Friday, November 22, 2013

Shipping Up To Boston


It's Booming Again!

In the last natural gas boom of 2002-2007, savvy investors were earning triple digits on a dozen of our picks. Gains such as 161%, 255%, 325%, 387%, 460% … just to name a few! Investors who paid attention raked in $46,000 for every $10,000 invested!

Now a new natural gas boom is taking off as a predicted 70% of truckers will switch from diesel and pump close to $100 billion into natural gas. UPS, AT&T, Frito Lay and many other companies are switching their fleets. 40% of all garbage trucks are now running on natural gas. It will replace diesel, coal and fuel … and make you a king's fortune.

Details here.

Shipping Up To Boston

Brian O'Connell TripAdvisor (NASDAQ: TRIP) is raising eyebrows on Wall Street, with some analysts referring to the online travel site as the "next Priceline."

Priceline.com (NASDAQ:PCLN) is currently trading at $1,157, so Boston-based TripAdvisor (trading at $87 per share) has a long road to travel before that comparison can be taken seriously.

But there's no doubt TripAdvisor is changing the way consumers shop for their travel needs.

Exhibit "A" – Just this past week, TripAdvisor rolled out a new agreement with Microsoft (NASDAQ: MSFT) that will move the online travel service's travel reviews, price comparison tools, ratings, photos and other content to the very top of the search site Bing.com. The move gives global travel consumers a way to price-comparison shop from global travel booking outfits, and get real-world user-reviews in seconds—a nice advantage for TripAdvisor in an ultra-competitive online travel services market.

Not convinced? TripAdvisor reports that 93 percent of travelers worldwide say online reviews have an impact on their booking decisions, so topping the Bing.com search engine results should give TripAdvisor a big leg up on its competitors.

"Research shows that hotel prices can differ by as much as 25 percent between different booking providers, and we are focused on helping travellers make an informed decision," explains Nathan Clapton, vice president of global mobile partnerships, TripAdvisor. "By offering Bing users an easy way to find the best hotel prices and see reviews, rating and photos from other travellers directly on Bing, we are enhancing the search and planning experience, and hopefully saving them time and money."

Adding value to customers and positioning its brand way up high on major search engine sites has been a hallmark of TripAdvisor, ever since it went public in December, 2011 (when it opened at $24 per share).

Today, the firm has $12 billion in assets and has seen its stock price skyrocket to the $87-per-share figure we see today.

Most of that growth has come within the past 12 months, as TripAdvisor's share price has more than doubled since November 2012. That comes after the firm introduced more services, such as personalized trip reviews, direct booking options specifically for bed and breakfasts and independent hotels, and the launch of an overseas engineering hub in Ireland that strengthens the firm's technology outreach overseas.

That has all led to positive revenue growth for TripAdvisor, as investors saw the firm's financials rise steadily in the third quarter of 2013, as these highlights attest:

  • Average monthly unique visitors to TripAdvisor sites were a record 260 million in the third quarter, up nearly 60 percent year-over-year.
  • Revenue for the third quarter increased to $255.1 million, up 3 percent quarter-over-quarter and up 20 percent year-over-year.
  • Net income for the third quarter decreased 6 percent year-over-year to $55.9 million, or $0.38 per diluted share. Non-GAAP net income for the third quarter decreased 1 percent year-over-year to $65.3 million, or $0.45 per diluted share.
  • Adjusted EBITDA for the third quarter decreased 2 percent year-over-year to $104.4 million, or 41 percent of revenue.
  • Cash flow from operations for the third quarter increased 90 percent year-over-year to $145 million, or 57 percent of revenue; free cash flow for the third quarter increased 87 percent year-over-year to $129.3 million, or 51 percent of revenue.
  • TripAdvisor repurchased 1.4 million common shares for an aggregate purchase price of $100 million.

In comments to the press and analysts following the company's third-quarter results on October 23, TripAdvisor chief executive officer Stephen Kaufer said the travel economy is growing more robust, especially in key areas like hotel stays, which have helped pump up TripAdvisor's brand name across worldwide bourses.

"Hotel shoppers grew a healthy 37 percent during Q3 as we saw solid growth across our core and emerging markets," Kaufer said. "This drove click-based revenue growth by 13 percent for the period, a quarter in which we saw the biggest negative impact from our meta transition."

"Our display business continued its solid 2013, accelerating nicely to 29 percent growth based upon global sales traction and product differentiation, and our subscription, transaction and other revenue line saw a very healthy 68 percent growth," he added.

"Most importantly, we continued strengthening our position in the travel planning funnel, making progress on a number of ongoing initiatives aimed at growing our community and user-generated content, amplifying our brand throughout the globe, as well as improving the TripAdvisor experience for users and partners alike."

