Beware the phony Santas of the stock market

The salesman in the fake beard is not St. Nicholas, and Facebook and RIM are the same old disappointments.

By TheStreet Staff Nov 29, 2012 2:56PM

Image, Santa Claus copyright John Lund, Jupiterimagesthestreet logo

By Dana Blackenhorn

 

Maybe it's Christmas. Maybe it's the approach of the New Year, and the fear deep inside every money manager's gut that they're about to be evaluated for this year's calls and found wanting.

 

But every December, it seems we get stock touts going on TV and pushing losers, calling them winners, and dragging gullible investors into going along, until the bottom drops out like a New Year's hangover.

 

This year's sucker bets are Facebook (FB) and Research In Motion (RIMM). Since Nov. 13 Facebook is up by about a third, to $24 per share. RIM -- the Blackberry people -- hit a bottom near $6.50 a share back in late September and it has since risen to over $11, a gain of nearly 75%.

 

I call these sucker bets because a lot of people have lost money in FB and RIMM during the year, and because it's mostly hope that has these stocks rising. In the case of Facebook, that hope is a mobile strategy heavy on ads. In the case of RIMM, it's Blackberry 10, a new mobile platform based, like Google's Android, on Unix.

 

Facebook's rally is especially suspicious, since it started with the expiration of lock-ups on shares held by insiders, as CNN reported at the time. Many expected the stock to collapse on that date, but instead it has been rising steadily, and even the bearish BTIG Research analyst, Rich Greenfield, is now expecting big things, reports Business Insider.

 

How big? He expects revenue for the quarter of $1.55 billion, up from $1.26 billion last quarter, with total revenue for the year of $6 billion and EBITDA of $858 million for just the last three months.

 

Greenfield's turnaround gave an extra kick to the stock's rally, but Greenfield himself has only given the stock a "neutral" rating, because he doesn't expect the good news to continue. He says the mobile app is ad-heavy, not a very good experience, and suggests that Facebook is about to get unfriended by many people who use it.

 

I agree. Don't buy the hype that Facebook has "billions" of users because I'm one of them and I hardly go there anymore. I post stories to it through Tweetdeck, looking for readers, and there are a few family members I keep up with. But I don't "hang out" there.

 

In the end, social networking and open source have something important in common. It's the level of commitment that counts. Don't tell me how many people downloaded your open source project -- support payments and committers determine your worth. In social networking, moreover, word of mouse is all. It can disappear at a click.

 

RIMM's rise began with a reported loss that "wasn't as bad" as analysts thought. It has continued with reports on Blackberry 10, which is based on an embedded version of Unix called QNX. The company has been pushing it to developers, especially in Asia, Crackberry.com reports, and the hope is that it can retain at least a piece of the enterprise market the company once dominated.

 

Or look at it this way. About 400 million smartphones were sold in the last quarter alone. RIMM sold about 7 million of them. If this rises to just 10 million/quarter with the new software, that's organic growth. Add roughly $3/share in cash and $5/share for its patent portfolio -- although it recently lost a patent arbitration to Nokia (NOK) on WiFi patents, FossPatents writes -- and it's selling at liquidation value.

 

Maybe. But I've been covering this business for 30 years now, and operating systems are a zero sum game. Maybe you can have two winners, for a time. But it's in the nature of the business that things consolidate pretty fast, we already have two good choices here, and even Microsoft (MSFT), with all its advertising, is barely making a dent this Christmas. (Microsoft owns and publishes TopStocks, an MSN Money site.)

 

Despite its recent gains, Facebook is still selling at a 33% discount to its IPO price. Even with its recent gains, RIMM is about 33% below its level a year ago. So they're both selling hope, at Christmas, and we all want to believe, right?

 

What I believe is that Santa Claus doesn't live on Wall Street. When someone tries to sell you something based on hope, understand first that they're selling something.

 

At the time of publication, the author was long MSFT.

 

More from TheStreet.com

11Comments
Nov 29, 2012 4:37PM
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Note to the discerning:

- MySpace was a fad

- Facebook is a fad

- Social Networking is a trend

The platforms will come and go.  The prime demographic of FB changes their minds like hygiene-minded people change their undershorts---on a daily basis.  FB is privacy invasive, constantly offends users through changes in policies and interfaces, has an ad-based model that is suspect in terms of actual value to its clients, and prone to user fatigue.

