Dangdang vs. Renren: Battle of the Chinese tech stocks

When I first started writing this post, I expected to argue that Dangdang’s the better stock. My research since then has me leaning toward Renren in the near-term. Here’s why.

I recently stumbled upon Sammy Pollack’s post at SeekingAlpha: 3 Reasons Why Renren Is A Better Buy Than Dangdang, and it got me wanting to dig deeper into the two companies to figure out which one I think is a better buy.

Pollack’s firmly entrenched in the Renren camp. Here’s why he’s like the “Chinese Facebook” better than the “Chinese Amazon” (Dangdang):

1) Facebook IPO. The Facebook IPO could drive up interest in Renren as a social networking play behind the Great Firewall.

2) Dangdang churn. The recent resignation of Dangdang’s CFO, Conor Chia-huang Yang, is a sign there could be trouble under the surface at Dangdang.

3) Cash. Renren’s in a stronger financial situation on paper. Indeed, Renren has $284.64 million in cash and equivalents compared to Dangdang’s $30.4 million, and Renren’s actually operating at a profit.

More arguments for Renren

When I first started writing this post, I expected to argue that Dangdang’s the better stock. My research since then has me leaning toward Renren. In addition to the arguments above, here’s why I like Renren over Dangdang:

1) Competition. Dangdang’s got competitors that are aiming squarely for the company’s throat. Among them? The true “Amazon of China”: Amazon.cn. Amazon acquired Joyo.com in 2004 and has been building up it’s presence in the country ever since. Even today, Amazon.cn gets slightly more internet traffic than Dangdang (per Alexa.com).

On top of that, though, both Amazon and Dangdang are overshadowed by 360Buy.com (a Chinese online retail site with backing from Walmart – NYSE:WMT). Renren’s got competition, too (namely in the form of Pengyou.com), but at least it’s neck and neck with Pengyou.com; not a distant competitor struggling to make up ground.

A Twitter-like microblogging site in China, Weibo.cn, could pose the biggest threat to social networks like Renren and Pengyou. Already Weibo gets more traffic, and it’s owned by the deep-pocketed Sina Corporation (NASDAQ:SINA). For now, though, Weibo’s operating more like Twitter and less like Facebook. If that should start to change, Renren should really get nervous.

2) Investors “like” social networks more than retailers. OK. We don’t have official numbers on what sort of market cap the public will give to Facebook, but apparently, Facebook valuations tossed around during the Instagram acquisition went as high as $104 billion (per Dealbook). That’s actually more than Amazon’s current market cap of $102.2 billion.

To sum it up

Let me make it clear that I don’t dislike Dangdang. In fact, I think the stock still has significant upside (and I’d be surprised if it isn’t being looked at by a lot of Western companies, including Amazon, as a potential takeover target).

During its most recent quarter, Dangdang generated $190 million in revenue. That was far more than Renren’s $32 million. Renren has much lower overhead and profit margins, though, so the social network was actually able to claim profitability. Dangdang, on the other hand, operates more like Amazon – forgoing profit in the short-run as it sets itself up for better returns in the future. That makes me like Dangdang in the long-term. In the near-term, though, I expect Renren to outperform Dangdang – particularly in the wake of Facebook’s IPO. Things are just too unsettled in the online retail space in China for investors to dump all of their cash in Dangdang.



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How high can Amazon’s stock go?

After a surge of 15 percent, is Amazon still a buy at these high numbers? If so, how high can Amazon’s shares go? Check out stock price target on Amazon in 2012.

After reporting earnings on Thursday evening, Amazon.com’s (NASDAQ:AMZN) shares shot up $30 each – a gain of 15 percent that nearly added $14 billion (yes “billion”) to the company’s market cap in a single day of trading.

“The March quarterly results showed just enough upside in both revenues and margins to make the naysayers run for cover,” Stifel Nicolaus analyst Jordan Rohan wrote in a research note (per Businessweek).

All told, Amazon earned $130 million or $0.28 per share in the quarter ended March 31. The bad news? That was down 35 percent over the same quarter in 2011. The good news? Analysts were expecting the company to earn just $0.07 per share.

