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Shengyuan Liu
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Graduating MBA student 1 year experience on trading American stocks and options 3 year experience on trading Chinese stocks CFA Level 2 candidate Have knowledge on both fundamental analysis and Technical Analysis
  • Asset Management Plan For Individual Investors 0 comments
    Nov 28, 2013 9:59 AM | about stocks: DDD, AMZN, JCP, M, NFLX, FB, TSLA, AA, PEP, SQQQ, SDOW, UDOW, GOOG, EA, TTWO, ATVI, AAPL, MSFT, AAL, DAL, LUV, XONE, AAL, JBLU

    Introduction

    Recently, some companies' stock prices cannot be boosted to a higher price level even though their performance beat Wall Street's estimate.

    For example, Netflex, Inc. beat Wall Street's estimate on its growth rate of revenue and subscribers; however, the next day, (NASDAQ:NFLX) was downgraded to 'sell' rating.

    Aggressive investors, who bought NFLX on that day, may never forgot what happened during the following six and half hours. NFLX opened with a price of $388 per share, but closed at $322.52 per share.

    Smart individual investors should have avoided NFLX because it was obviously overvalued.

    In terms of its third quarter performance, Facebook, Inc. (NASDAQ:FB) kept a high revenue growth rate. Facebook, Inc.'s revenue, daily active users and adjusted EPS beat Wall Street's estimates.

    During the after- hour trading, FB was boosted to $56 per share; however, under no clear reason, Facebook, Inc.'s stock price went back to $47.

    In November, some stocks in the social media website industry, such as LNKD, FB and TWTR, were oversold by investors.

    There was one surprise for investors. In this industry, the stock with highest returns is not a popular stock. While its rivals were overselling by investors; after beating estimate, Monster, Inc.'s stock (NYSE:MWW) had a strong up momentum.

    (click to enlarge)

    Based on the information from above table, people may understand the reason why only could bring investors over 15% return within one month.

    Monster, Inc. had a good expenses management; and its stock price was undervalued.

    If people lost money on holding Facebook and Netflex or other overvalued stocks, you need to read the article.

    When you read this, you may find out some of your positions are inappropriate for managing your own assets.

    Hints for individual investors

    The market is at historical high:

    1.Good companies do not have to be good stocks, because most of them are extremely overvalued; bad companies do not have to be bad stocks, because undervalued stocks will also have a chance to be picked by Wall Street.

    2. Do not put more than 30% of your assets on stock market at this moment.

    In the short term, there will have two threats for stock market:

    a. Federal Reserve will taper QE when the inflation rate and jobless rate of U.S. are over 2% and below 6.5% respectively.

    b. Congress will talk about debt ceiling problem in the January.

    If the market collapses, there will be no good choices on stock market.

    Please keep 70% of your assets away from stock market. Holding some short term bill, which matures less than 1 year.

    Here is the reason why I did not suggest people to hold long term note or bond:

    if Federal Reserve taper QE, the market rate of debt will be lifted, then the face value of long term bonds with low coupon rate will depreciate much more than short term bills.

    3. The market is still safe temporarily. The most of good companies are overvalued, I suggest people to spend bigger portion of stock assets on holding Index ETF.

    4. Fundamental analysis will not work on extremely overvalued stocks(Price per share/ assets per share ratio is over 5X). The higher overvalued and better fundamental condition, the more dangerous the stock will be. Because people do not know why they are losing money on holding good companies' stocks.

    For example, 3D system, Inc. is a good company with brilliant future. It just released new low-cost 3D scanners. The new products boosted DDD to $ 84 per share. If people bought (NYSE:DDD) around $80, they may not know why a good company decreased that much.

    Because when the stock price was at $73 per share, it was extremely overvalued.

    5. Do not allocate over 20% of your stock assets on holding technology stocks.

    Smart individual investors have their own opinions about risk and return. Do not care too much about other people's opinion about the bull market of Nasdaq.

    Ben Graham used to told story about risk and return in his book, The Intelligent Investors.

