A conservative way go play Facebook

Nobody knows what's the fair value of Facebook. There is certainly potential to go up but downside risk is real as well. I will buy stock at 33 and immediately sell a Jan. 2014 33 call at $9. If FB is above 33 on Jan. 2014. Your stock will be called and you pocket the $9, which is about 28% return. If stock is below 33, you will still hold you stock but your cost has been reduced by $9. Only the stock is below 24, then you will lose money. Take advantage of high option premium and it will not last long.

why both bulls and bears are wrong on Apple

There are strong arguments for both bears and bulls on Apple. But unfortunately, they are both wrong.
The bulls arguments are Apple can continue current margin and keep the growth rate. They project that Iphone is going to have a run rate over 300 million units and Ipad over 120 million. The Itv is going to be a big winner.

The bears think that there is no way Apple can sustain IPhone at 150 million units, Ipad at 70 million and the competition will sure bring the margin down. When this happens, Apple will become another Nokia or Cisco.

I do agree that the Iphone and Ipad can not sustain the margin and 20% growth rate for long (at most another 2 years). However, the App. store will become a stable revenue source. Currently, Apple get 70% revenue without costs. eventually, I see total app sales of 10-20 billion annually which translate 7-14 billion profit. I think in 3-5 years, Apple should have eps at 50-60 dollar. given its cash position, the stock should trade around 650 to 800.

Facebook IPO

It opened at 42.90 AND NOW TRADES at 40. I think the price is ok if you want to buy. My expectation is facebook will grow to today's google size in about 5 years. Which means in 5 year the stock can trade around 72.

Apple's price is getting interesting. I will buy if it trades below 515.

The european turmoil is good for U.S. Consumers and bad for business profits

The Greek is in the process of going bankrupt and leaving euro, which will have a huge implication for Europe. It will be difficult to large global companies, such as IBM, JPM, SAP and resources companies to generate profits in Europe. The strong U.S dollar will also make oversea profits smaller in U.S dollar term. On the other hand, the lower prices for oil, base metal, agriculture products will be good for U.S consumers. Over the last few years, the real inflation experienced by consumers is much higher than the official number (2%).

msg

MSG reported earnings and it well ahead estimates. Just as I told you three months ago when Lin first emerged, I predited his impact will be way higher than analysts estemates. Now the stock has risen to fully valued, I will take profit and move the money to LGF.

MSG, LGFand Apple

MSG is around $35, which is my target. I will take profit. But over long run, it has some unique assets and should perform well. I will buy back around 33.

Lionsgate has dropped 15% since I wrote the blog. The negatives are 1. insider are selling. 2. Ender's Game has been pushed back 6 months. 3. Ross did not renew contract for Hunger Game. But the fundamental of the business did not change. Hunger Game is better than expected. The sale of non-core assets will start soon. The debt will be reduced. The earnings for next few years will be over $1.5/share. It bodes well for the company. I still believe it should trade at 17-20 range.

Apple is everyone's favorite. I have questions about its long term perspective. I will not be surpriced it Apple is trade lower 5 years from now. Both the smartphone market and Ipad market are maturing fast.

Why I like LGF

Lionsgate is a company I like for the following reasons:
1. It is a content provider. In the age of live streaming, the content providers have lots of leverages. Its library has accumulated thousands of titles and is going to make stable cash flow.
2. The Huger Game's box office is flying. The serial will make at least 1.2 billion dollar for LGF in next four years. The last Twillight coming out in Nov. will bring another 300 million dollar.
3. The sale of TV guilder network will reduce the debt load by about 150 million. Given the cashflow from HG, I expect by the end of this year, the debt level will be around 600 million which is more comfortable for investors.
My target for LGF is 19-20 dollar in 6 months.

The future of TV

Currently, most people watch TV through either Cable or Satellite. It gives these distribution companies lots of power and stable cash flow. But the time has arrived for a big change. The future TV will most likely through streaming, either directly from the content provider (such as sports franchise) or a content distributor (such as netflix). You can choose your own news and sports provider through its own streaming. If you are a New York sports fan, you can sing up with MSG and get live streaming directly from MSG. If you like CNN, you should be able to get streaming from CNN. For movies and shows, most likely they will go through a distributor. The power will shift to content provider, that's no question about it.

