There’s an ongoing debate over whether the stock market is overvalued and vulnerable to a bigger correction than we have seen in the recent year. Based on the earnings growth, the valuation of the stock market may be somewhat high, but pricing is more based on the prospects going forward. One area in which investors need to beware of valuations, though, are in the newest IPO debuts.
Pre-IPO Valuations Utterly Ridiculous
What really concerns me is the insane valuation given to many of the venture capital–backed pre-initial public offering (IPO) companies. In my view, the valuations are not sustainable and deserving; albeit, there is so much froth swirling around here.
Take the case of Uber, the provider of private car services that is trying to take the world by storm and push out the traditional taxi and car service companies. It’s a good idea, but the service is not always the cheapest and could rise in cases when demand is high. Based on the venture capital market, Uber is worth upward of $25.0 billion, which is utterly ridiculous.
I just read about a similar car service app in Hong Kong that is valued at around $8.0 billion. Again, insidious valuations.
The stock market climate for hyped-up pre-IPOs is extremely frothy. Last week, cloud-based service provider GoDaddy Inc. (NYSE/GDDY) debuted at $20.00 and surged more than 30% on its first day. While the company has a great advertising team, I really question the valuation. The company is a money loser, yet it’s now assigned $4.02 billion in market cap by the stock market. I wouldn’t be jumping in.
Then there’s gourmet … Read More
Regular readers of mine will know that I used to be bullish on China; I thought the Chinese economy offered a good contrarian investment opportunity. Now, I’m turning my sights to the eurozone for the top potential investment opportunity outside the U.S.
Chinese Economy in 2015 Losing Steam
You don’t have to be behind the Great Wall of China to realize there are deeper issues brewing in the country of 1.3 billion people. Since assuming the role of the second-largest economy in the world, China’s economy has been caught in a downdraft, with weaker gross domestic product (GDP) growth and broad stalling across the board. There must be something about being number two. Prior to China, Japan held onto that position in 2010 and look what happened to its economy. Germany was third, but has been wallowing in the eurozone, as it spent its energy trying to save Greece and its poorer cousins in the PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain).
As many of you know, I have long been a bull on China, but even my sentiment has been eroding. I expect my bullishness to continue to decline, too, at least for the foreseeable future, until the country can turn things around.
A few weeks ago, the Chinese government cut its GDP growth outlook for the country to seven percent, down from 7.5% in 2014. Now the real number is likely below seven percent, based on what we have been seeing in the Chinese economy. The two-month period of January to February pointed to more evidence of the slowing in China, with weaker-than-expected results in … Read More
When Lehman Brothers Holdings Inc. crashed after the impact of the sub-prime financial crisis in 2008, the financial sector was turned upside down. Regulators made a bold and smart decision to clean up the banking sector and its somewhat secretive high-risk activities.
Fast-forward nearly seven years, and the banking sector is clearly stronger and more trustworthy than it has ever been. Investors can thank the annual Federal Reserve bank stress test for this.
Fed’s Stress Test Making Banks the Safest Investment for Long-Term Investors?
The Fed’s financial crisis stress test aims to analyze the stability of the country’s largest banks with assets of more than $50.0 billion. It includes both a round one quantitative test and a round two qualitative portion.
After the rigorous testing based on the assumptions of a severe financial crisis, all but three banks passed. While all of them made it through the first round, only the U.S. units of Santander and Deutsche failed on a qualitative basis. The Bank of America Corporation (NYSE/BAC) was approved based on the acceptance of a new capital strategy by the end of September.
The financial crisis stress test is critical, as it gives investors and consumers confidence in the country’s banking system and pushes the banks to put measures in place to help avoid the mess we witnessed in 2008. The promise of the financial crisis testing is to put the various banks under the worst economic situations and see how they would fare. The assumptions under a financial crisis include severe recessions, high unemployment above 11%, plummeting home prices, and a crash in the stock market by 50%…. Read More
The NASDAQ may have passed 5,000, but investors shouldn’t get caught up in the excitement. A market correction may just be on the horizon, especially when you consider factors affecting the global economy.