    He wrote "A drove 260 miles in one hour. B drove 260 miles in two hours. A only was 1 hour ahead to arrive at the destination, but can you say that A used better method by driving 260 miles per hour?"

    As long as individual investors do not pay for extremely overvalued stocks, they will hardly lose money.

    6. Put more attentions on stable growing industry, such as large retail industry, large restaurant franchise industry, and transportation industry. Try to find undervalued stocks with stable dividend- paying history and good financial conditions.

    7. Do not hold a stock more than one Quarter. The market is very sensitive to information related to tapering QE, Europe's QE plan and debt ceiling topics.

    My following analysis and recommendations will expire in February, when the most of public companies release their annual earning report.

    In other words, people should sell off individual stocks before earning report release.

    After February, I will made other recommendations.

    Industry Analysis

    The followings data were retrieved from my multiple model . (Information were retrieved from the public companies' latest 10-Q reports)

    Here are my steps to analyze:

    1. higher sales the better

    2. lower debt the better

    3. higher price per share/ assets per share the better

    4. higher Sales/NOA ratio the better.

    If they have the same financial conditions, companies with stable dividends paying history always be better choices than companies which does not pay dividends.

    Air transportation industry always be popular from November to January.

    First of all, stay away from (AAMRQ) and (LCC), because they are negotiating a merger plan.

    Secondly, (NYSE:LUV) is the most expensive stock in the industry, because it has the lowest APS/P ratio.

    Compared with (NYSE:UAL), (NYSE:DAL) is still undervalued.

    DAL may be a good choice but, when the industry is popular, I will suggest people to buy the most undervalued stocks.

    (NASDAQ:JBLU) is a better investment opportunity than DAL.

    First of all, stay way from (NASDAQ:EBAY).

    Strong forecast for earnings and strong competitive advantages are two important factors when people evaluate technology stocks.

    EBAY's forecasts for annual earnings in Europe and Asia are soft. It did not have competitive advantages when competes with Amazon.

    Secondly, stay away from AAPL.

    Among its main products, IMac, Iphone, Ipad, I touch, Ipod and ITV etc, only Ipad's product life cycle is at growth stage.

    Customers' demands for Itouch and Ipod are declining.

    Iphone 5S and 5C are cannibalism products.

    Moreover, AAPL only release media conference once a year. During the following 10 month, it may hardly have exciting business plan to boost its stock price.

    Thirdly, Stay away from (NASDAQ:MSFT). The acquisition of Nokia's mobile phone business may not have to be good for investors.

    Before the acquisition, MSFT takes money from the sales of (NYSE:NOK)'s mobile phone, it did not take too much operation risk.

    After acquisition, MSFT needs to spend more R&D expenses on designing its own windows phone. It will spend more money and take more operation risks.

    In this industry, Google is the only good investment opportunity.

    Google bought Youtube. It provides video streaming service to compete with NFLX.

    Google developed Android system, which has been used by Samsung, the strongest competitor of AAPL.

    Compared with other popular technology stocks, Google's stock price is still comparatively undervalued.

    GOOG is a good opportunity for aggressive investors.

    Compare with (NYSE:MA), Visa, Inc. (NYSE:V) is a better choice for investors. Visa, Inc. had the highest quarterly revenue in this industry. Compare with MA, Its stock price is unvervalued. Besides, V was added to Dow Index in October.

    It is the best investment opportunity in credit card business industry.

    Bank of America claimed that Tesla's stock price was only worth of $45; Goldman Sachs claimed that Tesla's stock price was only worth of $80.

    Now, Tesla is back at around $120 per share, the price level in June. From June to October 1st, $193 the highest point, Tesla released several good news:

    a. Prepare to produce electrical cars, model E, for middle level income people;

    b. Tesla collaborated with Chinese government on developing its high speed rail way project

    c. They start to sell Model S in China

    d. The progress of development of super load battery

    e. Tesla had plan to produce electrical truck.

    We call the price level of $120 as unreacting price for TSLA because when it was at $120, investors did not know above listed good news.

