Fall Classic: World Series of Investing
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This year the World Series is being played by the San Francisco Giants and the Detroit Tigers. The City by the Bay vs. The Motor City.
Who will win? You could analyze each of the major categories (batting, starting pitching, relief pitching, manager, etc.) and come up with a projection. Most major newspapers, and of course sports networks will devote lots of time and space to analyze each and every aspect of the teams. If I had to bet I'd go with San Francisco, although on paper Detroit may look like the better team.
We could also have a World Series of investing between companies with headquarters or major operations in or near each of the World Series cities.
First we need to set the rosters.
Baseball seems to have just about every stat imaginable: batting average, on base percentage, earned run average (ERA), and one of my favorites, on base plus slugging (OBPS).
Stock investing also has its stats: Price/earnings (P/E), market cap, free cash flow, earnings per share (EPS) growth, debt/equity ratio, and management effectiveness (although this is more of a qualitative attribute).
Leading off for the Giants will be Google.
Its main complex is in Mountain View, CA, which is about 40 miles from San Francisco. It has also been moving up in the market cap rankings. However, the latest business results and lowered outlook took them down a notch or two. They are still worth a tidy sum, $222 billion.
Ignoring the recent bad news for a moment and looking at the big picture, the company has great stats, such as no debt, lots of cash, and a good management team led by its founders. Revenue and earnings have grown steadily, on an annual basis, over the last 5 years. Can it keep up the pace? Will the Nexus 7 and other new products be successful? If so, the stock could still have some life left in it. I wouldn't pinch hit for them just yet.
Facebook is based in Menlo Park, CA, just south of San Francisco. It operates the extremely popular social network of the same name which just surpassed the one billion active user level last month. That's 14% of the world's population!
The company went public in May. The IPO was somewhat of a fiasco and resulted in the start of trading being delayed. Shares declined in value and continued a downward spiral until the latest quarterly results were announced. The company beat estimates on both the top and bottom lines.
The balance sheet looks strong with relatively low debt and lots of cash. What will the company do with it? Maybe an acquisition in the works?
As part of the business review Facebook also reported increased average monthly usage. Three-fourths of their "ad run rate" was generated by mobile use. However, it still needs to answer the question about how to more effectively monetize growth in the mobile area. It may the weak link in the San Francisco line-up for now until they solve the riddle.
Let's take a look at the Detroit players. In the past they were Cy Young performers and sure-fire Hall of Famers, consistently ranked one and two on most Forbes 500 lists. The auto industry was booming.
GM appears to be at the end of its playing days and may need an encore career. Maybe a minor league coach? Ford may have more arm left and can keep its job in the majors.
GM filed for bankruptcy and took on the federal government as a major shareholder. The U.S. taxpayers still own a sizable percentage of the company. The balance sheet has improved and the company's current long term debt/equity ratio is reasonable at 30% (must be nice to have past debt forgiven and paid off by others). There was also a free cash flow rate of over a billion dollars for 2010 and 2011.
Will the company be able to continue to work through its problems? Will its new product introductions help? The foray into the electric vehicle market so far has not panned out. Sales of the Chevy Volt have lagged expectations and the competition. Looks like GM could be treated as a turnaround company for investment purposes.
Ford weathered the storm without outside intervention for the most part, getting through the 2008 financial crisis relatively intact. Although revenue barely increased, EPS has increased over 160% over the past 12 months. However, lots of debt could hamper the future.
Can it continue growing? Their new car line-up, including the Fusion, may help. The hybrid version of the 2013 model is rated for 47 mpg and is priced significantly lower than the Volt. I'd bet on Ford to win the race over Chevy.
Just like in the baseball series, I think I'll go with San Francisco in the investment series too. So far the Giants have got a leg up with a win in Game 1 with the help of three home runs by Pablo Santoval and good pitching by Barry Zito and Tim Lincecum.
Compare and Contrast
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Mathman6577 has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Ford, Facebook, General Motors Company, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.