A big drop in earnings would typically send investors packing, but Amazon’s different. The company’s famously willing to forgo big earnings in exchange for investments that should pan out at some vague time in the future. The Kindle Fire is a great example. Amazon’s actually selling the device below cost out of the hopes that it will earn back that loss in digital media sales. All this has Amazon trading at a rather preposterous P/E ratio of 186.

Knowing that, is Amazon a buy at these high numbers? If so, how high can Amazon’s shares go?

Future growth for Amazon

I see several key areas for future growth at Amazon. The biggest are:

1) A mushrooming digital empire. In a statement from CEO Jeffrey Bezos, Amazon was eager to point out the thousands of ebooks that can only be purchased on the Kindle. “You won’t find them anywhere else,” Bezos wrote. “They include many of our top bestsellers—in fact 16 of our top 100 bestselling titles are exclusive to our store.”

Amazon’s in an all-out war with Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Barnes & Noble (NYSE:BKS) to lead the e-reader (and tablet) market. Taking a cut of digital downloads, after all, is what’s helped Apple generate earnings surprises for years.

Amazon’s trying to duplicate that performance with its App Marketplace and Kindle Fire book, music and video downloads. The company’s on the right track, too, with revenue from Amazon’s “media business” in North America growing 17 percent to $2.2 billion during the most recent quarter.

“One of the big reasons for that growth is because of our digital offerings,” Tom Szkutak, Amazon’s chief financial officer, said in a conference call (per the Post Gazette). “Kindle and the total digital business is growing very strong.”

Even compared with physical goods, digital goods sales are booming. Amazon claims that nine out of its top 10 best-selling products are digital goods, including Kindles, Kindle books, movies, music and apps.

We don’t know the actual number of Kindles that were sold, but Amazon did say sales for the various models of the device were up 43 percent over the same quarter in 2011.

2) The birth of an Amazon phone. We don’t have proof yet, but late last year, Citigroup analysts argued Amazon was working on developing a smartphone that should be ready to launch in time for Christmas in 2012. “Channel checks suggest the Amazon smartphone will have a 4-inch touch panel display, an 8 mega pixel camera, and adopt a Microsoft operating system,” Forbes wrote at the time.

I’d be surprised if the device ran a Microsoft OS, but I definitely wouldn’t be surprised to see some sort of smartphone for sale on the retailer’s Web site this fall. The launch of a competitive smartphone (somewhere between $140-$200) could give Amazon an increasingly-large piece of Apple’s digital pie.

3) Groceries anyone? Amazon’s re-defining the way we shop for everyday things. A number of my friends use Amazon for everything they possibly can – from deodorant to underwear and diapers. To extend this model further, Amazon could expand the grocery delivery program it has in place in Seattle.

Seattle customers can log onto Amazon Fresh and buy everything from probiotics to fresh fish from Pike Place. Shopping for everyday items like milk is almost overwhelming. Do a search for it on Amazon Fresh, and you’ll get more than 150 different results.

Speculation’s been around for more than four years that Amazon would try to roll out it’s grocery delivery service nationwide. If it happens, expect it to radically alter communities where the service is available. And expect it to add to Amazon’s bottom line.

Amazon stock price target

Analysts have a mean price target of $218.69 on Amazon’s stock (per the Orlando Sentinel). Of course, that price target isn’t tied to a date, and I feel like Amazon has a lot higher to climb.

Why? Amazon set on becoming the world’s largest retailer. Period. According to RetailNet Group, Amazon will be the world’s No. 3 retailer by 2016 (they’re currently ranked No. 21). That’ll put it ahead of all the big retailers except for two: Carrefour and Walmart (NYSE:WMT). Could Amazon ever take on Walmart? Yes, but it’s not going to be anytime soon. Walmart’s sales are forecast to hit $444 billion this year, and Amazon’s expected to hit $48 billion.

Growth will be rapid at Amazon.com, though. Sales should hit $140 billion a year by 2016. That’s triple today’s numbers. If that holds true expect Amazon stock price forecasts of $218.69 look incredibly short-sighted.



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Eleven reasons to AVOID investing in Dow Jones Industrial Average stocks

Of the 30 stocks in the Dow Jones Industrial Average, 11 of them would actually be worth less or just about the same as they were 10 years ago (including dividends!).