Disney, MSG, Lionsgate and etc will benefit from the trend. The margin for distributor like netflix will be thin because of the competition and very low barrier for entry. Currently, my favorite picks are MSG and Lionsgate (LGF). I will write about LGF in another blog.

unrealistic number for Apple

I read a report today and the analyst is predicting that Apple is going to sell close to 150 million Ipad in 2012 and 2013 and will continue to grow 20% afterwards. It is just unrealistic. The world population is about 6 billion. There are over 4 billion live under $5/day and they are not going to buy an Ipad. It is basically one Ipad for every 10 people if the prediction is correct. （After 20 years growth, the total PC shipments in 2011 is 85 million units). Even if it is achievable, then in 2014, another 110 million units have to be sold to maintain 20% growth. That's a 70% replacement rate (assuming a new Ipad come out). in 2015, it will be 135 million units. This is just impossible. The best reference is ipod. During its best year, it sold 55 million units but it only last for one year. It went back to 40 million units. The total ipod sold in 10 years is about 300 million. And the growth is negative right now. The only way for Apple to maintain its growth rate is have new break though products. Over the last 10 years, it is ipod, iphone and ipad.

The failure of electronic car bodes well for crude oil

The recent spike in oil price is probably more to do with the situation in Iran. However, over long term, the failure of e-car to catch fire is a more serious issue. If we can not curtail demand, the supply will not meet demand over long term. The world is consuming 80-90 million barrel a day right now. The new supplies come on lines are all unconventional fields, such as oil sand, deep sea drilling and fraction. All these have serious environment consequences. Even if all these methods are safe, they may give us another 30 years supply. Unless we are serious about e-car, oil price will continue to be high.

Dow 13000

If you original stocks in dow and hold on to them？ how much return you will get? Most people will say more than 1000% and it is the proof of buy and hold strategy. Really? I checked 30 companies in dow 30 in 1928. Most companies are gone. Some remaining companies like GM, Chryser, U.S. Steel and etc. had experienced at least one bankruptcy. There is only one company still in dow that is GE. So if you spent $100 each on original 30 companies, you probably did not break even by now. No company can live forever.

MSG is trading @all time high around 33.45. I will take some chips off the table when it goes to 34. I still believe the market is underestimating the impact of Lin.

Jeremy Lin's impact on MSG part 2

If you listened to my blog last Thursday, congratulation! you are up 7% already. After I did a more careful analysis, I believe the impact on MSG bottom line from Lin will be 30 million this year
1. the increased average price for ticket. The price increse is about 26% already. Which translate to 800,000 to one million dollar per game. For the remailing of the season, it will be about 20 million.
2. Merchandise sales. Total earning impacts will be at least 5 million. Assume MSG get net $1-3 for every t-shirt or other stuff sold.
3. Increased ticket sale. Assume 2000 more tickets sold every game @the average price of 180, that's another 7 million
4. TV rights to Asia countries. That's at least 3 million dollar.
5. Advertisement on the Madison Square Garden, minimum increase by 2 million.
6. Deeper into the playoff, easily 3 million.
Some intangibles. Put pressure on Time Warner to reach cable deal.

For next season, the impact on earning will be double minus his salary, assuming 15 million. Jeremy is 23, if he can do this until he is 30. The total financial impact will be at least 350 million on MSG bottom line. The total share outstanding is 77 million, so the stock should increase by 5 dollars from his impact. I increased my target to $35.

Jeremy Lin's impact on MSG

If you have not heard about Jeremy Lin, then this is not for you. Lin's impact on MSG stock should be significant. It will bring 2 to 3 thousand more fans each game to Madison Square Garden, which is about $100,000 additional revenue per game. The TV rights to Taiwan and China will generate $5 million per season at least. The advertisements will increase by 1-2 million (given Yao Ming's Houston Rocket experience). You are looking at least 10 million dollar net revenue. 90% of this revenue will translate into net income It is 10% of current NI of MSG. My guess the impact will be much more than 10 million a year. MSG should go up at least 10% to $33 because of Lin

The implication of change of growth in China

China is experiencing a cool down in property and investment-led growth. The government is trying hard to boost consumer consumptions. The drop in housing price will help consumption too. The implications for this change is huge. The demand for base metals will slow, but oil demand will go up. Computers, smart phones and electronics sales will see big jump and so does farming equipments. Luxury cars will see strong growth as well. Firms like Apple, BMW and Starbucks will benefit.