Today I went and did some hiking around the May Lake area. May Lake is located within Yosemite National Park…few miles off of Highway 120 right before you reach Tenaya Lake. I’m linking to a sampling of the pictures I took. Enjoy.
Monthly Archives: July 2012
A Data Collection Revolution
Originally appeared on April 10th, 2012 in the newsletter.
We are in the midst of a revolution. The revolution could be referred to as a data or a data collection revolution. The actives we engage in throughout our daily lives are becoming so ‘connected’ that whole new possibilities in terms of tracking, monitoring and measurement are now and will be possible. As a result, societies around the world will need to deal with a plethora of new forms of privacy issues. In the midst of tracking that is personal in nature, is an area that deals with the impersonal; physical structures and machines. This form of tracking is in the background because it is not personally invasive and will largely lack an appeal to marketers.
Mistras Group (MG) is a provider of engineering services specializing in nondestructive testing to evaluate the structural integrity of a range of critical infrastructure components. Part of Mistra’s offering is tech based in that it incorporates acoustic emission, digital radiography, infrared, wireless and ultrasonic sensors to alert customers of structural problems before failure occurs.
Developments in technologies have provided us with many new ways to track and monitor, but most of the attention is being paid to that which is developed to track you and I. As an investor, forget about the tracking of people. Look at the tracking and monitoring of machinery, buildings, bridges, pipelines and other structures. This is where businesses will see real value in such products and pay for the products and services. Avoiding failures means more money at the end of the day and any product/service that can advert such failure is going to be commanded.
I like MG and other companies in the same field as a long-term play on technological products for infrastructure development and maintenance. Since July, MG has run from $16 to $26 per share. That’s over 60% share price appreciation. In today’s market environment, I would look for a pullback as an opportunity to develop a position in this stock. Set your target around $20 for MG.
Business Models: Facebook and Network Television
Originally appeared on June 11th in the newsletter.
A lot of noise has been made leading up to and in the wake of the Facebook IPO. Things haven’t turned out too well for the stock’s price appreciation, which has given rise to a variety of criticism of the company’s COE, investment banks and other involved parties. While that circus might be entertaining to some, I think the future prospects of Facebook’s current business model and how it relates to the difficulties currently faced by network television provides is a more interesting area.
The revenue Facebook currently generates comes primarily from ad revenue generated from their online social networking site. Facebook is not a subscription site; it’s a free site that incorporates ads into the pages users see when they go onto the site. Clicking on an ad generates a charge to the person/business displaying the ad and this results in income for Facebook. When users don’t have interest in the ads (no clicks), then income is not generated.
In many ways Facebook’s business model is akin to that of the big network broadcasting companies (The Networks = ABC, NBC, CBS, Fox). Facebook, like the networks, is a free service anyone can access, as long as you have the right equipment. To access Facebook you need an Internet connection and a computer. To access the networks you need a television and an antenna. Neither one of these services has a specific cost for accessing content.
Facebook and the networks are able to forgo charging subscriptions for accessing content because of their scale. The amount of people these entities touch is enormous. Millions of people every day see a Facebook page and see programming from the networks. Advertisers, therefore, see value in using either medium to transmit their product and/or service messages.
The problem with the ad business model comes into play when you have an audience that totally tunes out the commercials that are being offered up. When this happens the perceived value of the millions of eyeballs disappears. The first hurdle that will always exist for both mediums is the fact that viewers are not going to the service (Facebook or a network station) to find out about a specific product or service. People do not go on Facebook or watch a program to find out about the latest heartburn drug. Secondly, more people are adopting technologies that block/skip ads and therefore make them even more irrelevant.
When browsing the web a number of web browser plug-ins exist that strip out embedded ads from websites, which causes visitors to not even realize ads exists on some pages. With television, digital video recorders are often used to fast forward through ads. Most recently Dish Network has introduced an ad-skipping service.
The challenge that both Facebook and the networks must deal with is how to add value in their advertisement areas, so that the ads are not seen as a distraction, but actually a beneficial part of the whole package. In Facebook’s case, the company has a huge amount of demographic and other data on its users that it has and hopes to further leverage to make the world’s most sophisticated target marketing machine. Technically, this venture is feasible, but to what limit will users accept such targeting until they’re scared off by the thought of personal privacy violations? For the networks, the task is even more difficult, since many alternatives exist through the Internet for video content. Their potential to target audiences by specific demographics is also much more limited than Facebook’s.
Things must change for both Facebook and the networks. As technologies and user expectations change so too does the service and performance that these companies must deliver. It’s a future filled with many challenges and opportunities for both realms. In this case, it’s truly a situation where past success is not a guarantee of future success.
