I don’t know what is more surprising, the fact that Geocities was still around after all these years, or how much Yahoo paid for the site 10 years ago. I remember back in the late 1990s when personal web pages were popular, and one of the best free services around could be on found on Geocities. Others, included Tripod, Hypermart and even AOL (with its Hometown AOL). In the last 10 years, these sites have been eclipsed by an evolution of social networking sites, including Myspace and Facebook.
Indeed 1999, marked a relatively fun time in the stock market, with the internet bubble in full swing. Internet stocks fluctuated greatly on a daily basis, which made for profiable times for day traders. On Jan 28, 1999, when the deal between Yahoo (NASDAQ: YHOO) and Geocities was announced, Yahoo traded at $367.75, while shares of GeoCities sold at $117. Based on stock prices, the deal between the two companies was valued at $3.6 billion.
Flash forward to today, and Yahoo is stock is now languishing. On a direct comparison, Yahoo shares have traded as low as $8.94 this year. If you account for the three 2 for 1 stock splits since January of 1999 Yahoo shares were as low as about $72 in Jan 1999 terms. At today’s current price of $14, the same shares are equivalent to $112, representing a still significant 10 year loss for long term shareholders.
But it’s just as well that Yahoo closed Geocities. Personal home pages have been eclipsed by the social networking sites, and blog sites, including WordPress and Blogspot. But it represents the end of an earlier era on the internet. Speaking of Yahoo, at these levels, short term gains may be hard to come buy, but the stock likely represents a decent long term stock buy. A good entry point for the stock would be less than $13.
Ford Motor Credit has for years offered a way for retail investors to invest in the bonds of Ford. It is a not a money market account, and not FDIC insured. Thus, it has offered a premium interest rate as compared to the Fed and other financial institutions.
Our last detailed commentary on this investment was in September 2007, which you can find here. Please read that blog for more specifics on this type of account. Since that time, interest rates have fallen significantly. Ford Investor Advantage still offers top tier interest rates with interest rates from 3.45% to 3.75% APR (3.51% to 3.82% APY). It functions essentially like a checking account, with free checks and no fees for checks written in excess of $250. You can withdrawal money at any time and as frequently as you would like (unlike traditional money market accounts). However, given the recent demise of the US auto industry, the money placed there is at greater risk than ever before.
Since 2007, the auto industry has essentially imploded with the global financial meltdown and recession/depression. GM (NYSE: GM) and Chrysler teeter on the brink of bankruptcy (I personally would not touch GM stock at all). Ford has done relatively better. Thanks to its plan to mortgage the company for $26 billion in 2006, it has a monetary cushion to prevent it from bankruptcy…for now.
In addition, it recently was able to refinance its debt. The company retired $9.9 billion of its securities in exchange for cash and shares under terms of the debt buybacks. It was able to reduce its debt 38% and save over $500 million in interest costs annually. The company now has about $15.9 billion in debts outstanding. Ford said it would pay a total of $2.4 billion and issue 468 million shares as a result of the offers. About $4.3 billion in Ford’s senior convertible notes were tendered under an offer that expired Friday. Up to $344 million will be used to pay cash premiums to note holders.
Ford Motor Credit also participated in this transaction in a separate offer. It will use $1.1 billion to purchase the secured term loan debt ($3.4 billion were tendered). Ford Motor Credit previously said a second cash tender offer that expired on March 23 was “over-subscribed,” and it doubled the amount of cash it would spend to buy back the debt. That resulted in the use of $1 billion to purchase $2.2 billion in term loan debt.
So what should investors in the Ford Investor Advantage program take away from all the recent news? The tender offer leaves the company with a better financial footing, although it is certainly not out of the woods yet, and depends entirely on how car sales will improve this year and next. I certainly would not leave my entire savings/nest egg with Ford, and would consider other high yielding options such as GE Interest Plus (which pays 2.73%-3.03% depending on your investment size). GMAC also offers FDIC-insured CDs with a one year return of 2.75% APY. Bank CDs are also quite attractive these days. Without this tender offer, I would have been quite cautious about placing more money with Ford Investor Advantage. In fact, I would have advocated pulling some money out of it given the possibility of bankruptcy. However, given the extra lifeline it now has, I think leaving existing cash within this account is possible. However, I would still not risk an entire nest egg with an account at Ford.