Kaufer says that, by and large, TripAdvisor is popping on three different, but critical fronts—traffic, web content and the company's global brand. Propping up the firm on all three fronts is a whopping 57 million regular users—all easily reached via email for new company initiatives and travel options.

To help the firm's online presence in the growing hotel travel sector, TripAdvisor also, in the last year, purchased Oyster.com, a hotel review website featuring reviews and photos covering thousands of properties in more than 150 cities, according to the firm's web site.

So how high can TripAdvisor go? Pretty high. The company has seen four straight quarters of 20 percent year-over-year revenue gains, and it looks like that trend will continue, given TripAdvisor's astute moves in the past year and new ones coming down the pipeline (like a revamped direct book option in 2014).

I see TripAdvisor's share price at $90 by year-end, and over $100 by mid-2014, when the summer travel season heats up, and TripAdvisor takes full advantage.

So go ahead, and ship up to Boston with this online travel services giant. Its stock is set to sail a far distance over the long haul.

Brian O'Connell is an investment analyst at Investing Daily. He has appeared as an expert financial commentator on CNN, NPR, Fox News, Bloomberg, CNBC, C-Span, CBS Radio, and many other media broadcast outlets.

 


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Demographics Bolster Canada's Housing Market

Ari Charney

An increasing number of economists, politicians and pundits have been sounding the alarm over Canada's housing market. And while Canada's financial system has a reputation for conservatism, we've been wondering ourselves how a nation of just 35 million can sustain an average home price of nearly CAD392,000 amid anemic economic growth.

Of course, homeowners have enjoyed an era of historically low interest rates, which has helped make higher prices more affordable, even if Finance Minister Jim Flaherty has tightened mortgage-lending regulations four times over the past several years.

Flaherty's last change was in July 2012, when he shortened the amortization period on government-backed mortgages to 25 years from 30 years, while lowering the maximum amount homeowners can borrow against their homes to 80 percent from 85 percent. And he's prepared to intervene again, if necessary.

Meanwhile, according to data from the Canadian Real Estate Association, the rise in residential real estate prices doesn't even come close to the double-digit gains characteristic of the US housing market during its bubble earlier last decade. Indeed, as of October, home prices have climbed 8.5 percent over the past year and are up about 29 percent since early 2008.

As many observers note, a substantial portion of the increase in Canada's average home price is derived from the overheated real estate markets in Toronto and Vancouver. Indeed, the average price for a single-family home in each of these metro areas is simply staggering, at more than CAD804,000 in Toronto and almost CAD923,000 in Vancouver.

But it's difficult to dismiss this problem by saying it's isolated to just two cities, when they collectively account for a sizable percentage of the country's population. Based on 2011 data, the combined population of these cities' metro areas added up to about 23 percent of Canada's overall population.

At the same time, consumers are shouldering a considerable debt burden, with the average Canadian's ratio of household debt to disposable income now at a record 163.4 percent, according to Statistics Canada. Fortunately, Canadians seem to be managing their debt burdens for now, as credit bureau TransUnion recently reported that delinquency levels for all forms of consumer credit remain low.

One area that hasn't received much attention until recently is how immigration has affected new household formation. After all, if demographics is destiny, as the saying goes, then Canada's rising immigrant population could bolster the country's housing market, or at least provide sufficient demand to ensure a soft landing when prices finally decline.

A special report from the economists at National Bank Financial, published in early September, says that--thanks to immigration--growth in the key 20-to-44 age demographic in Canada has been substantially higher than other developed countries. In fact, during 2012, this segment of the population grew at the fastest pace in 20 years. This demographic is especially important for the housing market, as that age range encompasses the years during which new households typically form.

Although population growth for this group is projected to decelerate in the coming years, it's still expected to outpace other developed economies, and National Bank's economists believe that this cohort could help cushion the housing market. In 2012, for instance, the 20-to-44 demographic grew 1.1 percent in Canada in contrast to a 0.3 percent decline among its developed-world peers. While 2012 was likely the peak year for this segment's population growth, it's expected to continue growing, albeit at a slower rate, compared to further shrinking in other countries.

Of course, it seems unlikely that immigrants in this age group will be making offers for single-family homes in areas such as Toronto and Vancouver. But they could be helpful in supporting home prices in other more affordable metro areas and provinces if the real estate markets in these two cities suffer a hard landing.

As US investors analyzing Canada's economic prospects, it's difficult to avoid extrapolating what we experienced during our own housing bubble to our neighbors to the north. And as Canadians nervously assess their own housing market, they're certainly mindful of what happened in the US.