When the next great thing comes along, don't stand in front of the exit or risk being trampled to death by the kids that are out the FB door so fast your head will spin.





Nov 29, 2012 3:16PM
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'Scuse me but companies have been going overseas WAY before Obama became president.  What is wrong with you people?  Always gotta blame someone, don't you?  The rank and file of Hostess, as well as the union mgmt, have to own the fact that they were keenly instrumental in shutting down the company.  Bad upper management?  Sure . . . . enough blame to go around.  Leave the president out of this.
Nov 29, 2012 5:36PM
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Most of the stock market has been a phony Santa since the turn of the millennium.  On Jan 1, 2000, the S&P stood at 1415.  Guess where it closed today? - 1415.  That's a whole lot of essentially  nothing over the last 13 years.  Sure, there were plenty of dividends along the way, but for most, there were plenty of fees too.  Not saying people shouldn't invest in stocks, but there are plenty of other investment alternatives that have provided much better returns over the last 13 years.
Nov 29, 2012 4:07PM
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"What I believe is that Santa Claus doesn't live on Wall Street. When someone tries to sell you something based on hope, understand first that they're selling something"

 

Gee finally someone who gets it.  This whole stock market is based on hope with a large dose of infused gov money and some constant manipulation otherwise it would be down below 10,000.  It is high time for reality and truth to be part of the Wall St investing system but until there is total reform of the way things operate currently we will be saddled with "hope" and hype. 

Nov 29, 2012 5:27PM
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"What I believe is that Santa Claus doesn't live on Wall Street. When someone tries to sell you something based on hope, understand first that they're selling something."

 

Santa never lived on Wall Street.  He used to live on Main Street.  Last I heard, he was living on Pennsylvania Ave. in D.C.

Nov 29, 2012 5:13PM
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RIM is toast in the medium-to-long term.  My bet:  they will die and sell off their IP, e.g. patents.  (I'm assuming Microsoft or Google would have interest, perhaps Apple.)   Facebook will obviously be around for a long time, but it seems that their PE will be garbage; how will they make money on mobile devices?   Plus, people will eventually turn on Facebook over privacy concerns.
Nov 29, 2012 10:35PM
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Can't and Won't argue with the premise Brutus...But judging the S&P of 2000 to the one today..

Is a little bit flawed as far as comparing to Market Gains....

First,the make-up or components of the S&P have changed, along with probably their weightings of individual stocks/equities (Companys listed) or the percentage value assigned to the specific equity.

The DOW and Nasdaq have been through the same changes, assigned weightings have fluctuated on several counts. So it can almost make it a moot point...But the premise is worthwhile.

 

Case in point, a couple days ago; Article on Starbucks...Investment of $1000 dollars 1992..In IPO ?

In today's dollars worth over $6 million...There are dozens of stories like this..

Splits, dividends, special dividends have bearing...Stock price of Starbucks today may be similar to what it was in 2000...No gain on the weighting or Index..??

A person trading in the equity may have even done better??

 

Since around 2000,(a little before) I took over all our Accounts, Trading and Research...

NOT trying to brag, but we have TRIPLED our asset base as far as Investments in Wall St..

Even with the "fall out" in 2008 and '09..We were totally recovered in 6 months or less. By 7/26/09.

I make about 120-150 trades on a rolling 52 week period.

We only added more cash ONCE, but over that period of years have drawn at least that amount out also....So I call that an even...

Any good FA,Broker or Money Manager SHOULD be able to do the same for a client, but tend to stay on the safe side keeping their clientele fat and happy....With a little Bravado now; YES I beat most of those guys, even Buffet and the Mutual Fund Mgrs...I'm kind of proud of that.

My key is: Diversity,diversity and some risk has worked well.

The take-away: Is quit worrying about the Indices...And pay attention to your investments and News that can affect them...We also have about 3 times as many shares as back then, numbering about 30,000 in 27 Companies and about 8-10 Sectors...You can do it too, takes time...Good Luck

Nov 29, 2012 5:12PM
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Santa has lived on Wall Street for a long time.30 years ago the Dow was at 777.What a

great country this is.It`s up 5,000 points with Obama.God bless Barry.We`ve made a lot of

money because of your steady hand in stabilizing the banks.Thinking people know this is one great

pres.

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