always the right way to go.

    You see it all the time during the earnings season. A company will report its earnings and analysts will come out with new recommendations (Buy, Sell or Hold), accompanied by new price targets.

    One stock I was following a couple of years ago had a price target well into the $100's by certain analysts. A couple of months later they came out with multiple revised reports. Soon those $100 targets were a thing of the past as $30 became the new norm. Certainly some analysts had there head in the sand which is why investors need to do their due diligence and not rely solely on analyst recommendations among other things.

    One of the most basic principles that all investors can do is look at the fundamentals of a company. So how do Apple's fundamentals look and are there any red flags for investors?

    Apple's FundamentalsAppleApple's Peers
    Trailing P/E13.3215.20
    Forward P/E11.5915.01
    PEG Ratio0.631.06
    Profit Margin21.28%19.94%
    Operating Margin28.31%23.72%
    Return on Assets17.58%11.61%
    Return on Equity28.81%19.27%
    Sales Growth (5yrs)35.45%10.39%
    Cash Per Share$178.25N/A

    Looking at the table above, it becomes quite obvious that shares are trading at a nice bargain right now as the Company's fundamentals clearly outshine its "peers".

    Looking at the current valuation right now, Apple is selling just under 12x this year's expected earnings, a nice discount to the overall market multiple of 15x. If Apple traded at a multiple of 15X, shares would trade for $642.15, representing upside of more than 20%.

    If we subtract Apple's stack of cash from the equation along with its debt, Apple would be trading at approximately 9.18x FY2014's and 8.49x FY 2015's projected earnings. Talk about shares being a bargain. This is a bargain of all bargains as the Company continues to reduce the float by buying back its shares at a fast rate.

    On top of that, how can investors pass up on the nice dividend yield that Apple offers its shareholders. Certainly with all of this, Apple makes a fantastic case as to why investors should own or seriously consider holding this stock this year and going forward.

    Another thing that jumps out to me is that Apple's cash per share stands just under $180. This means that Apple, with a market capitalization of 478B, would have 33.2% of its value explained just by its cash on hand. Meanwhile its users, stores, warehouses, software, patents, trademarks, partnerships among many other things, are currently being valued at just 66.8%. So how does Apple stack up to some of its peers? Just take a look at the table below.

    Cash Per Share$178.25$174.84$10.00$9.00$3.23$6.36
    Cash to Market Capitalization33.2%14.7%26.6%39%45%21.6%
    Cash to Market Capitalization Accounting For Debt26.4%13.0%19.0%26.1%12.6%N/A

    As you can see, Apple once again comes away with the gold medal. So why have shares struggled to climb higher if Apple is so superior to its peers? Yup, you got it, it all comes back to analyst expectations once again.

    For some reason expectations for Apple tend to always be sky high for the Company. This often translates to poor results for the stock price during the earnings season as investors run for the hills because Apple "came in below" analyst expectations.


    Have you ever tried to impress somebody but no matter what you did they never seemed to be impressed? This is exactly what Apple is going through right now.

    Unfortunately for Apple and its shareholders, the company's biggest problem isn't innovating or making high quality products, but rather something the company cannot relatively solve, and that my friends is analyst expectations. Clearly the bar has been set too high as even Apple's record breaking results quarter after quarter are unimpressive to Wall Street. That is why it is very important for investors to do their own due diligence and not rely on analyst recommendations as the sole purpose for getting into a particular stock.

    Just looking at Apple's share price right now ($544), we can see that Apple is making a roaring comeback as it looks that investors are starting to realize that they should focus on Apple's core fundamentals rather then what analysts are projecting for the Company.

    Apple has proven and continued to deliver strong results over time and I believe investors should continue to focus on that, rather than the expectations of analysts. With new and upgraded products coming in 2014, I expect shares to give investors great returns over the coming years.

    As always, I'm providing you with my track record and other particular stocks that I recommend. The link provided will show you all of my picks, how they have fared, and where I think they will be going in the near future. I think you will find my track record to be very impressive as well as useful.

    Disclaimer: Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: AAPL, long-ideas
    Feb 14 2:54 PM | Link | 3 Comments
  • NQ Mobile: Shorts Are Still Coordinating Their Attacks On NQ Mobile,Will It Last?

    Ever since Muddy Waters ("MW") released their short report on NQ Mobile (NQ), there has been a rise in articles claiming fraud on the Company from new SA contributors and bloggers.

    What I find most concerning is that most of these new contributors write mostly about NQ Mobile. Is that just a coincidence? I'll let you be the judge of that. However, looking at the table below we can see that many of these contributors just recently created profiles. Can you guess why? I think we all know the answer here.