The July Edition of Market Capitalist Newsletter is Here!
What you will find inside…
- Consider the long-term: Since 2000 we’ve been in a bear market. How should the current market influence your investment perspective and strategy?
- How Peer-to-Peer lending can be your answer to gaining big yields in a low yield world.
- An updated portfolio performance table.
- Why low volume stocks carry significant amounts of risk and may be deceptive in their price patterns.
The Promise of Liquid Natural Gas
Original date of publication was April 10, 2012.
Beyond the cries and groans over high gas (petroleum) prices in the U.S., a very different picture for energy consumption is being painted. The U.S. in the last 5-6 years has established itself as the world’s natural gas giant. The supply is so strong that the U.S. natural gas market is in the midst of a crisis based on oversupply and weak demand.
The price Americans are paying for natural gas compared to other countries is astonishingly low. For example, in Australia an average consumer would pay over 6 times per million BTU (British Thermal Unit) for natural gas than would be charged in the U.S. This is astonishing in that if you were to use a gallon of petroleum selling for $4 and multiply it by 6 you’d get a result of $24 per gallon!
(As of March 2012)
Why does the U.S. differ so much in terms of natural gas pricing compared to other countries around the globe? Two main causes can be identified. First, hydraulic fracturing (often referred to as fracking), a relatively new phenomenon in the exploration and extraction of natural gas was born in the U.S. The U.S. market is now reaping the benefits of being an early adopter of this technology. Secondly, the ability and infrastructure needed to transport natural gas to the degree that oil is transported globally is lacking.
The world has two main indices for oil because it is a commodity that is moved throughout the world with relative ease. This is not true for natural gas. Part of the problem stems from infrastructure and part from the nature of natural gas. In the U.S. the development of ports to load natural gas for exporting purposes are few and far between. This is because it was not until the last few years that the U.S. was considered a candidate for the exportation of natural gas. Ten years ago natural gas prices were much higher and fears of shortages loomed. The entire conversation amongst those in the natural gas industry was how the U.S. would need to import liquefied natural gas (LNG) via cargo tanker. LNG is the other hurdle of why natural gas is not transported as readily as oil. When transporting natural gas on a cargo ship it must be in the form of LNG. Thus, the natural gas must be cooled to the point where the vapor becomes a liquid and then placed in a controlled container to make transportation viable and safe. This process is not as nearly direct as filling a barrel full of oil, sealing it and throwing it on a cargo ship.
Even with these hurdles, the markets around the world are demanding the discounted natural gas prices the U.S. is currently experiencing. To meet this demand a number of companies exist that operate LNG tankers. One such company at the end of March had an IPO. GasLog (GLOG) is a LNG transportation company operating a fleet of tankers. It is positioned well to benefit from low natural gas prices in the U.S. and high natural gas prices abroad. In December the company plans to begin quarterly dividend distributions at 11 cents. At current prices (approx: $11.30), this would mean the annual yield for an investor would be around 3.9%.
I am of the opinion that GLOG at current prices is a buy for long-term investors with a 2+ year time horizon. According to Exxon, world energy consumption of natural gas is expected to increase 1.6% annually of the next 30 years, while general energy demand is expected to grow at .9%. Thus, natural gas is expected to grow 78% ((1.6-.9)/.9) faster than the overall energy market. This increased growth rate will have ramifications. One of the ramifications being that GLOG will be providing a service that is demanded more and more throughout the world.
The June Rally: Built on Weak Foundations
Below is an article recently published by Elliott Gue. As to be expected, Elliott provides a tremendous amount of insight in a way that is very accessible to all readers. The discussion revolves around the current weakness we’re seeing in the market and what the Fed may do in the latter part of the summer. Since the general direction in the market has a whole lot to do with how your investments perform, I highly recommend you give the article a read.
The June Rally: Built on Weak Foundations
Market Strength in the Light of Negative News
Last Friday we saw the market rebound based on news out of Europe. Today the markets held up when faced with negative news coming from the Purchaser Managers Index (PMI). The news was released this morning at 7am. Upon the news being released, the markets did drop nominally.
I was surprised that markets across the board did not drop further based on the PMI number missing estimates. PMI is often looked at as a recession predictor and numbers below 50 signal contraction. The PMI fell from 53.5 in May to 49.7 in June. The new orders portion of the index fell to 47.8 from slightly over 60. The market’s resilience in the face of this news surprised me.
I did not expect in the light of the PMI news that major indexes would close almost at the same point markets closed at on Friday. This speaks to current market strength. I would expect this strength to persist for the next week or two. The summer is still young and I expect more turbulence before we get to the fall. The EU summit was a good step forward, but it was not a solution to all that ills the region and the world economically.