Tag Archives: seeking-alpha

Focusing On Revenue Is A Great Idea! But Do Not Forget About Stabilized Profit

I was feeling a bit sick this morning, so I stayed in bed and turned on CNBC. I NEVER watch CNBC, unless I am at home in bed sick. And it usually makes me feel worse. They were interviewing Reed Hastings, the CEO of Netflix (NASDAQ: NFLX ), who has clearly done a great job guiding that company. In 2005, Netflix did $682 million in revenue, and this past year, it did $5.5 billion in revenue. Quite an accomplishment. Yes, there are a lot of competitors out there, but he has clearly done a great job. So he was talking about how having negative free cash flow and very low profit is proof that the company is in this for the long run, and he is 100% correct. We are actually starting to operate our business the same way, as I said in a previous post about Dell’s new approach to growth. And this is exactly what you would want to see as an investor. HOWEVER, the problem with this is that most investors are not smart enough to do the trickle-down analysis of what this means. Amazon (NASDAQ: AMZN ) has the same issue, and it’s something I have lamented about over and over. What a good investor SHOULD do is analyze what the company would have made had it not reinvested. What would there profit be if the company stopped reinvesting and just operated normally for normal growth? That is exactly what you need to do to analyze the value of a business. Because at the end of the day, what is happening now is that with no profit and negative free cash flow, an investor’s eyes are growing wider and wider saying “The profit potential is infinite!” Clearly, it’s not infinite. Clearly, a company with $100 billion in revenue can’t make more than $100 billion in profit, which is also impossible. If Netflix, on a normalized basis, has 15% in profit, its $5.5 billion in revenue would lead to around $825 million in bottom line profit, and at 20 times earnings – which is high based on history, but we will give it that due to just me being overly optimistic – that’s a valuation of $16.5 billion. Now, I am not saying that its profit margin is 15%, because I know it to be. I am purely speculating. But Netflix is currently selling for a valuation of $47 billion. Hmmm. So, based on 20 times earnings, that’s a bottom line profit of $2.35 billion, which is over 42% margin. Not likely. The same goes with Amazon. In the company’s best year ever, it did 3.5% or so in bottom line profit margin. This last quarter, it made $75 million after making $500 million on its cloud-based AWS business, and that was on total revenue of over $25 billion. Not exactly something that I deem to be worth more than Wal-Mart (NYSE: WMT ), which has almost $500 billion revenue per year. Either way, the point is that valuing something today for future potential is fine, but you also have to be realistic about it and realize that you have to let things grow into what you hope them to be, without overpaying today for that. Make realistic assumptions about their profit margins based on other businesses in their markets and their gross margins. It’s too easy to get stuck in a market like this assuming the best will happen, since it has for the last 6 years. It is a game of musical chairs, and when the music stops – which it will – don’t be caught looking for a seat.