    AuthorsGoldBaum ResearchMuddy WatersRobert ZangrilliRegal PointSky Tides
    SA Articles Written104214

    NQ Mobile management saw this coming as they warned investors about coordinated short attacks. Here is a quote from Matt Mathison, Vice President of NQ Mobile.

    "As ridiculous and (false) to many allegations from the recent short-seller report and coordinated other blog posts are, we are determined to provide the marketplace with transparency and action. We are energized and resolved to grow stronger from this attack."

    Over the last two and a half months investors have seen this come to pass. There has been several occasions where multiple negative articles were released just after one another. Just look at what happened yesterday when MW and Goldbaum timely released their tweets and articles right after one another that sent shares tumbling.

    More Bogus Claims?

    Last week, Goldbaum Research came out with another article saying that a portfolio manager in Hong Kong (again, which he never names) see's troubling signs in NQ Mobile.

    However, what I find very troubling is that these recent "claims" and "insights" from Goldbaum never include any names or links for his sources. For all we know Goldbaum could simply be making these sources up. How else are we supposed to know if they are legitimate or not? Are we really supposed to just take his word for it after what happened with his lastest article on short interest? I'm not buying it.

    I put out an article out on SA calling GoldBaum out as the latest short interest figures showed that shorts decreased their positions by almost 20%. Even more interesting is that it was the first time short interest decreased in months.

    So what does that say? It looks like GoldBaum is simply putting out negative articles to scare investors so guys like himself and other funds can cover their short positions. With hedge funds continuing to build positions the attacks are getting weaker and weaker with every passing day.

    These recent events have prompted me to share with you why I feel that no matter what NQ Mobile does, shorts will never be satisfied with the Company. As always I will be providing links so you know exactly where all of this information is coming from.

    The Pride Factor

    Pride is the feeling of pleasure or satisfaction derived from one's own achievements, and the achievements of those with whom one is closely associated with.

    Of course nobody like's being wrong and the feelings that come with it. So what do we do as humans? We do our best to make sure we are right, even if it means tricking ourselves into believing so.

    You hear it almost everyday in the stock market. Do not let emotion/pride get the best of you. Why is this often repeated? Because investors fail to follow this basic principle which often leads to a dangerous game.

    Suppose you like a stock and ride it all the way up for some big gains. You don't book your profits yet, because you like the Company and believe shares will be trading higher soon. Then the stock starts to turn on you. You ride it all the way down because you became attached to the investment, thus losing a lot of money in the process.

    This happens a lot in the investment community and even though most people are well aware of it, it's a case of easier said then done.

    Last week, I wrote an article about NQ Mobile and compared the Company to that of Herbalife (HLF) who experienced the same type of events. There were many comparisons to draw from as I highlighted in this article. I highly recommend investors to take a look at it if they haven't already done so.

    One of the biggest takeaways from that article I feel is the way short seller Bill Ackman ignored one of the most basic principles in the investing world (letting his emotion come into play).

    To make a long story short Ackman lost hundreds of millions on his short position. After shares of Herbalife continued to surge, instead of getting out and taking a loss, Ackman's pride got the better of him as he turned it into a confrontation and stand against Carl Icahn then actual investing. Instead of taking a loss and moving on, Ackman restructured his losing bet on the Company.

    Even though this is just one example, we can see how stubborn some investors can be. Furthermore, we can see that investors will never be satisfied with what a company says if it's not in line with their opinion or motives. I believe the same thing is taking place with NQ Mobile as short sellers keep bringing up the same old concerns and questions.

    Coordinated Short Attacks

    Ever since Muddy Waters ("MW") released their report on NQ Mobile, there has been a rise in articles claiming fraud on the Company from bloggers and contributors.

    Over the last two and a half months investors have seen this come to pass. There has been several occasions where articles and tweets were released right after one another to push shares of NQ Mobile down.

    MW tweeted out last week that NQ Mobile's independent committee failed to accept their offer to have Plante & Moran (A 2nd Tier Auditor) evaluate the investigation of Big Four auditor Deloitte & Touche, as well as international law firm Shearman & Sterling.

    It should be noted that NQ Mobile already has PricewaterhouseCoopers "PwC" (Another Big Four Auditor) looking over their financials.

    * Screenshot taken from MW Twitter account

    I must give credit where credit is due. MW did a sensational job on their part when they announced their "offer" to NQ Mobile. This made a couple of things happen.

