Up 48% YTD: This is the hottest sector on the stock market in 2015

The S&P 500 is down more than 5 percent this year. Don’t bother telling that to the Internet and Catalog Retail sector. This small sub-sector of stocks is up a scorching 48 percent this year. That beats every other industry sub-sector on Wall Street. Here’s a look at the Top 10 stocks in the sector and their performance year-to-date:

Company Ticker YTD Return
Netflix NFLX 117.0%
Wayfair W 80.6%
Amazon AMZN 67.8%
Expedia EXPE 40.5%
CTRIP International CTRP 37.5%
Nutrisystem NTRI 36.9%
JD.com JD 14.5%
1-800-FLOWERS FLWS 11.8%
Petmed Express PETS 11.6%
Priceline PCLN 9.3%

Do any of the stocks above have more upside? Let’s take a look at their current share prices and compare them to the average analyst’s price targets for the stocks:

Ticker Current Price Avg. Target Potential Upside
NFLX $106.11 $119.30 +12.4%
W $36.18 $51.44 +42.2%
AMZN $532.54 $650 +22.1%
EXPE $122.62 $128.96 +5.2%
CTRP $66.77 $88.72 +32.9%
NTRI $26.10 $31.15 +19.3%
JD $28.91 $37.99 +31.4%
FLWS $9.80 $14.25 +45.0%
PETS $16.32 $13.67 -16.2%
PCLN $1,265.68 $1,480.65 +17.0%

Wayfair and 1-800-FLOWERS both pop out. What has analysts so excited about these stocks?

The bullish case for Wayfair

Wayfair runs several online ecommerce sites geared toward home decor. Specifically, they operate Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane. The company blew away analyst expectations in Q2. Quarterly revenue surged 66 percent year-over-year to $491.8. That bested analyst estimates by more than $50 million. On top of that, the company lost less money than analysts expected (woo-hoo!). They reported a $0.15 loss. Analysts were expected a non-GAAP loss of $0.29. Wayfair is at least growing its customer base. The number of active customers on their properties rose 53 percent year-over-year to 4 million. I’m on the fence here. The stock’s gone up so quickly, I’m wary momentum could snap the other way. I’d play it safe and buy shares in a company that’s actually profitable.

The bullish case for 1-800-FLOWERS

The online flower-delivery company, 1-800-FLOWERS also crushed earnings estimates for Q2. It beat estimates by posting a smaller loss than expected ($0.13 per share instead of $0.19 per share). That loss isn’t all bad. The company’s very seasonal and so is its latest acquisition, Harry & David’s. If it weren’t for Harry & David, the company would have posted adjusted earnings of $0.01 per share. That’s not enough to get me overly excited.

Of course, not every stock in the sector has fared so well. Here are the bottom five stocks in the Internet and Catalog Retail sector:

Company Ticker YTD Return
CNOVA CNV -61.8%
EVINE LIVE EVLV -61.7%
Groupon GRPN -60.6%
Light In the Box LITB -58.0%
Land’s End LE -50.2%

The overall market is down, but there are stocks out there that are out-performing. With a little homework, you can find them.

Photo Credit: Tanel Viksi

2016 silver price predictions: Are we headed up or down?

Let’s take a look at the latest silver price predictions for 2016 as part of our Three-up and Three-down series. We’ll present three bullish arguments for silver prices and three bearish arguments as well. Then, you decide where you think silver’s headed next year.

The bullish case for silver in 2016

1) Devaluing the yuan. Earlier this year, China abruptly announced it would devalue the yuan by 2 percent against the U.S. dollar. The government wanted to spur economic activity in the People’s Republic. Instead, they spooked currency traders who started selling the yuan. In turn, that forced China to start selling some of its dollar holdings, so the country could buy its own currency. That heavy selling is putting downward pressure on the dollar. Some speculate it could lead to a considerably weaker dollar, which might encourage more investment in hard assets like gold and silver. Gaurav S. Iyer, a research analyst and editor at Lombardi Financial, speculates that the weaker dollar might push silver back toward its 2011 peak around $50 an ounce.