When I first started writing this blog post, I was going to call it “How to Invest Safely in Stocks.” My second recommendation was that beginners should start with a handful of the 30 stocks that make up the Dow Jones Industrial Average. Once I started digging through the numbers, though, I was a startled at what I found. Apparently, the blue-chip stocks aren’t the no-brainers most investors like to think they are.

Need proof? Check out this chart I put together of the 10-year returns for each of the 30 Dow Jones stocks:

Company 10-Year Stock Return 10-Year Dividend Return on $1,000 investment $1,000 is now worth
3M Company +46.6% $590.94 $3,458 (aided by a stock split)
Alcoa Inc. -68.1% $134.46 $449.82
American Express Company +41.47% $122.40 $1,514
AT&T Inc. -31.8% $357.12 $1,024
Bank of America Corp. -51.8% $718.58 $1,109
The Boeing Company +12.54% $218.16 $1,311
Caterpillar Inc. +208.7% $787.17 $7,093 (aided by a stock split)
Chevron Corporation +113.9% $794.85 $4,791
Cisco Systems, Inc. -7% $7.20 $933
The Coca-Cola Company +45.2% $284.76 $1,734
du Pont +11.1% $372.72 $1,462
Exxon Mobil Corporation +82% $319.44 $2,086
General Electric Company -61.9% $200.4 $572
Hewlett-Packard Company +2% $123 $1,129
The Home Depot, Inc. -32.7% $117.58 $780
Intel Corporation -29.7% $136.54 $825
International Business Machines Corp. +57.1% $127.26 $1,605
Johnson & Johnson +20.8% $257.22 $1,426
JPMorgan Chase & Co. -16.1% $273.12 $1,107
Kraft Foods Inc. +8.7% $283.34 $1,339
McDonald’s Corporation +198.4% $387.25 $3,351
Merck & Co., Inc. -51.2% $218.70 $698
Microsoft Corporation -20.1% $416.64 $1,998
Pfizer Inc. -56.3% $196.56 $634
The Procter & Gamble Company +68.6% $607.79 $3,884 (aided by a stock split)
The Travelers Companies, Inc. +11.8% $120.34 $1,206
United Technologies Corporation +94.9% $529.54 $4,305
Verizon Communications Inc. -31.5% $305.33 $988
Wal-Mart Stores, Inc. +4.7% $130.29 $1,141
The Walt Disney Company +25.1% $110.20 $1,330

What’s startling is this: of the 30 stocks in the Dow Jones Industrial Average, 11 of them would actually be worth less or just about the same as they were 10 years ago (including dividends!). That’s remarkable considering I didn’t factor in inflation, which have averaged 2.4 percent over the past decade (per FinTrend.com).

That means your odds of throwing a dart at a list of the Dow stocks and hitting a winner are only around 63 percent. That’s not much better than going to the casino and counting a few cards at the blackjack table.

Before you toss your hands up and cash in your IRA for guns and ammo, though, I’d be remiss if I didn’t point out that the average return on $1,000 for the 30 Dow component stocks was $1,842 over the past 10 years. Indeed, a $1,000 investment in Caterpillar Inc. (NYSE:CAT) would be worth $7,093 today. That’s not bad, but seeing the returns from a company like GE, which has crumpled more than 60 percent over the past 10 years is scary. And this year hasn’t been kind to the Dow, either. Take a peek at the YTD returns on each of the component stocks:

