Three stocks that you need to look at right now!
Wednesday, January 30, 2008 | Teeka TiwariRating:
With much fanfare, eBay announced yesterday that they will be lowering their listing fees, shoring up online security and boosting final value fees that they charge successful sellers. All of this is being done with the hope of stopping the ongoing slide that the stock has been experiencing since peaking just shy of $60 back in 2005.Part of the problem facing eBay has been a marked increase in auction frauds and strong competition from the likes of Amazon. Amazon has gone a different route from eBay though. They’ve really empowered more of the Mom and Pop sellers out there with great tools to offer their products through Amazon's world class order system, and with the peace of mind of Amazon’s money back guarantee.
There was a time when I always used eBay to buy used books, records (yes I still listen to records) and CD’s. But the whole PayPal and feedback thing became very cumbersome. 99% of the time I can find what I am looking for on Amazon through one of their external sellers. I can order with complete confidence, safe in the knowledge that Amazon “has my back”
There has only been one time that I’ve had a problem with an Amazon seller, and within 24 hours of notifying Amazon of the problem I had my money back.
A quick look at both charts clearly tells the tale of these two internet giants.
Courtesy Bigcharts.com
Above you can see that the eBay chart has been in a clear downtrend since 2005. The tip off is the series of lower highs and lower lows. The chart is clearly telling us that the stock has not yet bottomed. There does appear to be some support at $22. Bottom fishers can take a nibble should the stock get there, but if it were to break $20, that would be your cue to take your leave of the stock until a true bottom develops.
Courtesy Bigcharts.com
Above we have the Amazon chart. Unlike eBay, we can see that Amazon has been making higher highs and higher lows since bottoming at $28 back in 2006. Also unlike eBay, on a relative basis Amazon is trading stronger than the market and its sector peers. eBay on the other hand is on a market relative strength sell signal and a peer relative strength signal.
That means when the market goes up and the Internet Sector goes up, eBay will not go up as much. The converse is also true, during market weakness or sector weakness, eBay will go down more than its peers. When looking to get involved in a sector, you always want to buy the stock with the strongest relative strength. Amazon is the stock that will bounce back the most as the sector regains its footing after a selloff like the one we have just experienced.
It’s easy to find the relative strength winner. Simply compare the relative performance of the stocks in the sector you are interested in. I like to use a 90 day and a 1 year time period to measure relative peer performance. The stock you are looking for is the one that has gained the most (or lost the least) against its sector peers.
On another note, I’m not what you would call a value investor but I can certainly recognize value when I see it. A stock that you want to be paying very close attention to right now if you are a long term player is Bank of America (BAC). BAC as most of you know is in the process of buying the troubled mortgage lender Countrywide Financial (CFC) for $4 billion.
Countrywide just announced over $422 million in losses and their’s no question that they will be a drag on BAC’s earnings for a few more quarters to come. The bank basically took a bet on housing. Yes housing is a nightmare right now, but the valuation models being used to value sub prime debt are out of whack. They are too bearish by far, let me explain.
Sub Prime pricing is keyed off the ABX index. This is an index comprised of a very small number of sub prime bonds. Just recently, the ABX index was indicating that 50% ALL sub prime debt originated in 2006 (about $380 billion worth) would default in 2008 and that none of those defaulted properties would have any value.
That’s just not a reasonable assumption. Real estate, even real estate falsely boosted up by over eager appraisers has real value somewhere at some price.
This trade reminds me of the time I purchased Eastern Airlines bonds back in the early 1990’s. At the time Airline stocks were an anathema and we were in the middle of a horrible recession.
The Eastern Airlines bonds had been hammered to just pennies on the dollar, and were secured only by their aircraft. Everybody knew that we were in a recession and no one was buying aircraft, used or otherwise. However, we did the math and, using scrap metal valuations, the bonds were still worth more - significantly more - than what they were trading for.
I believe the same is true for much of the sub prime debt now trading.
One lower risk way to play this is by owning Bank of America. The bank is incredibly well capitalized. Even with all the horrors that were 2007, they still booked $15 billion in profits. They took $5 billion in write downs in Q4 for bad sub prime debt and who knows, maybe there are more write downs to come. The point is that the bank is big enough to weather the storm and pays a 6% divided to boot! If you see the stock below $40 this is one that you want to take a very close look at.
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“Let the Game Come to You.”
Teeka Tiwari
Chief Investment Officer
Point & Profit