2) Supply strain. Most of the silver that’s mined in the world is a byproduct of mining for other metals (copper, zinc, gold and lead). Since metal prices have fallen across the board, mining companies have drastically cut expenses and lowered their production levels by shuttering some mines. Less gold, copper and zinc means less silver, too. “Take Canada, one of the world’s major silver producers, for example,” writes Michael Lombardi. “Year-to-date, silver mine production in Canada has declined by 20%.” This could lead to a silver supply crunch if the global economy starts picking up steam (as many expect it to do next year). That’s because silver’s used extensively in many high-tech products.

3) A skewed ratio. The silver-gold price ratio is north of 70. Put another way, an ounce of silver costs more than 1/70th the amount of an ounce of gold. “Over the last 40 years, the grey metal averaged a 42.8 conversion rate with gold,” Iyer writes. “History has shown that a rise in silver prices are all but guaranteed when the ratio tops 70. It’s sitting at 75 right now.” According to him, that means we could see silver prices surge 420 percent from where they are today.

The bearish case for silver in 2016

1) A strong dollar. China’s devaluing the yuan. India and the Eurozone are increasing their quantitative easing programs, and the U.S. Federal Reserve is planning to hike interest rates this year or early in 2016. All signs point to a strengthening dollar. And that negates one of the most powerful incentives to invest in silver: using it as a hedge against a dollar collapse.

2) Deflation. What will be the biggest determinant of silver prices in 2016? Whether we see inflation or deflation. Since precious metals have a finite supply, they act as a hedge against inflation (much like real estate and even stocks). When we’re in a low-inflation environment – or worse, a deflationary environment – it just doesn’t make sense to hold a large position in silver. Across the globe, signs are pointing toward deflation. Credit default swaps are rising, currencies in emerging countries are declining (a sign of slowing global growth) and the rising dollar is disproportionately punishing companies outside the U.S. If we tip toward deflation, we’re probably not going to have rising silver prices.

3) The bear market continues. I always follow momentum until that momentum is broken. Silver’s down more than 70 percent from its 2011 peak. The metal is in a bear market, and I’m not ready to call a bottom yet. Neither is JP Morgan.

Here’s their 2016 silver price prediction: “Silver prices will broadly continue their bearish trend for the coming two quarters before finding greater strength in the second half of 2016,” they said early last month. Specifically, JP Morgan is predicting silver prices will average $14.08 in Q1 of 2016 and $14.65 throughout the year.

Where do you think we’ll see silver prices in 2016?

Surgery Partners (SGRY) IPO: Should I invest?

Our newest series, 3-up, 3-down takes a look at new IPOs and offers up three reasons to invest in them and three reasons to avoid them. Then, you decide. Let’s take a look.

3 reasons to invest in the Surgery Partners (SGRY) IPO

1) Rapid growth. Surgery Partners operates 99 surgical facilities – five of which are surgical hospitals – across 28 states. 200,000 surgical procedures were performed in their surgical facilities last year. Surgery Partners managed that feat in the 11 years since the company was founded in 2014.

That growth has helped the company achieve “industry leading same-facility revenue growth of approximately 9% during 2014, and an average of approximately 8% annually on a pro forma basis from 2012 to 2014.”

“Our pro forma revenue for 2014 was $871.2 million, which represents a compound annual growth rate of approximately 83% compared to revenue of $260.2 million for the year ended December 31, 2012,” the company writes in its S-1 filing. “For the six months ended June 30, 2015, our revenue was $457.0 million, compared to revenue of $147.3 million for the same period during 2014.”

