Vetr Blog

Crowdsourced price predictions for the stock market.

FireEye: Overvalued Former High-Flyer or Strategic Cyber Stock?

It is no surprise that technology stocks command the greatest attention from both Wall Street analysts and Vetr.com users. After all, growth is where the gold is, so it is no coincidence that nine of our top ten stocks in terms of ratings are technology firms. The outlier, Tesla ($TSLA), is as much a tech stock as an automaker can be, but since it actually makes cars, we can’t really count it. Otherwise, it’s a sweep.

Wall Street is not much different. The nine tech stocks in our top ten are followed by an average of no less than 31.7 professional analysts, which is a whopping degree of coverage considering the average listed stock in the U.S. has none.

When it comes to actual ratings, Vetr.com users are a normally a little less rosy-eyed than their Wall Street counterparts. Our most-rated stock, Apple, actually has more bearish ratings than bullish ones, a trait shared by a further four of our top ten. Generally, our users reflect a balance between bullish and bearish opinions, whereas Wall Street analysts are almost uniformly bullish when it comes to blue-chip tech stocks. Perhaps that age-old conflict of interest isn’t eradicated after all.

We’ve pointed out numerous examples of this divergence in previous posts, but this week we want to discuss FireEye ($FEYE), a fast-growing provider of cyber-security solutions to enterprises and governments. FireEye is our 10th most-rated stock, with 25 active ratings, and it is tracked in 21 watch lists. This is fairly significant, since three months ago the stock was barely followed on our platform.

However, only a mere seven of our 25 ratings are bullish, against 18 bearish. Despite being in one of the hottest sectors on the Street, our users rate the company a collective yawn; the six-month average price target is $48.72, only 5.5% away from Friday’s closing price.

Meanwhile, 20 Wall Street analysts follow FireEye. 14 rate it a buy, 12 a hold, and one lonely soul actually rates the stock a sell. Interestingly, we’d be willing to bet the majority of those hold ratings used to be buys until $FEYE’s share price fell out of bed last March and cratered from $97 to $27 in three months. The selloff was a textbook example of a high-flying, high-growth, high-multiple momentum stock running out of steam.

The question, of course, is whether our users’ bearish opinion on $FEYE is warranted at current prices. On the one hand, our gang is a pretty tech-savvy group, so we wouldn’t dismiss the pessimism right away. On the other, you only have to scan the headlines to know that cyber-security is red-hot, so we wouldn’t necessarily believe it either. Indeed, $FEYE’s 150% quarter-over-quarter revenue growth suggests the cyber-security sector is growing like a weed.

What do you think? Is FireEye an overvalued momentum darling unlikely to ever see it’s old highs again, or is it worth every penny because of the long-term potential of cybersecurity stocks? Make a rating!

Dalio’s Bridgewater Slices Apple, Adds to Microsoft

This time of year is filing season for hedge funds and other institutional investors with over $100 million in assets under management. They must disclose certain portfolio positions on quarterly 13F filings with the SEC with 45 days of the end of the preceding calendar quarter.

The 13Fs due mid-February each year are particularly interesting, since they contain portfolio adjustments made in the final three months of the prior year. While these filings are anything but real time, they nonetheless provide some intriguing insights into what some very savvy folks are thinking.

For instance, Bridgewater Associates, the largest hedge fund in the world with $160 billion under management, added significantly to its position in Microsoft ($MSFT) while selling fully half of it’s 535,000-share stake in Apple ($AAPL). This is curious, since the former has been a ho-hum performer while the latter recently became the most valuable company in history. In fact, $AAPLis up 15% already year-to-date, while $MSFT is down nearly 6%. Ray Dalio, head of Bridgewater, clearly felt it was time to take some chips off the table. Interestingly, Dalio added to commodity plays in the quarter, particularly Brazilian energy fund Petrobas ($PBR), GoldCorp ($GC) and fertilizer company Potash ($POT).

Among Vetr.com users, Apple remains our most followed stock, watched by over 300 of our users. But especially after $AAPL’s run so far this year, 47 of the 69 active ratings we have on Apple are now bearish, versus only 22 bullish, and the 6-month target price is three points below the company’s $127 closing price today.

In other words, the most valuable company in the world is now an outright sell, at least in the aggregate opinion of our users.

Meanwhile, Microsoft is rated a buy on Vetr.com, with 20 of 24 active ratings on the stock bullish and only 4 bearish, although the $45.29 average price target for $MSFT is only a few points higher than the current quote. All told, Vetr.com users seem pretty supportive of Mr. Dalio’s decision to halve his $AAPL position and dramatically increase his fund’s exposure to $MSFT.

