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Lou Basenese
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A former Wall Street consultant and analyst, Louis helped direct over $1 billion in institutional capital before founding The White Cap Research Group and Wall Street Daily where he serves as Chief Investment Strategist. In addition to being an expert on technology and small-cap stocks, Louis is... More
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  • Looking to Profit Off Toyota? Head to eBay

    Earlier today I explained why there’s no way I’d buy Toyota Motor (NYSE: TM). Not at these prices. Not even with your money.

    Shares are expensive. Production is uncertain. Growth is uninspiring. And a strong yen threatens to squeeze margins. (How’s that for a quick and dirty investment analysis?)

    That being said, another profit opportunity is brewing as the world’s largest automaker contends in the aftermath of the earthquake and tsunami.

    Let me explain.

    It’s All About Supply and Demand, Stupid!

    Toyota’s production halt in Japan threatens to impact supplies of all its models. The most vulnerable one, though, promises to be the company’s energy efficient darling, the Prius.

    I say that because even before the Japanese earthquake hit, Prius supplies were dwindling. In fact, at the end of February U.S. dealer inventories stood at 17,997. Based on the current sales rate that’s only about one month’s supply.

    And at the same time, demand for Priuses was accelerating because of warmer weather and the 13.4% jump in gasoline prices in the last month. In case you didn’t know, warmer weather brings out more car shoppers. And Prius sales historically rise with gasoline prices.

    While it’s true the plant where Priuses are made wasn’t damaged, production still screeched to a halt until further notice. And with each passing day of inactivity, the supply problem worsens.

    On the demand side, let’s just say the weather isn’t going to get any cooler anytime soon. And the price of gasoline isn’t expected to plummet either. Heck, it just topped $4 per gallon in Hawaii.

    Add it all up, and as Pete DeLongchamps, vice president of manufacturer relations for Group 1 Automotive Inc., the second-largest Toyota franchise owner in the U.S. says, “Prius stock is a little bit short.” And the prospect of Prius supply getting a lot short is strong.

    The last time such economics kicked in, back in 2004, you’ll recall savvy investors made a mint by selling Priuses on eBay (Nasdaq: EBAY).

    Back then, used Priuses routinely sold on the internet auction site for more than the list price of new models. And brand new models fetched the highest premiums.

    In fact, one Daytona Toyota dealer put a Prius on eBay with a buy-it-now price of $36,459, or roughly $10,000 over the list price. Do the math. That’s about a 40% profit potential.

    I promise you if the supply of Priuses keeps dwindling in the aftermath of the Japanese quakes – and gasoline prices keep trending higher – such markups are going to return. If they do, capitalize on the situation because there’s no chance of booking comparable profits trading Toyota’s stock at these levels.

    Ahead of the tape,

    Louis Basenese

    Tags: TM, EBAY, Toyota, Prius, ebay
    Mar 15 11:09 PM | Link | Comment!
  • Investors Are Playing the Mobile Revolution All Wrong

    The exploding use of mobile devices promises to be the fastest growing – and possibly biggest technological trend ever. Bigger than the personal computer revolution of the 1990s. Bigger than the desktop internet revolution of the early 2000s. Bigger than the invention of the automobile, too.

    In fact, it already accounts for over $1 trillion in sales. And yet, we’re still in the infancy of this mega-trend.

    Consider: Over the next five years, mobile device subscriptions are expected to hit 7.1 billion, according to Cisco – enough for every man, woman and child on Earth. And the offshoot of that will be a 26-fold increase in mobile data traffic.

    Talk about some growth on steroids. (Lyle Alzado and Jose Canseco would be so jealous.)

    But wouldn’t you know it? Most investors are being played the fool. Don’t be one of them.

    Pity the Fool, the Hardware Investor

    Most investors are playing the mobile revolution the wrong way. As mobile devices fly off store shelves, investors’ knee-jerk response has been to snap up the leading device manufacturers like Apple, Inc. (Nasdaq: AAPL).

    Wall Street isn’t exactly discouraging the behavior either. A staggering 54 analysts currently provide coverage on the tech giant. Fifty analysts rate Apple a “Buy”… three analysts rate it a “Hold” and only one lone wolf analyst rates it a “Sell.” (So much for original thought and independent thinking!)

    I’m not about to tell you Apple is a terrible investment. After all, the company sold a record 15 million iPads in the first nine months of the mobile device’s existence. And the iPad 2 appears destined for similar success.

    What I am going to tell you – that Wall Street is conveniently omitting – is this: hardware is low margin business. It’s about half as profitable as the average software business, on average.

    Not to mention, hardware is not what’s driving this mobile revolution. If political strategist James Carville had to explain it, “It’s the software, stupid!”

    Hardware is So 2004!

    Whereas as cool hardware designs like Motorola’s RAZR used to be the primary demand driver for mobile devices way back in 2004, now it’s cool software or apps.