Best-Performing No Load Mutual Funds In Q3 Of 2015

It is always best to get the most out of one’s invested capital. One way of doing it is by cutting down on the expenses that investors have to bear for owning or selling mutual funds. So, buying funds that carry no sales is the best option. Sales loads are one-time fees that investors pay either at the time of purchase or when units are redeemed. The importance of sales load was all the more felt in the third quarter, when the key benchmarks posted their worst quarterly performance in four years. Just 17% of the mutual funds managed to finish in the green in the third quarter. This was a slump from 41% in the second quarter, which was again a sharp fall from 87% of the funds ending in the positive territory in the first quarter. Separately, a JPMorgan equity strategy note revealed that 67% of mutual funds underperformed their benchmarks in the third quarter. Around 34% of the funds underperformed their peers by a minimum of 250 basis points. The Dow, S&P 500 and Nasdaq declined 7.6%, 7% and 7.4%, respectively. In such torrid times, the list of best-gaining mutual funds for the quarter is dominated by no load mutual funds. Robust gains were restricted to Bear Market funds in the third quarter, and were followed by modest gains in other categories. However, the no load funds were unfazed, as they had enough representation in most of the categories. Among the top 100 performers in the third quarter, 85 funds carried no sales load. The best-performing fund in the quarter, ProFunds UltraShort Latin America Fund Inv (MUTF: UFPIX ), gained 67.1%, and needless to mention, it is a no load mutual fund. Comparative Study: No Load Funds’ Q3 Show Out of the 15,129 no load funds we studied, 2, 316 funds posted positive returns in the third quarter. The average gain for these funds came at 1.6%. Among the top 100 performers, the average gain was a significant 12.9%. This is a quite a feat for the top 100 funds that almost reached the top-performing category Bear Market’s quarterly gain of 13.1%. It was followed by Long Government and Long-Term Bond categories’ gains of respectively 4.3% and 1.7%. The disparity in gains among the categories is indicative of how tough a quarter it was for funds. The average gain for the top 100 no load funds in the second quarter was 8.9%. The average gain of the top 100 no load funds also outperformed the average 4.1% gain of the top 100 funds that carry sales load. The load-adjusted return for these funds would again bring down the 4.1% average return. Moreover, the best-performing no-load fund’s quarterly gain of 67.1% far outpaced the top-performing fund with sales load, Rydex Inverse Emerging Markets 2X Strategy Fund A (MUTF: RYWWX ), which gained 43%. RYWWX carries a maximum front-end sales load of 4.75%. (Note: These numbers include same mutual funds of varied classes) Top 15 No-Load Mutual Fund Performers Below we present the top 15 no load mutual funds with the best returns in 3Q of 2015: Fund Name Objective Description Q3 Total Return Q3% Rank vs. Obj. YTD Total Return % Yield Expense Ratio Minimum Initial Investment ($) Beta vs. S&P 500 Rydex Invr Emerging Mrkts 2X Str H Foreign 43.03 1 37.47 0 1.73 2500 -0.27 Rydex Inverse Russell 2000 2x Strat H Growth 24.5 1 8.81 0 1.82 2500 -2.4 Rydex Inverse Russell 2000 Strat H Growth 11.99 1 5.09 0 1.7 2500 -1.2 Rydex Inverse Dow 2X H Agg Growth 11.6 2 8.14 0 1.84 2500 -2.16 Rydex Inverse S&P 500 2x Str H Growth 10.24 1 5.08 0 1.77 2500 -2.02 Gabelli Comstock Capital Value AAA Flexible 10.05 1 3.3 0 2.42 1000 -0.96 Federated Prudent Bear C Growth 7.93 1 0.49 0 2.51 1500 -0.73 Rydex Inverse Mid Cap Strategy H Growth 7.86 1 2.42 0 1.65 2500 -0.97 ATAC Inflation Rotation Investor AssetAlloc 7.33 1 11.69 0.32 1.74 2500 -0.03 Arrow Managed Future Trend C AssetAlloc 7.22 1 4.09 0 2.91 5000 0.19 Rydex Govt Long Bond 1.2x Str Inv Government 6.8 1 -2.16 1.08 0.95 2500 -0.1 GAMCO Mathers Fund AAA Flexible 6.12 2 1.71 0 4.6 1000 -0.53 Fidelity Spartan Long Treas Inv Government 5.49 1 — 2.55 0.2 2500 -0.06 Goldman Sachs Managed Futures C AssetAlloc 5.46 1 12.27 0 2.26 1000 -0.07 Vanguard Long-Term Treasury Inv Government 5.44 2 0.08 2.63 0.2 3000 -0.04 Note: The list excludes the same funds with different classes, and institutional funds have been excluded. Funds having minimum initial investment above $5000 have been excluded. Q3 % Rank vs. Objective* equals the percentage the fund falls among its peers. Here, 1 being the best and 99 being the worst. The top half of this list of 15 best-performing no load mutual funds is dominated by funds that employ the short-selling or inverse strategy. Top performer, Rydex Inverse Emerging Markets 2X Strategy Fund A, seeks a return that is 200% of the inverse daily performance of the BNY Mellon Emerging Markets 50 ADR Index. RYWYX, however, now carries a Zacks Mutual Fund Rank #4 (Sell) . Similarly, the next four funds in the list, Rydex Inverse Russell 2000 2x Strat H, Rydex Inverse Russell 2000 Strat H, and Rydex Inverse Dow 2X H, Rydex Inverse S&P 500 2x Str H seek inverse returns. Funds from the Government Bond category also had a decent representation in this list of best gainers. Remember, this category was the second-best gainer among fund categories in the third quarter, according to Morningstar data. Rydex Government Long Bond 1.2x Strategy Fund Inv (MUTF: RYGBX ), Fidelity Spartan Long Term Trust Bond Index Fund Inv (MUTF: FLBIX ) and Vanguard Long Term Treasury Fund Inv (MUTF: VUSTX ) posted gains of 6.8%, 5.5% and 5.4%, respectively. Each of these three funds carries a Zacks Mutual Fund Rank #1 (Strong Buy) . Separately, ATAC Inflation Rotation Fund Inv (MUTF: ATACX ) and GAMCO Mathers Fund No Load (MUTF: MATRX ), which posted respective gains of 7.3% and 6.1%, carry a Zacks Mutual Fund Rank #3 (Hold) each. The best-performing RYWYX’s gain of over 43% was substantially higher than the second-quarter top scorer Matthews China Dividend Fund Inv ‘s (MUTF: MCDFX ) gain of 14.7%. However, while we have nine funds this time with sub 10% total return, only six had ended below 10% in the second quarter’s top performer list. Also, the lowest gain in the third quarter list of 5.4% compares unfavorably with the second quarter’s 15th-ranked Emerald Banking and Finance Fund Inv ‘s (MUTF: FFBFX ) gain of 8.2%. Original Post