    My personal opinion is that no model can predict accurate value of a growth stock. For a company with strong future, such as TSLA, having a chance to buy its stock with unreacting price will be an opportunity for aggressive investors.

    Hence, even though Tesla is extremely overvalued a lot but $120 is a better time to buy and hold for long term.

    First of all, this industry is growing stable. Hence, the most undervalued stock will be a good choice. However, (NYSE:JCP) is losing money on operation management and had too much debt. It is reasonable to be undervalued. Stay way from a company with bad financial management.

    Among profiting companies, M and TGT and the highest APS/P ratio. I suggest people to buy M because M had higher Sales/NOA ratio.

    The higher Sales/NOA ratio a company has, the more efficient the company used their net operation assets.

    Intel (NASDAQ:INTC) kept a high capability on developing new chips. However, its CEO just claimed that the forecast for the fourth quarter earning will be soft.

    On the other hand, the stable relationship with laptop and desktop manufactures and superior performance of its products made INTC have competitive advantages in chips industry.

    To make the recommendation become safer, I suggest people buy it at $22.5.

    ATVI is another good investment opportunity.

    It has stable cash flow from operation; it is the only dividend- paying game company; and it is the most undervalued videogame production company.

    In this industry, only (NASDAQ:FSLR) is specialized in designing solar module for government project. Compared with SCTY, RSOL and FSLR, SPWR have capability to do business with both family and government.

    SPWR is a good investment opportunity for aggressive investors.

    In this industry, (NYSE:AA) is the only profiting company. It also has the lowest DPS/P ratio and the highest dividend yield.

    AA is a good choice for aggressive investor. Because the standard deviation of AA is very high; its stock price is almost at 52- week high.

    When the market is at historical high, buying a stock with a high price always be an aggressive action.

    In the beverage industry, (NYSE:PEP) had the highest sales. PEP is also the most undervalued stock.

    In this industry, (NYSE:MCD) and (NYSE:YUM) are overvalued companies. (NASDAQ:WEN) have a higher dividend yield rate.

    Comparing with (NYSE:BKW), WEN had higher revenue and higher Sales/NOA ratio.

    It is a good investment choice for conservative investors.

    Conclusion

    As I mentioned above, please allocate less than 30% of your total assets on stock market. Hence, please do not forget to multiply each percentage with 30% when you calculate how much each allocation counted on your total assets.

    For example, 10% of DDM means 10%*30%= 3% of your total assets on DDM

    Conservative

    10% DDM at current price
    5% TQQQ at current price

    5% CSCO at current price

    5% WEN at current price

    5% ATVI at current price

    5% M at current price at current price

    Optional: holding 10% of (NYSEARCA:DXD) or 10% of (NYSEARCA:QID). When investors are sure about the upcoming market collapse, selling Index ETF and buy more shares of Index inverse ETF to make the averaged costs of inverse ETF lower.

    Medium

    10% UDOW at current price
    10% at current price
    5% V at current price
    5% JBLU at current price
    5% INTC buy around 22.5
    5% PEP at current price

    Optional: holding 10% of (NASDAQ:SQQQ) or 10% of (NYSEARCA:SDOW). When investors are sure about the upcoming market collapse, selling Index ETF and buy more shares of Index inverse ETF to make the averaged costs of inverse ETF lower.

    aggressive´╝Ü

    15% UDOW at current price
    15% TQQQ at current price
    5% SPWR at current price
    5% GOOG at current price
    5% TSLA buy around 120
    5% AA at current price

    Optional: holding 10% of SQQQ or 10% of SDOW. When investors are sure about the upcoming market collapse, selling Index ETF and buy more shares of Index inverse ETF to make the averaged costs of inverse ETF lower.

    Stocks: DDD, AMZN, JCP, M, NFLX, FB, TSLA, AA, PEP, SQQQ, SDOW, UDOW, GOOG, EA, TTWO, ATVI, AAPL, MSFT, AAL, DAL, LUV, XONE, AAL, JBLU
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