    Think about it. It’s the software on mobile devices that’s transforming the ways we bank, communicate with friends, access the internet, run businesses, access healthcare, enjoy entertainment, even shop.

    So clearly, software holds the most profit potential in the mobile space. Especially since most hardware makers are well-known, mega-cap companies that have already enjoyed historic runs. Stocks of such big companies just can’t keep going up and up forever.

    Take Apple, for example. The stock trades for an ungodly sum of $360 per share and a market cap of $332 billion. Sorry, folks. No matter how many iPads, iPods and iPhones it sells, Apple’s stock is not going to double in price in short order (if ever). The company’s too darn big already.

    In contrast, most software makers are under-the-radar, small cap stocks, with no analyst coverage, blistering sales growth and practically unlimited upside potential.

    Mar 15 11:05 PM | Link | Comment!
  • Wall Street Says "Buy Toyota"... We Say "No Chance!"

    Another day… another massive drop for Japan’s Nikkei 225 stock exchange. Following Monday’s 6.2% selloff, the market tumbled by a further 10.5% today.

    I recently warned you about three Japanese investment shocks in the wake of the tsunami disaster and nuclear crisis. But it’s time for another cautionary note  – this one concerning the world’s largest auto manufacturer, Toyota Motors (NYSE: TM). Here’s why…

    Another Wall Street Con That You Should Ignore

    The old Wall Street adage says to “buy when there’s blood in the streets.”

    Well, Toyota is bleeding.

    Shares are down about 15% since the earthquake hit. And sure enough, Wall Street is touting the stock as a compelling buy…

    • Goldman Sachs (NYSE: GS) analyst Kota Yuzawa believes the negative impact on automakers will be short-lived. He doesn’t see any “major opportunity losses” for Toyota.
    • Wall Street Strategies analyst David Silver sees no real threats to Toyota’s business, either. In his opinion, plants in China and elsewhere should be able to “pick up the [production] slack.”
    • Over at Morningstar, analyst David Whiston says, “Toyota’s stock is one of the cheaper names” in the industry. He pegs fair value at $117 per share – almost 50% above current prices.

    I’d share more analyst opinions… except it’s pointless because they’re all the same! In fact, not a single one rates Toyota as a “Sell.”

    This is one occasion when you should ignore that Wall Street adage – and given such lopsidedness, let me be the voice of reason…

    Post-Earthquake Production: The Great Unknown

    Wall Street’s unbridled optimism for Toyota cannot eliminate one simple truth: Nobody has a clue just how much the Japanese earthquake is going to impact Toyota’s business.

    Sure, Toyota hopes to resume production on Wednesday, which would only limit output by roughly 40,000 vehicles. But that’s just an estimate. And estimates aren’t facts.

    Given the massive power outages and continuing nuclear problems (among a host of other things), the situation in Japan demands that we’re even more wary of estimates.

    The truth is, Toyota’s production halt could last many more days. And if we include the parts made in Japan for overseas assembly plants, we’re talking about 45% of the company’s global production capacity grinding to a halt, based on a report from IHS Automotive.

    Each day the standstill continues, it costs Toyota another $73 million, or about 4,000 vehicles worth of output, according to Goldman Sachs.

    And if the uncertainty over production isn’t enough of a deterrent, consider these other four headwinds that Toyota faces…

    Four More Factors Conspiring Against Toyota

    ~ Valuation: Don’t believe the hype that Toyota is somehow cheap. It trades at a price-to-earnings ratio of 20.7 – a 28% premium to the average S&P 500 stock. It’s also Toyota’s most expensive valuation of the last decade, based on Morningstar data.

    ~ Stronger Yen: Before the earthquake hit, the Japanese yen was one of the world’s strongest currencies. I don’t expect that to change as this tragedy unfolds. In fact, the repatriation of capital to fund the rebuilding efforts promises to prop up the currency even longer. For Toyota, a stronger yen ultimately cuts into its margins, thanks to currency losses on foreign profits.

    ~ Uninspiring Fundamentals: Toyota’s latest quarterly results don’t exactly make it a company I’d want to own. Sales dipped 12%, while earnings dived 38%. Management isn’t exactly forecasting blockbuster future growth, either. Toyota expects to sell 7.5 million vehicles this year, down from 8.42 million last year.

    ~ A (Costly) Recall Problem: Let’s not forget the company’s public relations nightmare of having to recall more than 14 million vehicles since late 2009. This has cost the company billions and trying to grow too aggressively to make up for that could lead to similar problems down the road.

    Bottom Line: Wall Street wants you to believe that Toyota is a best-of-breed, undervalued play on an imminent rebound in Japan. But at current prices, it’s hardly such a sure thing.

    Plus, the longer the fallout from the earthquake lasts, the more Toyota will suffer. And I’m not willing to bet my bottom line on such great unknown. I’d wait for the stock to dip to a new 52-week low before even thinking about jumping on board.

    Ahead of the tape,

    Louis Basenese

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Mar 15 4:55 PM | Link | Comment!
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