Jewel_finder – I assume you are asking about NITE as a long-term holding, similar to your example of MSFT etc.
The following, is obviously one man's opinion, so do your own dd, but here goes: while I like NITE on fundamental grounds, I cannot honestly at this point say it belongs to that rare class of stock, which you just chuck into your long-term investment portfolio and forget about for the next 5+ years.
My problem with NITE *very long term* (5+ years), is that it is too hard to picture where NITE might be in 5 years, and it does not fulfill several other criteria:
1) Is it in a unique business where it has unique advantages not available to others?
No. There are several other competitors, and more importantly I can discern no advantage that is obviously sustainable. They use special algorithms to gain trading advantages – well, nobody says this is a secret coke-like recipe. It is just math, and a set of heuristic rules. It can be duplicated and improved upon. Nor do they have a special brand-name that guarantees preference. They cater to brokerages and traders, who look for who can give them the best executions – they are not like KO where branding works. They certainly have good people working for them – but people come and go, and this “personnel advantage” cannot be guaranteed to last. Today they are certainly dominant, and growing, with good expansion plans - but who is to say that will last – there is no inherent advantage to NITE vs. the competitors. Are there almost “insurmountable” barriers to entry for other competitors? No.
So, on that score, on a scale of 1 to 10, 10 being best, they get a 7. Meaning, they are currently very dominant, and that dominance will likely grow. No competitor on the horizon seems to threaten imminently. So, I continue to like NITE.
2) Is there any major threat on the horizon?
Yes. ECNs – sure I've heard all about the “advantages” of ECNs vs MMs (liquidity etc.). – but make no mistake, ECNs are a definite threat. The only situations where MMs are truly necessary to provide liquidity is on thinly traded stocks, which are not likely to find a counter on an ECN. I know and understand that NITE has a stake in an ECN, and in general has an ECN strategy, but as a hands on trader, I can tell you, I almost always use ECNs to trade. Institutions will increasingly do the same (they've always used INCA), and more and more often they trade directly with each other bypassing the MMs altogether. Sure, I've read all the PR about getting a good “price” through MMs – spare me, I've heard it all. The hard fact is, ECNs are the wave of the future on heavily traded stocks.
So, on that score, on the scale of 1 to 10, I give NITE a 3. Not good.
3) Is the market large enough to provide for practical purposes “unlimited” potential?
No. While NITE is expanding abroad, and that market is huge and growing world-wide, there are certain inherent limitations. NITE is basically a trading and services outfit. As such, they don't have the same freedom to strike out in almost any area, as f.ex. MSFT does – MSFT can come up with any software, for any purpose in the world. PFE can come up with any drug for almost limitless number of diseases. NITE can trade and provide trading services – that's it. They have a large % of the US market, and that percentage will grow – but there is a limit at 100%. They'll branch out into options etc. but there are natural limits to it all. Yes, the volume will grow, but the market is not as infinite as for MSFT and PFE in their respective fields. As for foreing markets, that too will be limited. For sure this is not an immediate concern, because it will be quite a while before NITE bumps against these limits. All I'm saying, it is not “unlimited” potential.
So, on a scale of 1-10, I give NITE a 5. That's fine – the room to expand is good enough for me, for the time being.
4) Are the profit margins likely to expand and is this under NITE control?
No. Trading profits are naturally limited by competition, and the profits can only be as large as an efficient market allows. Which is not to say *small*. It is certainly healthy. But most of the growth will be from expanding revenues, not expanding profit margins. A MSFT of PFE – different story. Once PFE patents a drug, they can charge what the market will bear, and they can rationalize the production to increase margins. NITE has very little room to do so. However, the revenue growth should be healthy for NITE.
So, on a scale of 1-10, I give NITE a 4.
5) Is NITE currently undervalued?
That's a tough one, as it depends on market conditions and other factors. But it is not cheap exactly. I'd say it is fairly valued, but with upside potential.
So, on current valuation 1-10, I'd give NITE a 5.
OK, this is a very thumbnail sketch, and I'm sure others will have a different perspective and conclusions on all my points. But that's my call. Bottom line, as far as NITE being a “winner” for the life-long, infinity touching, retirement, hand down to countless generations stock – an emphatic NO! But as a good holding likely to appreciate over several years – yes. So, to me, NITE is a good stock for the next few years, but nothing like a Warren Buffet type holding.
As to your other stocks, I can't possibly comment on them in the same detail, besides this is the NITE board, and I don't want to bother people with OT postings. But a quick few comments:
MSFT – absolutely my favorite stock in the world. Sure, there are many stocks which will appreciate a lot faster. But for sheer stability, for the safety+growth aspect, it is unbeatable. Unlike NITE, MSFT has a near monopoly, and is far safer from competitors (of course there are challenges, such as Linux, Java, etc., but MSFT will prevail). It also has profit margins NITE can only dream of, and a potential market to grow that is almost unlimited. They have huge advantages and a pile of cash to invest. Every portfolio should have some MSFT anchoring it, and providing stability. No, it is not a rocket, and other stocks will outperform it, but it is as close to a bond as a stock can get, and still return respectable gains. Best gain for least risk. I own a lot of MSFT. Stock for the generations – a long term winner.
PFE – the premier drug company in the world. Great to have in a portfolio. Provides tremendous stability – people need drugs, no matter if the economy is good or bad. Market almost unlimited – diseases almost countless. Aging population will need more drugs all over the world. Patent protection. Good profit margins. This will grow even slower than MSFT, but it is excellent as far as providing safety, and still providing decent growth. AMGN – biotechnology is the wave of the future, and AMGN is at the forefront of that wave – all the advantages of PFE. I own PFE, and AMGN (plus several other drug stocks, such as BMY, JNJ, MTC). PFE, and probably AMGN – stocks for the generations – long term winners.
QCOM – great potential market, will grow like a weed. I'm not clear on this very long term though. Still, I own it, and I look forward to making a lot of $.
CSCO – same as above. I own it too.
CMGI – I own it, but it is hard to evaluate for future potential – anything is possible. For me, it stays in my portfolio, as long as it keeps appreciating, and as long as I think they are on the ball in coming up with good new IPOs. However, probably not a “generations” type stock.
YHOO – possibly a very valuable stock – but very expensive.
As to the other stocks, it would take too long to explore in detail, and while I trade most of them I do not have them in my “long-term” portfolio.
Hope this is helpful.
Morgan
PS Let me again emphasize that all the above are my opinions only, and I make no claim to possess a crystal ball.
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