Fund Watch: Liberty Street, Scharf And Nuance File For New Funds

By DailyAlts Staff In this edition, new filings from: Liberty Street / Robinson Income Opportunity Fund Scharf Alpha Opportunity Fund Nuance Concentrated Value Long-Short Fund Liberty Street / Robinson Income Opportunity Fund On October 16, Liberty Street Funds filed a Form N-1A with the Securities and Exchange Commission (“SEC”) announcing its intent to launch the Robinson Opportunities Fund. The fund, which will pursue an objective of total return with an emphasis on providing current income, will be managed by Robinson Capital Management’s James Robinson. It will invest primarily in income-generating closed-end mutual funds, and its trading strategies will include: Rotation Short sales Opportunistic trading Tender offers Mergers Paired trades Tax-related rebalancing trades Shares of the Robinson Opportunities Fund will be available in A, C, and institutional classes. The fund is expected to launch on or around December 30, 2015. Scharf Alpha Opportunity Fund Also on October 16, Scharf Funds filed a Form N-1A for the launch of the Scharf Alpha Opportunity Fund, which is expected to debut later this year. The fund will aim to provide investors with long-term capital appreciation and returns in excess of inflation, while exposing them to less volatility than traditional equity investments. This objective will be pursued through the selection of securities considered to have more appreciation potential than downside risk over the long term, as assessed by Scharf Investments and portfolio manager Brian Krawez. The fund will also take short positions in broad-market indexes such as the S&P 500, the Value Line Composite, or narrower indexes like the S&P 100. Typically, the fund will be between 30-70% net long, and its long positions will not be constrained by geographic restrictions. Shares will be available in investor and institutional classes. Nuance Concentrated Value Long-Short Fund Nuance Investments filed a Form N-1A for its Nuance Concentrated Value Long-Short Fund on October 13. The fund will take long positions in 15-35 securities and short positions in up to 50 securities, with long and short positions consisting mostly of small-, mid-, and large-cap U.S. stocks. Nuance Investments and portfolio managers Scott Moore and Chad Baumler will select investments they perceive to be undervalued for the long portfolio and investments they perceive to be overvalued for the short portfolio. The fund’s objective will be long-term capital appreciation. Shares of the Nuance Concentrated Value Long-Short Fund will be available in retail and institutional classes when the fund launches. The estimated date of the fund’s debut is December 27, 2015.