Saturday, October 23, 2010

23 October 2010 Not Ready For Prime Time


23 October 2010 Not Ready For Prime Time

I took a chance this Thursday and took the piece I did on Pharmaceuticals and posted in my blog on If you are not familiar, Seeking Alpha is the premier website for actionable stock market opinion and analysis, and vibrant, intelligent finance discussion. We have sent several posts to SA only to have them rejected. I got back a note about the pharm blog making a few suggestions. I adjusted it, posted again and it was published. Wow, I got slammed. One person was actually annoyed they wasted their time reading my “drivel”. (They are very astute as even I have called it drivel.) The nicest comment I got was “Thank you for your long winded article about pharmaceuticals. What was the point?” I guess all of the readers screen 120 stocks boil it down to 15, do the homework and suggest two value pharms. Now all of this is good news as it tells me there are those who have less of a life than I do!

I started my day by sending an e-mail this morning at 5:30 to a few of my golf buddies letting them know I was under the weather and would not make golf. I was so ill I did not make breakfast so that puts it in the category of Near Death Experience. I was so sick (How Sick Were You!), I did not get Barron’s out of the Driveway until 10:30 in the morning.

We will crunch through it and give you the week ahead, by tomorrow night. One article that caught my attention (possibly because it was the cover story. Told you I was sick.) was called Private Cloud. Mark Veverka article is well researched and opens the door to unbridled speculation without concern for value based metrics like P/E ratios and shareholder’s value scrutiny.

What he describes is a repeat of the internet bubble of 1995-2000. While a lot of people lost their shirts, cars, and homes in that bubble, a lot of folk made gobs of money. With that comment in mind, I would suggest we are closer to 1995 than 2000 in the current phenomenon of cloud computing. The reason we say this is because, just like the .com bubble, a critical mass of users was not attained until corporate America said, yeah we want websites and internet exposure and e-mail and transactional websites. (That would have been 1995ish.) Right now we are just beginning to see companies that they see some interesting opportunities in cloud computing. The real catalyst for the adoption of the cloud computing phenomenon could be seen in an article this Tuesday in the Wall Street Journal. In the board rooms of Fortune 500 companies, exec are waling in with their iPads and asking their IT department how to get on the company network and how do integrate their new toy into their existing network at work. Now at face value this is a huge linkage to AAPL as company IT departments build Mac and Apple networks to support the devices, but at the same time so many of the apps are cloud based that it is inevitable this conversion will happen. Unfortunately many of the key players have already been identified and their valuations are outrageous. P/E ratios of 50-150 are not uncommon, but they are playing in a filed which could see 5 year sales and profit increases of 100-1000%, not only making these valuations reasonable but down right cheap.

We are going to tear Veverkas article apart and look at the companies he mentions plus a few of our own and read the tea leaves. This batch of equities will be EXTREMELY speculative, and a few will make us money only because of the bigger fool theory. Just don’t be the last bigger fool, aka the biggest fool as that means you owned the equity as it went POP.

Until we read all the 10K report on these please pick up this weeks Barron’s and read the article. Imagine if you could have read the Wall Street Journal in 1995 and gleaned most of the top names in the internet bubble and had the guts to buy in early for the likes of eBay, Global Crossing, Yahoo. Amazon, Green Grocer, to name a few.

This will be like a horse race. There will be winner and lot of loosers, but it will be an interesting race.

Salve Lucrum


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