2) Acquisitions. Surgery Partners has a proven track record of acquisitions. “Acquiring facilities has been a core component of our strategy since inception,” the company writes. They focus specifically on how they can create synergies between their company and their target acquisitions. The right acquisitions allow them to reduce head counts, close offices and pay less for supplies thanks to bulk ordering. “As a result of our recent acquisition of Symbion, as of June 30, 2015 we have achieved annualized cost and revenue synergies in an aggregate amount of approximately $8 million. … We expect this acquisition to drive significant cost and revenue synergies over the next two to three fiscal years, which we estimate will ultimately exceed $30 million in the aggregate (an amount that includes the approximately $8 million of synergies realized as of June 30, 2015).”

Surgery Partners also acquired NovaMed, Inc. in 2011. That acquisition led to a $5.2 million reduction in expenses and generated $9.3 million in incremental revenue.

3) The right sector. Healthcare is outperforming the S&P 500 Index this year. It’s up 2.9 percent YTD vs. -2.92 percent for the S&P. Biotech’s taken a pounding recently, but healthcare staples like AMN Healthcare Services, Inc. (AHS), whic offers healthcare workforce solutions and staffing services to healthcare facilities, have performed better.

3 reasons NOT to invest in the Surgery Partners (SGRY) IPO

1) Gobs of debt. Between Surgery Partners’ two business units – Surgery Center Holdings and Symbion – the company’s holding nearly $1.8 billion in long-term debt. That’s greater than the combined revenues of both entities.

2) Thin margins. In the past few years, Surgery Partners has largely been operating in the red. That’s thanks to its acquisitions, but it’s also due to fierce competition in the healthcare space. Surgery Center Holdings “more than doubled revenue from 2011 to 2014, exceeding $400 million,” per Fool.com. “But across that stretch it was positive on the bottom line only once, and posted an attributable net loss of $66 million last year. As for Symbion, in its last stand-alone fiscal year (2013) its revenue grew by 9% annually (to $536 million), but attributable net loss dipped to almost $13 million.”

Fool.com points out one of Surgery Partners’ competitors, AmSurg (NASDAQ:AMSG), demonstrated a similar pattern over past few years: substantial revenue growth and very thin top-line growth.

3) Regulatory risk. Government regulations are increasingly worrisome for healthcare companies – a risk Surgery Partners is well aware of. “The amount that we receive in payment for our services may be adversely affected by market and cost factors that we do not control, including Medicare, Medicaid and state regulation changes, cost containment decisions and changes in reimbursement schedules of payors, legislative changes, refinements to the Medicare Ambulatory Surgery Center payment system and refinements made by CMS to Medicare’s reimbursement policies. For instance, cuts to the federal budget caused a 2.0% reduction in Medicare provider payments in 2013.”

DISCLOSURE: I do not have a position in SGRY, and I do not plan to initiate one in the next 72 hours.

Photo credit: Adam Ciesielski

How Audi bested Tesla

Remember this name: the Audi R8 e-tron. It’s the first electric car to outdo Tesla’s Roadster and Model S with a 280-mile range (that beats Tesla’s Model S by 10 miles or 3.7 percent).

Let’s get this out of the way: the R8 won’t directly compete with Tesla’s cars. For one thing, it’ll likely cost more than twice as much as the Model S with some analysts expecting a $200,000 sticker price. Sales will also be via special-order fulfillment only. Still, the e-tron’s a warning shot that should have Tesla investors nervous. Audi’s serious about capturing electric-car market share. They’re even taking a page out of Tesla’s playbook by first launching a supercar (comparable to the Tesla Roadster), which will help them fine-tune their technology.

Powered by a 92kWh t-shaped lithium-ion battery pack, the Audi has a higher top speed than the Model S (155 mph versus 130, though both are electronically limited) and a much faster charge time. Audi also claims the e-tron can charge in “significantly less than two hours.” That’s phenomenal considering standard charge time for the Model S can take more than 9 hours with a 240-volt outlet (superchargers are, of course, faster).

The Model S may have a slight edge in acceleration, though we don’t have an exact comparison. Published numbers say the Audi can run from 0-62 mph in 3.9 seconds. The Model S can do 0-60 in 3.2-seconds.