But while the human propensity for boom-and-bust cycles is ineluctable, it can differ in degrees of magnitude. In the case of Canada, the fundamental and structural details are different than they were in the US. And that could make all the difference.

This article originally appeared in the Maple Leaf Memo column. Never miss an issue. Sign up to receive Maple Leaf Memo by email.


Do You Share the Greatest Fear of Older Americans?

It isn't death or disease. The greatest fear of Americans is outliving their money. And this fear is justified, because today's real inflation rate is 9.4%, not the government's "core" inflation rate of 1.8%. That phony rate doesn't include energy or even food. We assume you like to eat! And we're seeing many indicators that inflation is going to get worse. But don't panic.

Get the facts now.

Exploring Frontier Markets

Benjamin Shepherd Finding successful emerging market investment ideas has been a tough slog over the past year, but a necessary one for anyone operating on a global market mandate.

And you need just such a mandate, if you want to maintain a healthy, well-balanced portfolio.

Our task has been complicated by massive valuation shifts as a result of the billions of dollars that quantitative easing has been pumping into the emerging markets. As the Federal Reserve intended, savers haven been forced to stretch their risk tolerances to realize higher yields on their investments, but stimulus has had the effect of pushing them farther afield then the central bank expected.

As a result of that unintended consequence, from the time the US markets bottomed the emerging markets vastly outperformed the Dow Jones Industrial Index, topping out at a 136.4 percent gain versus a 51 percent increase for the Dow by mid-2011.

But since talk of the Fed's taper began in earnest, those leadership roles are shifting yet again.

Global growth is still nowhere near its pre-recession base line and the outlook has become even murkier. The International Monetary Fund (IMF) cut its world growth forecast for this year and next to 2.9 percent and 3.6 percent, respectively. While the IMF cited budgetary squabbling in Washington, DC as one factor affecting its outlook, it also cited the prospect of fund tapering as a damper on emerging market growth as a major contributor.

Consequently, while developed world economies are not growing as quickly as they once did, they are at least growing again. Investors are having less trouble meeting their baseline expectations in mature economies. At the same time, emerging markets are likely to suffer from the slowing flow of "hot money," weighing on their growth and causing another shift in market leadership positions.

As investors have grown more comfortable with the developed markets and the outlook for Fed tapering, they've begun reaching even further out on the risk spectrum in the search for superior returns.

As you can see from the graph "Exploring New Frontiers" below, since early September the iShares MSCI Frontier 100 Index (NYSE: FM) has begun pulling away from the iShares MSCI Emerging Markets Index (NYSE: EEM).



The frontier markets haven't been getting much respect for the past couple of years, as hot money has run up many emerging market indexes. Because of those attractive gains, there was little reason to take a chance on diving into what are generally perceived to be higher risk markets.

Paradoxically, though, the shifting economic tides are actually serving to make the frontier markets less risky. Since the frontiers haven't attracted hot money in recent years, they won't suffer from the reversal of those flows. At the same time, since they're still relatively isolated in terms of global trade given their miniscule size, they aren't as subject to the vagaries of global trade flows.

That makes frontier market investing more about domestic demand and growth in those countries, resulting in very different market performance when compared to the developed or even emerging markets.

While there is always the risk inherent in the fact that frontier markets are relatively small and illiquid, these markets show low correlations to emerging market indexes and even less to developed market ones. Those correlation gaps have also been widening over the past month or so, as growth expectations for both the developed and emerging markets have been declining while the frontier market outlook has been stable.

Prospects are increasing for the Fed to begin tapering sooner rather than later; the latest Fed minutes show that it is likely to begin in the next six months or so. As a result, we'll start hearing a lot more from the talking heads about frontier markets in the coming months. That will contribute to a frontier market rally just as this "chatter" helped drive the emerging markets over the past few years.

For now, iShares MSCI Frontier 100 Index is both the easiest and purest play on the frontier markets. While it is heavily weighted towards the Middle Eastern countries of Kuwait (25.7 percent of assets), Qatar (18.7 percent) and the United Arab Emirates (14 percent) by virtue of their size and liquidity, it also provides exposure to several of the other frontier markets found in Africa, Eastern Asia and South America.

The fund's top sector weighting is financials (55.6 percent of assets), since these holdings tend to be among the first listings on young stock exchanges thanks to their need for capital. However, it is closely followed by infrastructure plays such as telecommunication companies and industrials, which lay the groundwork for growing economies.

So while the fund will be more volatile than developed market plays, at this stage of the economic cycle it also offers more potential upside than emerging market ones.

For risk tolerant investors, iShares MSCI Frontier 100 Index is a good buy up to 41.


This article originally appeared in the Passport to Profits column. Never miss an issue. Sign up to receive Passport to Profits by email.


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