    First, it put pressure back on NQ Mobile as the burden of proof shifted from the short sellers claims of fraud, squarely back to NQ Mobile. Shifting the burden of proof is a classic case in which the opposition in this case, (Short sellers) challenge the opponent (NQ Mobile) to disprove a claim, rather than defending their own arguments.

    MW knew that NQ Mobile wasn't going to accept their offer and why should they? MW slashed hundreds of millions of dollars off NQ Mobile's market capitalization. The offer MW gave is a slap in the face to not only NQ Mobile, but its business partners as well. Essentially MW does not believe that NQ Mobile's independent committee is trustworthy enough to do its job along with Deloitte & Touche.

    Is it just me or does else anybody else see that MW is clearly worried here? If MW was confident that NQ was a fraud you would think a Big Four auditor like Deloitte & Touche would be able to see it along with PwC. Instead, MW is already calling for backup.

    The offer MW gave was mostly a ploy to help cover their own backs in case the audit report does come back clean (which I believe it will). Instead of being humiliated and having some bad PR come its way, MW has now put itself into a position which allows it to still question NQ Mobile no matter what takes place with the audit results.

    Second, the offering made MW look like the good guys in the public eye, meanwhile NQ Mobile is left looking like it's hiding something if it didn't take the offer. However, what NQ Mobile did was brilliant in my mind. Here is the reason why.

    "If a company responds to a short seller's claims by brushing them off and saying that it will continue to run its business and in turn, void any investor concerns, it generally turns out that the short seller is wrong. - Carson Block

    By not responding back, NQ Mobile shows that its not willing to play games with MW. We have seen this on multiple occasions (conference calls, etc) where NQ Mobile has simply brushed MW off. So if Block believes what he says he does, then he's certainly wrong about NQ Mobile.

    On that note, trade accordingly.

    Disclaimer: Investors are always reminded that before making any investment, you should do your own proper due diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.

    Disclosure: I am long NQ, .

    Tags: NQ
    Jan 08 1:29 PM | Link | 18 Comments
  • NQ Mobile Has Responded: Looks Like Muddy Waters Will Be Eating Their Words

    Disclaimer: This was going to be part of an article I was working on for SA. Unfortunately, SA did not feel this should be included in my article which is why I'm posting it here for all of my followers and fellow NQ shareholders. FYI, I did add some fun commentary to it since SA wasn't publishing it.

    Three weeks ago, MW released a report "alleging" that NQ Mobile was a "massive fraud" and that the stock was a "strong sell". When investors heard those words they took the standard market approach by selling first, and asking questions later.

    NQ Mobile quickly responded to these allegations by holding a two hour special conference call, posted copies of bank statements, formed a committee to review the company's finances and published a 97-page rebuttal to allegations made about the Company.

    Meanwhile, Carson Block, the founder of MW, was making regular TV appearances on Bloomberg touting his company and the recent allegations they made against NQ Mobile.

    While this might not have seemed odd to you, it did raise some red flags with me. If investors have not heard of "short and distort" before, now is a good time to learn. Short and distort takes place when investors spread fear (negative rumors, allegations, etc) about a company in an attempt to drive down the stock price. Did this just happen to NQ Mobile? Yes!

    During one of Block's interviews, I noticed he seemed to be a little off his game (Video: 2:35 - 3:04). Stephanie Ruhle, a TV anchor at Bloomberg, told him that after he came out with his report, Bloomberg did some digging and contacted an accountant outside of Beijing who said it seems that NQ's numbers are legitimate. Ouch!

    How Does MW Spot Fraud?

    Investors long or short have probably wondered what MW typically looks at in companies that could potentially be "red flags." According to an article from CNNMoney, some of the things the Company looks at are how companies respond to criticism, and what they do with their cash (share repurchase programs, etc).

    Let's start off with first question as to why does Block looks at companies and how they respond to criticism.

    "If a company responds to a short seller's claims by brushing them off and saying that it will continue to run its business and in turn, void any investor concerns, it generally turns out that the short seller is wrong," Block said.

    So the million dollar question becomes, how has NQ responded to these allegations and did they pass the test?

    During the latest conference call, NQ Mobile responded by saying that it will continue to grow the user base aggressively, and that they are focused on the growth of their users that will further generate revenues down the line. It must be noted that NQ Mobile did not take questions from MW during its recent conference call, in which MW continued to post messages on its Twitter account.

    During a recent television meeting with Liz Claman, Co-CEO Omar Khan was asked by Claman "can you say that the muddy waters report is a complete and total fabrication and a lie"? "Yeah, absolutely. It's in our rear-view mirror. For us its about business as usual," said Khan.

