My Computer Ninja

At market close today, Akamai Technologies closed down nearly 19%, going from $47.18 at opening to a dismal $38.27 at the closing bell. According to the press release, revenue is up 52%, and GAAP net income up 92%, year over year. And yet, their stock dropped 19% on this news. Something isn’t right.

In an article on Fool.com, it mentions possible reasons for such a significant drop in price. The article states “bottom-line results didn’t beat the Street’s expectations. Second, Akamai didn’t raise guidance. And third, free cash flow declined year-over-year.”

It seems that the market reacted to the fact that the company did not meet earnings expectations, and that their on hand cash declined significantly. These events may warrant a significant drop in price, but do they really?

Further investigation reveals that the expenditure in on hand cash seems to be in infrastructure, something that is not cheap for a major internet backbone like Akamai. What better place than to be spending money than in developing the infrastructure to support future demand. The article mentioned above goes on to talk about broadband penetration world wide, and states that “If it’s fair to assume that broadband Internet access is a global certainty, and that less than one-seventh of the world’s population has broadband … Akamai’s long-term opportunity remains, at worst, vast.” I could definitely agree that this statement seems true.

One last thing. Did I mention the price to earnings of this stock is around 100 after the price drop? Even after the drop, the price to earnings ratio is not looking pretty. Despite what you may read about this stock, its hard to say that it would be a knock out buy. The price looks good because it is trading very near a 52 week low, but, will it recover? What kind of money will need to be spent on the part of Akamai to in order to serve that percentage of unserved potential broadband customers? Questions like these are what makes this a gamblers game. Would I buy? Probably, but not very much. I know you have to bet big to win big, but its that winning big part that always seems to elude me.

The admin of this site and author of this post, Jon Steege, is not a financial analyst or a stock broker. He would love to “bet big” on Akamai, to reap the reward, but money like that doesnt grow on trees. As always, Jon has no direct financial position in any stock he mentions, he is simply a speculative observer.

After reading the dismal report that AT&T managed to sign up “only” 146,000 new subscribers for the iPhone, Apple’s stock started spiraling downward in the days before it released its quarterly earnings report. The street was abuzz with people speculating that Apple couldn’t move the iPhone as predicted, and according to AT&T’s records, the proof seemed to be in the numbers. That was Monday.

Today, July 25th, Apple released its quarterly earnings numbers after the bell, and melted people’s faces off with their numbers. According to an article on BloggingStocks.com, Apple earned investors $.20 a share ABOVE expectations for the quarter. I know $.20 is something you generally pick up on the street, but when you own 5.5 million shares, as Steve Jobs does, well, you can just mess around with the decimal place to see what kind of money that is.

If ever there was an example to show that doing as much research as possible is a good thing, this would be it. Mr. Yared, who wrote the Bloggingstocks.com article mentioned above, said it best “The iPhone became available the evening of June 29th and the quarter ended June 30th–30 lousy hours of activation time for AT&T.” This shows that the hype surrounding the lack of activations reported by AT&T was just an overreaction to some seemingly pretty strong data. I did not catch this fact either, and thought a few friends who are apple holders would be in for some sticker shock when their stocks dropped as a result of the iPhone release, rather than go up as they expected. I was wrong, and it seems that because of this date discrepancy, Apple may be able to report more of their iPhone earnings in the next quarter as well. The price to earnings ratio is still out of my league, but here is to hoping that all who do own Apple stock get to see yet another stellar earnings report later on this year.

The admin of this site and author of this post, Jon Steege, is not a financial analyst or a stock broker. He is a Computer Scientist with a knack for data analysis. He has always marveled at Apple’s stock, but has never had the opportunity to invest in it. As always, Jon has no direct financial interest in any stock he mentions, he is simply a speculative observer.

Welcome to another installment of Stock Picking 101 here at mycomputerninja.com. In this series, I have already shown how to pick a stock using criteria for Strong Forecasted Growth, and also how to find stocks that fit the Small Cap Value model. Today, I will go over criteria involved in picking medium market and large market capitalization value stocks, according to the pre-set screens found in the Yahoo.com Stock Screener, which by the way, is free for all you penny pinching types.

In the previous lesson, I went over how to select small market capitalization value stocks. In it, I explained that small cap value stocks generally fit these criteria:

• Market capitalization between $250 million and $1 billion dollars
• Price to earnings ratio of less than or equal to 10
• Quick ratio greater than or equal to 1.0

If you find yourself wondering what any of these criteria mean, go ahead and brush up by reading through the Small Cap Value article as a refresher.

Medium Cap Value

I will start now with the criteria for medium market capitalization value stocks, in which you will find only subtle variation on the small market capitalization value stocks. Medium cap stocks generally fit this model:

• Market Capitalization between $1 billion and $5 billion dollars
• Price to earnings ratio of less than or equal to 15
• Quick ratio greater than or equal to 1.0

You will notice that medium cap value stocks vary in only 2 of the 3 variables listed, in comparison to small cap value stocks. The 2 criteria are the market capitalization and the price to earnings, or P/E, ratio. By adjusting the market capitalization value, you are effectively selecting stock from companies that are perceived to be of greater dollar value overall, at least in investors eyes. It is still important to evaluate for yourself whether or not you think the dollar value of the company is accurate. Research is always your best friend.

The second variable that medium cap value criteria is different is with regard to the P/E ratio. The P/E ratio in this case reflects the amount of money you need to invest in order to see $1 in profit, and also the number of years you need to wait to see a return on your investment. A lot of investors tend to use P/E as a gauge to decide if they can make a lot of money quickly on a stock, and as always, this may not be entirely accurate. Even so, adjusting the P/E to another number in a screener is an easy task, just don’t email me if Rooftop Assassins, Inc with a P/E of 2 goes belly up.

Large Cap Value

Large cap value stocks are different from medium cap value stocks in a single criteria, and that is market capitalization. Large cap stocks involve companies with these criteria:

• Market Capitalization equal to or greater than $5 billion dollars
• Price to earnings ratio of less than or equal to 15
• Quick ratio greater than or equal to 1.0

It is easy to see that most large cap stocks are companies that you may recognize from every day life. A quick settings change on the Yahoo.com screener reveals Exxon Mobile, Proctor and Gamble, and a host of other widely recognized companies as large market cap companies. Companies that fit into this model are generally large blue chip companies which you probably own anyway if you have a low risk mutual fund. Companies that fit this criteria would not tend to disappear overnight, which may comfort some of you who remember the Dot-Com bubble. Companies using the large market cap screen have been around the block a few times, figuratively speaking, and generally offer goods or services that people cannot live without. Stocks fitting these variables can be considered “more safe” than medium and especially small cap value stocks, but the wise ninja never lets his guard down. As always, don’t forget to do your homework before you buy.

The admin of this site and writer of this post, Jon Steege, is not a financial analyst or a stock broker. He is a Computer Scientist with a knack for data analysis. He does not own Exxon Mobile or Proctor and Gamble, and does not make any recommendation as to the stability, or lack there of, of any stock mentioned. Buy smart, but buy at your own risk.

See other posts in this series by visiting the investing section on mycomputerninja.com