From Glenn Curtis at TSC.....scroll down to last section:
Back to the subscriber mailbag:
I've noticed that you've flip-flopped on Amazon (AMZN:Nasdaq - news - commentary - research - analysis) -- first you liked the stock, now you don't like it. What gives?
Amazon is a hard company to analyze. On one hand, it's an intriguing situation because management has narrowed its cash burn substantially as promised. But on the other hand, speculation that the company's fulfillment deal with Toys R Us is in jeopardy worries me.
The bottom line is that I find myself wanting to like Amazon, given the great strides it's made over the past two years in building out its product offerings and driving site traffic. But I simply see no reason to get involved at this point because, as much progress as the company has made, it remains unprofitable. And there's no sign Amazon will ever make a good margin on its sales, even if it does keep going in this direction.
Yet another thing that concerns me is that hundreds of thousands of shares were sold by top execs since late last year, when the stock was trading in the single digits and low teens. You have to ask yourself what's wrong if the stock isn't worth hanging on to at that price.
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Judging from your many articles about gaming stocks, it seems you are extremely bullish on the industry. But with intense competition, and the constant threat of new laws and government intervention, is the industry really worth betting on?
I think it is. Remember, in good times and bad, people will always drink, smoke and gamble. It's simple human nature. And although I agree that the competition can be intense, and certain markets saturated at times, I continue to believe that there are terrific investment opportunities out there.
As far as government intervention is concerned, you are right, that is a worry. But keep in mind that most of the states in which these casinos are located, such as Nevada, Mississippi and Louisiana, are highly dependent on gaming and travel revenue. So yes, the local governments can be tough. But it's not like they are about to drive all of these casinos out of business.
Case in point: Penn National Gaming (PENN:Nasdaq - news - commentary - research - analysis) had to overcome lots of red tape to get its Charles Town, W.Va., facility rolling. But recently, West Virginia allowed the company to add 1,500 new slot machines to the facility.
Incidentally, my top picks are MGM Mirage (MGG:NYSE - news - commentary - research - analysis), Hollywood Casino (HWD:Amex - news - commentary - research - analysis) and Boyd Gaming (BYD:NYSE - news - commentary - research - analysis).
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Does it make sense to invest in chip companies such as Intel (INTC:Nasdaq - news - commentary - research - analysis) or Advanced Micro Devices (AMD:NYSE - news - commentary - research - analysis) right now? And if so, which one of the two [would] you pick?
The two big-name chip stocks you mentioned are well off their 52-week highs for essentially two reasons: the economic slowdown (from which we are, according to the most recent jobless numbers, emerging) and fears of overcapacity within the industry.
Let me tackle the economic issue first.
As the domestic economy rebounds, companies such as Intel and AMD will receive more orders, the logic being that the more money we all have to spend, the more likely we are to buy personal computers, PDAs, appliances and cars. Hold your horses, folks. That may be a bit simplistic. But it's true nonetheless.
Now on to the overcapacity issue.
A potential investor should also be aware that the chip industry is best characterized by boom-and-bust cycles, meaning that at times supply outstrips demand, and sometimes demand outpaces supply. But history has shown that the best time to buy into these stocks is when the cycle is deep in its trough. Again, the theory being that as the economy rebounds and demand perks up, so will chipmakers' respective share prices.
Now to answer part two of your question.
Given the choice, I'd go for AMD for the simple reason that it's a smaller and more nimble player than its counterpart. Further, I like the fact that because of its solid technology and ability to compete on price, it's been able to slowly steal market share away from Intel over the past two years. Not too many companies can say that!
Realistically, assuming AMD (which is a current Value Investor recommendation) can return to profitability in 2003 (the current estimate is 58 cents a share), I think that the stock could realistically be worth $20, up from $11.50 lately.
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In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. |