Company Ticker YTD Return Dividend Yield
3M Company NYSE:MMM -10.8% 2.86%
Alcoa Inc. NYSE:AA -27% 1.07%
American Express Company NYSE:AXP +3.9% 1.61%
AT&T Inc. NYSE:T -3.17% 6.05%
Bank of America Corp. NYSE:BAC -51.8% 0.62%
The Boeing Company NYSE:BA -10.5% 2.88%
Caterpillar Inc. NYSE:CAT -14.7% 2.3%
Chevron Corporation NYSE:CVX +2.25% 3.34%
Cisco Systems, Inc. NYSE:CSCO -25.8% 1.6%
The Coca-Cola Company NYSE:KO +2.28% 2.79%
du Pont NYSE:DD -12.1% 3.74%
Exxon Mobil Corporation NYSE:XOM -4.02% 2.68%
General Electric Company NYSE:GE -17.3% 3.97%
Hewlett-Packard Company NYSE:HPQ -41.9% 1.96%
The Home Depot, Inc. NYSE:HD -7.9% 3.1%
Intel Corporation NYSE:INTC -7.85% 4.33%
International Business Machines Corp. NYSE:IBM +8.33% 1.89%
Johnson & Johnson NYSE:JNJ -1.51% 3.6%
JPMorgan Chase & Co. NYSE:JPM -21.2% 2.99%
Kraft Foods Inc. NYSE:KFT +6.47% 3.46%
McDonald’s Corporation NYSE:MCD +14.3% 2.78%
Merck & Co., Inc. NYSE:MRK -13.1% 4.85%
Microsoft Corporation NYSE:MSFT -14% 2.67%
Pfizer Inc. NYSE:PFE +0.9% 4.52%
The Procter & Gamble Company NYSE:PG -4.07% 3.40%
The Travelers Companies, Inc. NYSE:TRV -11.8% 3.34%
United Technologies Corporation NYSE:UTX -14.02% 2.84%
Verizon Communications Inc. NYSE:VZ -2.6% 5.6%
Wal-Mart Stores, Inc. NYSE:WMT -3.23% 2.80%
The Walt Disney Company NYSE:DIS -14.6% 1.25%

Just seven out of the 30 Dow component stocks have actually appreciated in value this year. That should give you pause before you invest in a high-profile company solely on the strength of its name and brand.

The Takeaway

Here are three key things I take away from the charts above:

1) Energy is the name of the game. One sector in the Dow has strongly out-performed others in recent years. Namely, oil (ala Chevron and Exxon). And I wouldn’t expect that to change – particularly as fears over inflation mount.

2) Banking stocks have a lot of ground to make up. The fact that JPMorgan Chase is down 16.1 percent over the past 10 years, and Bank of America’s down a whopping 51.8 percent could get you thinking banking stocks have to turn the corner soon. I’d argue there’s a lot of pain for them on the horizon, particularly with the imminent threat of inflation. Banks thrive and dive on interest rates, and all those fixed mortgages BAC’s underwriting at 3 percent could come back to bite them in a high-inflation environment. That’s a big part of why banking stocks have fallen in recent months, and it’s a trend I expect to continue.

3) Follow the macro-trends. If you would have invested $1,000 in gold at the start of 2001, you’d now be holding onto $6,797 in bullion. Energy and inflation are the stories du jour, and your portfolio should reflect that reality. No one can say the next 10 years will play out the same as the past 10, but we can say the demand for oil isn’t going away anytime soon, and neither is our government’s debt problem. You can’t afford to ignore the macro picture anymore, unless, of course, you’re happy rolling the dice in your IRA.



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Is Lyric Jeans Inc. (PINK:LYJN) stock a buy?

Shares in penny stock Lyric Jeans Inc. (PINK:LYJN) rocketed up more than 300 percent after the company announced a jewelry collection that will debut at Wal-Mart. Does LYJN have more room to run?

Within three hours of the publication of a press release yesterday, shares in penny stock Lyric Jeans Inc. (PINK:LYJN) rocketed up more than 300 percent from $0.006 to $0.0237. That pushed up the company’s market cap nearly $15 million in just 180 minutes. The move came on the announcement that Lyric will soon launch a new jewelry collection under the brand name Lyric Nation at nearly 1,500 Wal-Mart (NYSE:WMT) stores.

Does that make shares in Lyric Jeans a buy? As is the case with most penny stocks – no one really knows for sure. Financial terms of the deal were not disclosed, and the company hasn’t released any financial data since the quarter ended March 31, 2010. Still, here’s what we do know: As of March 31, 2010, Lyric Jeans had sales of $170,317 and expenses of $237,693. Total net loss for the period was $164,410.

Since March 31, 2010, we haven’t gotten any financial data from Lyric Jeans, which makes it difficult to determine the effect of the Wal-Mart deal. If the jewelry line will be sold in 1,500 outlets, each Wal-Mart location will need to buy more than $11,000 in merchandise in order for the deal to be worth more than $17 million in sales. Of course, that’s not a good measurement when trying to determine whether the stock still has room to run as market caps almost always outstrip annual sales. Investors, after all, buy shares in a company to capitalize on future growth.