The most exciting part of the announcement is this: Audi’s e-tron will be a “mobile high-tech laboratory” (source). The company’s using the supercar as a test bed to push the envelope. They’ll take what they learn to develop and launch a fleet of sedans and other Tesla competitors.

Interestingly, Tesla and Audi have similar market caps. Tesla’s worth $24.38 billion vs. Audi’s $29.58 billion. The difference is the fact that Audi’s actually profitable. The German automaker’s trading at a P/E ratio of 7.12 while Tesla’s burning through as much as $300 million per quarter.

This is just the beginning of a global war. Electric car technology will change everything about transportation and that means we’re going to see a whole lot of other competitors come to market. In many ways, it reminds me of the tech bubble in the 2000s. There’s just so much potential in the space that investors can’t help but get excited. Just remember that the sexiest companies don’t prevail. The company’s that do are the companies that know how to execute and make money. Audi’s already proven it can do both.

Want proof we’re in a bubble? Look to Tesla

Tesla Motors Inc. (NASDAQ:TSLA) had revenue of $956 million last quarter. That doesn’t sound bad until you consider the company’s operating expenses of $1.031 billion. Tesla’s burning through cash, but shares in the electric car-maker are still holding onto a $24 billion market cap.

That’s stoked fire under David Stockman, Former Director of the government’s Office of Management and Budget. Tesla, he says, is “a crony capitalist con job that has long been insolvent and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.”

Continue reading “Want proof we’re in a bubble? Look to Tesla”

The one chart that should give Tesla investors a panic attack

If you follow comments from Tesla’s CEO Elon Musk, you already know Tesla’s biggest problem is keeping up with incredible demand for the company’s cars. Analysts, however, are starting to call foul. John Lovallo (Bank of America Merrill Lynch) went so far as to lower his price target on the stock to $65 based on what he says are demand problems at Tesla.

Is the market really overvaluing Tesla by almost 70 percent? If you believe numbers from Paulo Santos, Think Finance (source), perhaps it is. Here’s a chart showing Tesla’s production through Q4 of 2015, along with Santos’ estimate for Q1 in 2015:

Continue reading “The one chart that should give Tesla investors a panic attack”

Tesla heading for a 68 percent plunge?

If you’re looking for all the bearish arguments against Tesla (TSLA), look no further than analyst John Lovallo of Bank of America Merrill Lynch. Earlier this week, he lowered his price target for the electric car maker from $70 to $65 (per Business Insider). That’s 68 percent less than the stock’s trading at right now (around $204)!

Lovallo believes Tesla’s grossly over-valued for one reason: lack of demand. Tsk-tsk, says Tesla CEO Elon Musk. Demand’s not he problem, supply is. Why then, Lovallo wonders, are Tesla’s factories underutilized?

Continue reading “Tesla heading for a 68 percent plunge?”

Investing secrets: Compounding dividends are the only thing that matter

I was having dinner with a longtime friend recently and dividend stocks came up in conversation. “Why would I want to invest in dividend stocks at 3 percent, when I can invest in real estate and make a whole lot more?” he asked.

That question always make me wince.

Continue reading “Investing secrets: Compounding dividends are the only thing that matter”

How Tesla hits $600 per share

Tesla’s biggest cheerleader has to be Global Equities analyst Trip Chowdhry. Chowdhry’s way out in front of the average Tesla price target of $277.50. His price target? $385. That’s more than 75 percent higher than the stock’s current price. Why’s Chowdhry so bullish?

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Tesla stock worth more than Big 3 combined?

If you’re in search of the ultimate Tesla (TSLA) bull, look no further than Trip Chowdhry of Global Equities Research. He has a $385 Tesla price target. That number’s not based on current car sales; it’s based on the notion that the world’s entire transportation ecosystem is on the cusp of a revolution. And Trip Chowdhry believes Tesla’s leading the charge.

Continue reading “Tesla stock worth more than Big 3 combined?”