    So did NQ Mobile brush them off? Absolutely! Did the Company focus on its business? Yes! Did they past the first part of the test? You Betcha!

    It looks like Carson is going to have to man up and eat his words if he believes what he says. Here is what he said again. "If a company responds to a short seller's claims by brushing them off and saying that it will continue to run its business and in turn, void any investor concerns, it generally turns out that the short seller is wrong." Well it looks like Block struck out again. That makes him 0-8 on IPO stocks. Talk about impressive.

    Now that we've gotton that out of the way, let's take a look at the second question about companies and share repurchase programs.

    "...When a company starts buying back shares, that's not necessarily a positive", Block said. He continued by saying that a share repurchase program only acts as a "Band-Aid" in terms of boosting a company's stock. They also force the company to "squander" a portion of its cash.

    So breaking it all down, Block believes there is trouble when companies put together a share repurchase plan after allegations have been made. Block believes it's a temporary band aid and that companies use that to cover up other issues.

    So did NQ Mobile pass another one of Block's tests? Let's find out.

    On July 3, 2013, NQ made two big announcements. First, that Atlantis Investment Management (one of Hong Kong's largest firms), purchased one million American depositary share's ("ADS") on the open market in June, and would purchase an additional 1.5 million shares directly from the Company. Second, NQ announced a share repurchase plan of $35 million.

    As earnings approached, some investors were more interested in hearing about the share repurchase plan more than the actual earnings of the Company. Investors wanted to know if management was going to issue a bigger buyback program in order to support the stock price and get back at shorts who were attacking the Company.

    Unfortunately, for short term investors, NQ Mobile did not raise the share repurchase plan and kept it at $35 million. While a larger buyback would have brought cheers for many short term investors, long term investors know the Company should use its cash for other useful purposes.

    NQ Mobile did announced that its top executives (President, CEO, CFO and COO) intend to use their personal funds to purchase up to $3M worth of the Company's shares within the next six months.

    "We consider the recent drop in NQ Mobile's share price to be artificially created by false allegations and we believe our stock to be currently undervalued. ...The plan to purchase NQ Mobile shares by the NQ Mobile senior management team demonstrates our strong confidence in the company and reflects our commitment to executing our business plan and delivering shareholder value." -Dr. Henry Lin, Co-CEO of NQ Mobile.

    The fact that management plans to buy shares with their personal money shows you how much confidence they have in the Company. After all, insiders may sell their shares for a multiple of reasons however, there is only one reason to buy shares.

    So did NQ Mobile pass the test? I believe so and here's why. First, the Company issued the repurchase plan long before any allegations arose from MW.

    Second, the fact that the Company did not issue a bigger buyback plan shows they are using their cash wisely and for other purposes (acquisitions, etc). NQ Mobile is not desperate to cover up or hide anything as they invite all investors to come and do due diligence.

    As we can see, NQ Mobile has passed the requirements with flying colors. All that's left now is for MW to admit they were wrong.

    MW Track record

    Have you ever wondered how good an analyst was at his or her job? Over the years I've seen some good analysts and some bad ones. Knowing who you can trust in the market is a very big deal.

    That's why I'm providing you with my track record and other particular stocks that I like. The link provided will show you all of my picks, how they have fared, and where I think they will be going in the near future.

    So what's MW track record over the years? Let's take a look.

     Price Before MW ReportPrice After MW ReportPrice Now% Change
    Reverse Mergers    
    IPO Companies    
    (FSIN)$5.79$6.10$9.50 (Taken Private)+56%
    (FMCN)$25.50$15.43$27.50 (Taken Private)+78%

    * Prices reflect Tuesday's closing prices

    ** Change % rounded to the nearest whole number

    While Block has been right about some companies, you can see that he has been wrong a lot more than he's been right. Looking at the table we can see that Block has done a great job when it comes to reverse mergers. However, when it comes to companies that when the IPO route, he has yet to get a single call right. NQ Mobile went the IPO route, so if history is any indication, Block will strike out again as shares of NQ are in store for quite the pop.

    For those of you that want to learn more about reverse mergers and the difference of IPO companies, I highly encourage you to an article by Toro Investment Partners who goes into greater detail about it. There is also an article on CNBC that talks about reverse mergers and how Chinese firms tend to be more mature and less speculative than their U.S. peers.

    I hope this article has helped you, and like always, I welcome your comments and feedback. Have a great day!

    Disclosure: I am long NQ.

    Tags: NQ
    Nov 22 3:41 AM | Link | 13 Comments
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