Talk about resiliency in a down market. The Chinese gaming sector (both mobile and internet) has been on fire outperforming the general market by several fold. For the past few years, I have been heavily focused on this sector, but it has taken years to finally see appreciable gains, as investors finally realize belatedly that this is a significantly undervalued sector. Since its February/March lows, Netease (NTES) has climbed from 18 to 30, reaching an all-time high. The stock has essentially traded sideways since 2005 after its first stellar stock move when it nearly quadrupled in price. Its most recent moves comes on anticipated news that it has won the Activision/Blizzard license to World of Warcraft III in China from The9 (NCTY). That said, The9 with a significant portion of its revenue from WoW III, is a stock that I would continue to avoid.
Kongzhong (KONG) has steadily increased since its October 2008 low of 2.31, to hit a new 52 week high of 6.74 this past week. Follower of this blog know that I have been following this company closely over the years. Looking back at my most recent post in regards to this sector and Kongzhong (KONG) back in September 2007, I was spot on in regards to its price action to over $8. It indeed was a short term movement as the stock traded back down to significantly. However, the value of this stock long term remains after its rebound. It has a sizeable cash reserve that accounts for a good portion of its market capitalization and remains profitable (albeit marginally). It also recently received an investment from Nokia Growth Partners. The company received an investment of about US$6.8 million in 5-year convertible senior notes plus warrants to purchase an additional 2.0 million American Depositary Shares (ADS) at US$5.0 per ADS, exercisable within five years.
Shanda (SNDA) has also been a stellar performer. It has risen from 19 in December to 53 this past week. In terms of valuation, they are still relatively cheap. Netease trades at a P/E of 16, with still rising revenue and profitability as the Chinese gaming market appears relatively immune from the global recession/depression. Although the easy short term gains are gone from these stocks, they still represent good long term stock buys, as the market for China remains enormous when compared to the United States.
I will expand on this post at a later date, but Yahoo (Nasdaq: YHOO) at 24-25 is on my radar as a good long term buy, especially for an internet stock. My target price from here is about a 20% one year gain for a target of $30. This is not a stretch, given that it was at $34 only 1 month ago with the Alibaba IPO. It subsequently took a significant plunge.
September 27th, 2007 · No Comments
Guess we weren’t off the mark at all. It was a bulls-eye. Since we recommeneded this stock in July 2007, shares have taken off. Kongzhong (Nasdaq: KONG) shot up 71% today to 8.52 today. Peer stocks such as Linktone (Nasdaq: LTON) and Hurray (Nasdaq: HRAY) also participated in the rally, but did not benefit as much as Kongzhong.
At this point, I would no longer rate shares as a buy. In fact, I’d even consider selling at least some of your shares, and holding on to the rest. One day gains can often be fleeting short term.
The reason for today’s climb:
Chinese stocks trading in the U.S. rose, pushing the benchmark to a record, as speculation that fixed-line carriers will be allowed into the mobile phone business boosted the prospects for wireless entertainment companies such as KongZhong Corp. Inc., Linktone Ltd. and Hurray! Holdings Co.
The Bank of New York Co.’s China ADR Index, which follows China’s American depositary receipts, climbed 4.1 percent to 568.01, the highest since at least December 2001.
Investors were buying stocks in Chinese companies that may supply content such as games and ring tones to the fixed-line carriers as they enter the mobile business, said analyst James Lee at WR Hambrecht + Co. China BAK Battery Inc., whose rechargeable batteries are used in mobile phones, may also be rising on demand from mobile users for improved performance.
“There are expectations that landline carriers may be entering the wireless space,'’ said Lee, who has a “hold'’ rating on Beijing-based KongZhong. “There is speculation that these fixed-line carriers may partner with companies like KongZhong, Hurray and Linktone to get into data services.'’
The country’s National Audit Office said earlier this week that a review of five phone operators will start next month, fanning speculation that the government is preparing for an overhaul. China’s government may seek to merge domestic operators, the Financial Times reported last month, citing an unidentified China Telecom official.
Shares of KongZhong jumped $3.55, or 71 percent, to $8.53. Linktone rose 80 cents, or 26 percent, to $3.85. Hurray gained $1.18, or 25 percent, to $5.82.