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Charles Santerre
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Investing on my own since 2007. Investing successfully is the most challenging activity I have ever undertaken. Books that inspired me to fire my investment adviser: The Big Investment Lie, Michael Edesess; and What Wall Street Doesn't Want You To Know, Larry E. Swedroe. The Snowball: Warren... More
  • Are Standard & Poor's Opinions Misleading And Is Goldman Sachs Ripping Us Off? 4 comments
    Dec 1, 2012 8:29 AM | about stocks: NOK

    It clearly states on their website : Standard & Poor's Ratings Services. If you`re a retail investor, that sounds pretty official. If you have a brokerage account, chances are their website will feature a link called "Quotes and Research" and another called "Analysts Reports". Choose a company and go ahead and read an Analyst's Report. Chances are it will be by Standard & Poor's. In that analysis, what will you see in bold letters right under the date and company name? S&P Recommendation. And in big bold letters you will read Buy, Sell, Hold. Or you may even read even stronger words such as Strong Buy followed by five stars. That`s a pretty strong recommendation, wouldn't you say?

    A report also contains headers such as Target Price and Qualitative Risk Assessment. Well that sounds pretty official, and even scientific. So when S&P testifies in front of Congress following the subprime mortgage products that they rated AAA, why did they insist on calling their ratings, research, recommendations and analysis, just opinions?

    It seems to me than an opinion is something that everyone has, and it usually comes free. Most of the time, opinions aren`t very valuable. Would you want to base your retirement fund decisions on opinions or research and analysis? I know I feel more comfortable using the latter. If Standard & Poor`s is in the business of providing opinions and not research, ratings and recommendations, then it should be made clear to everyone that relies on these opinions.

    Wouldn'tyou agree that your financial health can have serious repercussions on your physical health? In my "opinion", Standard & Poor`s products should come with the same level of warnings of… cigarette manufacturers. I am not asking for pictures of sick lungs on their opinion "reports", but it would be sobering to read in bold letters: "Hey, this is just our opinion. In fact, your guess is as good as ours! We're wrong at least as often as we're right!" We'd all be better off, maybe even financially.

    I am a retail investor in Canada. I have been following Nokia Corporation since the summer of 2010. At that time, I thought I was doing my due diligence by studying what else? Standard & Poor`s Analysts Reports on Nokia. The first S&P report that I kept rated Nokia a Strong Buy with five stars on July 10, 2010. This despite the fact that the price per share had previously plunged from $15 to $8 from April to June. S&P continued to rate Nokia a Strong Buy in their subsequent reports dated July 22 & 31, as well as August 31, 2010. For some reason I stopped collecting S&P reports after that date. And unfortunately, if I wanted a historical perspective of the accuracy of S&P's opinions on Nokia before I started collecting them and after I gave up, my brokerage's website does not provide them. They only offer them on their website for a period of 12 months.

    Fast-forward a bit less than two years, the share price for Nokia has gone from $15 down to $4 and change. I can read in S&P`s analysis dated for that period, February 29, 2012, that they had a Hold rating and three stars. The Hold rating would remain for the July 31, 2012 S&P report despite the fact that the share price reached a new 52-week low of $1.63. When the share price for Nokia started to go back up, S&P emitted a Sell rating in their September 6th report and then again in their subsequent report five days later. One month later, on October 18, 2012, S&P rated Nokia a Strong Sell. At that time, Nokia's share price was actually going up, reaching $2.80. S&P has not put out a new report on Nokia since. However Nokia was found trading as high as $3.56 at the close of trading on November 23, 2012. It launched a new line of phones in many parts of the world in November and apparently they are sold out in many outlets including in the US.

    Now to another of America's fine financial institutions: Goldman Sachs. According to MSN Money, Goldman Sachs International owns over 100 million shares in Nokia, having bought the bulk of those shares recently. They are the largest shareholder of Nokia`s American Depository Receipts or ADRs. So how come Goldman Sachs has a Sell rating on Nokia? That doesn`t make sense! Would they be on the one hand encouraging their clients to sell Nokia shares, driving the price lower, while on the other hand, buying up those shares at a bargain price hoping for a quick profit for themselves? Goldman recently purchased 66 million shares and the Nokia share price has gone up roughly one dollar in the last month: that`s a $66 million dollar profit. Very nice!

    Disclosure: I am long NOK.

    Stocks: NOK
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Comments (4)
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  • Eld
    , contributor
    Comments (376) | Send Message
    Thanks Charles for interesting opinion.


    I just would like to point out that NOK's fundamentals are not good, which will lead to a further drop in the share price once investors realize.
    The key valuation indicator is free cash flow. NOK's free cash has turned negative in Q1 2012, and will remain so for 3 reasons:
    - featured phone op result has turned from EUR 300m (average, 2011) to EUR 100m (average, 2012), and will not contribute in 2013.
    - smartphone business division has a high breakeven volume (15-20m), making the loss sustainable for the next quarters
    - NSN will face business slow down due to reconomic uncertainties, which will reduce NOK's main source of free cash flow


    All in all, the 'sell' rating is more than justified, until we get more figures driving a sustainable cash flow generation.
    2 Dec 2012, 03:39 AM Reply Like
  • mitrado
    , contributor
    Comments (2033) | Send Message
    "All in all, the 'sell' rating is more than justified, until we get more figures driving a sustainable cash flow generation."


    But by then, chances are you'll be buying NOK well over the current price.


    Now AAPL is a Strong Buy for the Wall Street Crooked Analysts. I wonder how many months it will take for AAPL to lose half it's value?
    2 Dec 2012, 08:42 AM Reply Like
  • Charles Santerre
    , contributor
    Comments (1224) | Send Message
    Author’s reply » My point is not that the sell rating is justified or not, it's the timing. It's too late to close the barn door after the horse has run out. If retail investors or other "analysts" rely on S&P for guidance, they will buy high and sell low, the perfect way to lose your money. I am sure they do the exact opposite of their recommendations and enrich themselves that way.
    3 Dec 2012, 05:05 PM Reply Like
  • Rookie IRA Investor
    , contributor
    Comments (2863) | Send Message
    Well, while I feared an earnings warning, I didn't expect this. A little while ago I took profits on most of my NOK holdings in my trading IRA account and bought the January $4/$4.50 bull call options spread for 11 cents, reasoning that if NOK bombed I could only lose 11 cents per share, and if it finished the January options period at $4.50, I would have a four bagger. I also kept a few thousand shares long in my Roth IRA account which is now up 50% over the last 6 months purely based on trading in and out of NOK stock (no options.) Would have been better to buy and hold, but, oh well. Profit beats loss any day.


    Over the last two days I was a bit dispirited as I had expected a slow rise into earnings and was expecting the $4/$4.50 bull call spread to expire worthless. Since the value of the short January $4.50 calls was now next to worthless, I bought them all back to make my position longer, and balanced a bit with some February $4 puts in case of further slippage.


    This morning I quickly sold the remaining long shares in my ROTH the premarket for an average of $4.49 with the intention of buying them back for less later on if possible,.


    The bull call spread now looks very positive and will break even on January 19th at $4.11, however, since the bull call spread is no longer a spread, I will probably start to take some profits when options trading opens today, and put the rest on offer if NOK spikes higher to $4.70 this morning.


    My prediction is that NOK hits a short term high at 10:00 a.m. today, but who really knows what will happen with short covering, or if the stock approaches the magical $5.


    The earnings "warning" is positive, but not completely euphoric as there is a kind of warning that things may not be that great in the next quarter. Now what we want to know is whether there will be a dividend this year.
    10 Jan 2013, 09:18 AM Reply Like
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