The question now is, how sustainable is Lyric’s growth? Is the Wal-Mart deal a one-off or could it lead to more deals moving forward? There are more than 2,500 Wal-Mart locations in the U.S. Should the retailer see encouraging sales of the Lyric Nation jewelry line, more orders will almost certainly flow in.

Lyric also claims its products have long lined the shelves at other well-known retailers including Bloomingdale’s, Nordstrom and Target, and in March the company announced it was unveiling a LYRIX brand jewelry line targeted at girls ages 13 to 17 at nearly 800 Claire’s Stores, Inc. Should the jewelry line do well, Claire’s has more than 3,000 locations worldwide Lyric might be able to tap. Both deals are signs the company’s moving in the right direction. And it just might breath some longer-term life into a stock many investors had written off.

Until we start getting actual financial reports from Lyric, though, the announcements probably won’t lead to a long-term uptrend in shares. They might, however, convince Lyric to start publishing regular financial results, and – pending the numbers in those reports – that might turn Lyric into a long-term buy.



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Top 5 recession proof stocks

Five stocks you should own when recession strikes.

Now that Alan Greenspan is warning that the U.S. could be headed for a double-dip recession, investors should be looking to hedge or reverse their positions in equities. If we are, indeed, headed for negative GDP, it’s hard to know what stocks may thrive, but if history can give us any clues, we might want to look in unexpected places. Here are five tickers to do more research on if you want to protect your money with stocks during a recession:

1) SPDR Barclays Capital 1-3 Month T-Bill ETF (NYSE:BIL).

When the economy really hits the fan, treasuries have time and again proved the ultimate safe haven. People keep buying them even when their returns goes negative! That happened late in 2008 when investors were more comfortable with negative returns than they were with the volatile markets. The Barclays 1-3 Month T-Bill ETF provides somewhere to park your money when you’ve lost faith in just about everything else.

2) iPath S&P 500 VIX Short Term Futures ETN (Public, NYSE:VXX).

When the markets turn sour, equities get volatile. That means one place to look for a return is on the volatility itself! Strange concept, but it works. The VIX Short-Term Futures ETN from iPath offers exposure to a daily rolling long position in the first and second month VIX futures contracts. It’s essentially mirroring back volatility in S&P 500 Index. That means the more volatile the markets, the better off you do. VXX is down 25 percent over the past six months.

3) Altria Group, Inc. (NYSE:MO).

According to at least one writer, you can’t do much better than booze and tobacco during recessions. What better time to drink and smoke away your woes away then when the economy looks blackest? “Alcoholic beverage makers not only beat the market in 80 percent of recessions prior to this one, they actually rose an average of 6 percent,” Nilus Mattive writes. “Household products manufacturers posted a gain of 1.8 percent and outperformed in every single instance… And tobacco companies rose 9.6 percent and beat the market every time.” Throughout 2009, Altria – the maker of Malboro cigarettes – paid dividends of $1.29 and rose from $15 to $19. Still, that’s off the stock’s pre-recession highs of $24. There could be something more at work here, though: changing U.S. sentiment towards tobacco. Explore booze stocks for potential recession beaters.

4) Wal-Mart Stores, Inc. (NYSE:WMT).

Everyone likes to save money. During a recession, though, pinching pennies goes from a past-time to an absolute necessity. People who might otherwise eschew shopping at Wal-Mart suddenly find themselves in line with everyone else. That’s one of the reasons Wal-Mart has beaten the S&P by more than 30 percent since the start of 2008.

5) ProShares UltraShort Real Estate ETF (NYSE:SRS).

The most straightforward way to profit off a falling market is to pinpoint where the problems are going to be and find an inverse ETF that covers that sector or commodity. One of the triggers of the Great Recession was, of course, the real estate and mortgage-backed derivatives collapse. At one point late in 2008, the ProShares UltraShort Real Estate ETF was trading for more than $1,000 a share! It closed at $23.58 Friday (factoring in a 1:5 split in April).

If you really crave risk, you might take a peek at Direxion Funds Direxion Daily 30-Year Treasury Bull 3X Shares (NYSE:TMF). This Direxion fund seeks 300 percent of the price performance of the NYSE Current 30 Year U.S. Treasury Index. It’s up 34 percent over the past six months.