Santa may lift investor spirits
Jamie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There is much to enjoy about this time of year. The festive nature of the holidays for one tends to bring out the best in optimism for stocks and the market.
It is also the end of a year, a time to put the past behind us and focus on the future. By our nature humans for the most part are optimists. Even if psychological the calendar year change is an opportunity to think positively about things.
Whether perceived or real these positive thoughts are likely to lift stocks in the next week or two before traders call it a year in the third week of December.
We certainly started off with a bang on Black Friday. Stocks across the board gained in excess of 1%. Unfortunately the gains did not hold on this Cyber Monday with stocks giving up some of those Black Friday gains.
Front and center for investors is the retail market. Holiday spending is a big time for retailers and can make or break the year in terms of profitability. So far the consumer looks to be in a spending mood.
Will the action be derailed by any number of ghosts hiding in the closet?
Yet to be determined is the fall-out from the Fiscal Cliff resolution or lack thereof. That’s a pretty big ghost that could take the steam out of any Santa Claus rally.
One thing that can override any of these factors is the all-powerful Wall Street analyst rating. An up or down grade can have huge impact on the price of a stock at the moment. We are seeing that Monday with key rating changes to some fairly well-known stocks.
Goldman says Yahoo
Goldman Sachs (NYSE: GS) added Yahoo (NASDAQ: YHOO) to its much ballyhooed conviction list on Monday. The analyst there believes that Yahoo shares could gain some 30% from current levels. The opinion is based on Yahoo’s asset values mainly.
Goldman believes that Yahoo can divest itself of certain assets to obtain a higher valuation. As for the core business, the analyst notes that the business is in decline, but search put in its strongest performance in years during the last quarter.
Is Goldman using its power to lift the stock or is there legitimacy to the analysis? I would be inclined to believe the former. Call me a skeptic, but if you look closely at Yahoo, you will see a business in decline. Sure the assets may be worth more than the current share price, but that is not why one owns an equity investment.
Investment should be about growth not extracting value from a balance sheet. In the case of Yahoo I fail to see where future profit growth will come from plain and simple. I’d use the Goldman upgrade to take some profits in Yahoo if you own it.
Don’t dine on McDonald’s
It’s been a tough year for burger king, McDonald’s (NYSE: MCD). Shares of the fast food giant are down some 15%. The stock may be going lower if one believes the recent downgrade from Lazard. On Monday the Wall Street firm took McDonald’s from a buy to a neutral recommendation.
The analyst at Lazard cited competition and a recent management shake-up as reasons for the downgrade. Not helping matters was flat sales growth over the last two quarters. Shares of McDonalds were down more than 1% on Monday after the downgrade.
The fast food business is competitive. Yum brands and its Taco Bell unit are upping their game thanks to competition from Chipotle Mexican Grill. Then there is Burger King and any number of other options including Wendy’s. Oh, and don’t forget coffee shops looking to increase sales are selling more and more food items.
I’d ignore the management shake-up news – management is overrated in my opinion. The trouble with McDonald’s is valuation. Analysts on average are expecting profit growth of only 9% in 2013. With shares trading for 16 times current year estimated earnings, shares are priced for future growth that may or may not materialize.
I wouldn’t call McDonald’s a neutral – I’d make it a sell.
Don’t lose Face on Facebook
Social media king, Facebook (NYSE: FB) has been quite the enigmatic story in 2012. A much hyped initial public offering, share price collapse and insider selling put the spotlight on the company. Everyone seems to have an opinion on Facebook.
On Monday the research team at Bernstein upgraded shares of Facebook. The analyst at Bernstein moved Facebook to outperform from market perform. The news was stunning for Facebook sending shares higher by 8% on Monday. Investors were encouraged by the upgrade from what had been a fairly negative position on the company.
I’m not sure what has changed. The hubris at Facebook is unreal. The company adds absolutely no value to the equation other than having a huge following. Prove the monetization and I might change my mind. In the mean time I would use this analyst upgrade as a chance to sell shares.
The punks at Facebook are about to get their comeuppance. I wouldn’t want to hold the bag when that happens.
Fool blogger Jamie Dlugosch does not own shares in any of the companies mentioned in this entry.