Hedge fund titans didn’t become that way buy buying high and selling low, so Bridgewater’s steps are not that hard to understand given the price performance in $AAPL over the past few years. As the old saying goes, no one ever went broke taking a profit. The Microsoft purchase is a little harder to grasp, but we have also learned never to underestimate the contrarian instincts of consistently successful hedge fund managers. This time around, Vetr.com users appear to to feel the same way.

Oil Challenge Update: A Bearish Tilt

The decline in the price of crude oil has been front and center on investor’s minds since the end of last year, and equity prices continue to key off movements in oil’s price. The collapse of crude has decimated the share prices of energy companies, slashed CAPEX budgets in 2015 and generated layoffs across the sector. They key question: Where does crude oil go from here?

Two weeks into our Oil Price Challenge, Vetr.com users have put up 53 predictions on where they think the price of West Texas Intermediate will be at the end of the day March 31st. Although still a relatively small sample size, looking at the data to date reveals some interesting statistics:

Of our 53 ratings to date, 35 were bullish forecasts when they were made, compared to 28 that were bearish. In other words, the predicted price was either above or below the price of oil at the time of the rating. This is perhaps unsurprising, since oil had already fallen precipitously when we started the contest on January 26th and it is fairly common for Vetr.com users to rate counter to a security’s immediately prevailing trend. Nonetheless, the near-parity of opinion at the time of rating suggests at least the expectation of a bottom forming in the near future.

Of course, crude oil’s rebound off the lows of January have shifted these numbers around somewhat. As of this writing, 27 of our ratings remain bullish, i.e. they are still above the current $51.67 per barrel quote, while 36 targets are now below it. As a group, the average prediction among Vetr.com users is for WTI crude to close at $47.03 per barrel on March 31st, while the median rating is $47.55. Meanwhile, the range of predictions is bordered by very pessimistic $30 per barrel on the low end and a ragingly bullish $77 on the high end; interestingly, both bookend ratings are roughly an equal distance (42% and 49%, respectively) away from the current quote.

For what it’s worth, a recent Reuters survey of 33 economists and analysts expect the price of Brent crude oil to average $58.30 per barrel in 2015 (Brent crude usually trades for a small premium over WTI).

As a reminder, Vetr.com’s oil price contest will award a pair of Beats headphones to the user with the closest prediction as of 5:30 PM EST on March 31st, 2015. Predictions can be entered and modified up to February 28th, after which they will be locked. Check out the details here.

Netflix: Is the Show Just Getting Started?

It isn’t often that famed investor Carl Icahn admits a mistake, but that is exactly what he did while on CNBC last week. The subject of his mea culpa? Netflix ($NFLX), a company that has essentially done to the entertainment sector what Amazon ($AMZN) has done to the brick-and-mortar retailing business. Icahn took significant profits in $NFLX profits in late 2013 after the stock had risen sharply, against the advice of his son and co-manager Brett. Since then, the price is up another 20%, spiking sharply over just the past few weeks on strong subscriber growth, improved profitability, award-winning original content and big plans for international expansion.

As has been the case since $NFLX was founded in 1997, the company’s fortunes are essentially anchored to basic subscriber growth. Whenever growth in subscriber numbers have stumbled, the stock has gotten hammered; when it surges, the stock soars, even if there are concerning fundamental metrics like contribution margin slippage. Case in point: the company’s latest quarterly release beat expectations in terms of sub growth, sending investors into a tizzy and the stock roaring upward, but the numbers also showed declining per-sub profitability in the key streaming segment.

For any business predicated on ever-greater numbers of users, the percent of each dollar in subscription revenue that makes it to the bottom line is a key metric. Given the scale of Netflix, with 57 million customers worldwide, it’s not surprising that eventually, it becomes incrementally more expensive to attract new users. That’s not surprising. Yet overall, there should be increasing leverage in a subscription-based model, as fixed expenses are spread across greater numbers of revenue-generating customers, not the other way around. In this case, profitability seems to eroding among new streaming subscribers, Netflix’s most important segment (the DVD rental business is eventually going to disappear). Plus, the company announced plans to spend a tremendous amount of money to expand internationally, potentially a worrisome combination if the profitability of the users generated from that expansion is low.

Nonetheless, Wall Street, and investors in general, are enamored of $NFLX; of the 40 analysts covering the stock, 16 rate it a buy. However, another 20 rate it a sell, probably on valuation grounds; there is no doubt the stock is growing quickly and is extremely successful at what it does, but is it worth a forward Price-Earnings Ratio of 75 and nearly five times annual sales? Vetr.com users, as usual, are a bit more skeptical – of 26 active ratings, we have 14 bullish and 12 bearish, and the average 6-month price target of $460 is only 4.3% higher than the stock’s current quote. What do you think? Where will $NFLX be six months from now? Make a rating!