NASDAQ, Stock Markets Near Highs, but Bull Market Slowing
After the NASDAQ’s recent breach of the psychological 5,000 level, there was talk about a move to another record at above 5,104, last encountered 15 years ago. At that time, in 2000, for the stock market, it was both a period of excessive greed and jubilation.
After the recent records by the DOW and S&P 500, I fully expect some pausing in the stock market. We are beginning to see that. Following a strong February, the major stock market indices are negative in March and are coming off their respective highs.
Now, I’m not saying the bull market is drawing to a close; rather, I’m saying that the gains we witnessed in February are not sustainable at the same rate. Prior to the stock market open on Monday, the DOW was up a mere 0.18% this year and the S&P 500 was up 0.59%.
The reality is that the bull market is now six years old after trading at a bottom in March 2009. I doubt the bull is dead yet, but I feel the beast may be slowing. I still believe the stock market will close up higher by year-end in just over nine months’ time, but the advance will be met with hurdles. We witnessed this in 2014, and it looks like we’re following a similar pattern this year…. Read More
Global Economic Factors Suggesting Coming Stock Market
Over the past few years, we have witnessed fewer loss of power situations on the electricity power grid. A big reason is that hydro operators are working proactively in monitoring the use of electricity on the residential and commercial power grids.
The adoption of devices at residences have helped hydro companies deal with the demands of a power grid and, in the process, lessen the chances of a grid meltdown.
Silver Spring: Smart Grid Hydro Developments an Attractive Investment?
A small-cap contrarian stock that piques my interest as a potential investment opportunity is Silver Spring Networks, Inc. (NASDAQ/SSNI), which has a share price of $9.93 and a market cap of $485 million. The stock has been a major underachiever, but it does offer a good example of a potential aggressive investment opportunity. Silver Spring debuted at $17.00 in March 2013 and traded at $33.00 in August 2013, prior to sliding to the current levels. Well off of its 52-week high of $18.40, the stock suggests a potential investment opportunity on price weakness.
Chart courtesy of www.StockCharts.com
At the heart of the company’s business is its Internet-based “IPv6” networking platform and solutions, which allow hydro companies to monitor energy use at homes and businesses, thereby creating a “smart grid.” The company has about 23 million installed devices operating in the United States, Canada, Australia, New Zealand, South America, Asia, and Europe.
An interesting project in the works by the company is its “Streetlight Vision” solution to network streetlights. The solution allows a hydro operator to regulate the brightness of streetlights, as well as when the lights come on. The company’s venture … Read More
Oil prices are in a dark area now, as the commodity is considered the dirtiest of all commodities at this time.
With no strong base in sight for oil prices, we could see additional downside moves; albeit, $50.00 looks like a pretty good area for support.
On the chart of the West Texas Intermediate (WTI) crude, oil prices fell to the $53.00 level earlier this week but managed to stage a small rally back to $55.00–$56.00.
Chart courtesy of www.StockCharts.com
I’m not fully convinced oil prices will hold at the mid-$50.00 level and feel a move towards $50.00 could be in the works. But this may not be bad news for all investors. Before I get into the potential investment opportunity, though, it’s important to understand the supply-demand dynamics behind the fall in oil.
Supply-Demand Imbalance in Oil
The supply, or production, of oil is much higher with the free-flowing shale oil from North Dakota and the fact that the Organization of the Petroleum Exporting Countries (OPEC) refuses to cut its production despite calls for action coming from Iran and Venezuela. OPEC suggested it will be an onlooker and has no interest at this time in cutting production and giving oil prices some support. The oil cartel blamed part of the oil price weakness on speculation. So, yes, oil traders have to take some of the blame for the declining oil prices and the increasing supply is a definite factor.
However, we also have the slowing global economy and the resultant decline on the demand side. The International Energy Agency cut its global demand outlook for the fourth time in … Read More