Is Constant Contact A Buy at These Levels?

Let’s talk about email marketing. 20 years ago that sentence would have gotten some attention. It might have made you sit up and think: ‘Yeah, let’s TALK about email marketing’. This would be especially true if you had something you wanted to market. But today, not so much. With forces such as Facebook (NASDAQ: FB), Twitter (NYSE: TWTR), Instagram, and MySpace out there, who really focuses on email marketing anymore? (MySpace is still a thing, right? Maybe I’ll ask my Facebook friends.)

Constant Contact (NASDAQ: CTCT), that’s who. Though they’re trying to break out of that shell, and transform into something more comprehensive. More on that later. Many of you have probably never heard of Constant Contact. I know about them from my decade as a small business owner, though I’ll admit that I never used their service. But how do they operate, and why did I start a position in the company a week ago?

Constant Contact provides email marketing solutions for over 650,000 customers. Who are their customers? Mainly small businesses in need of a way to handle contacts and keep in touch with their own customers. 42% are ‘business to customer’, 22% B2B, and 36% are non-profit organizations. Over 500,000 of their customers have 25 or fewer employees. I like the fact that Constant Contact services small business, and I’ll tell you why.

I can speak from personal experience when I say that small business owners are under a constant time crunch. You hear that all the time, but it’s true. My boss at the bar doesn’t want me working 16 hours straight because the company would have to pay me overtime, and HIS boss wouldn’t like that. When you OWN the darn business, there are no such restrictions. Anything that makes life easier for someone in that position, and is affordable… I want to own a piece of that.

In early March, Constant Contact was as high as $43 per share. On April 30th, the company reported results for Q1 2015. They earned 22 cents a share, while the analysts were only looking for 19 cents. Good, right? They had a slight revenue miss; $90.4 million instead of $91.1 million. The company also lowered its full year revenue guidance from 388 million to $371 to $377 million. The stock got hammered. It was trading in the $38 to $40 range leading up to earnings, and fell just before, but REALLY fell afterwards. May 1st it traded as low as $25 briefly, but rebounded to trade around $27 to $29 for awhile.

Of course, this drop in share price is what caught my attention. I was in no position to take advantage of the $25 price on May 1st. But after listening to the conference call, it seemed to me that the market had really overreacted here. On the call, one issue management brought up was credit card rejection rates. During the quarter many banks sent customers new cards with embedded chips, replacing their old cards. (My bank sent me one during this time too) The company was having trouble getting in contact with a few thousand customers to update their credit card information so they could charge them.

I also learned that Constant Contact, while wanting to maintain a solid position in the email marketing gig, was also in the process of a transformation into a much more comprehensive online marketing company. They still offer the simple email marketing package, but are trying to convert their customers over to more expensive plans. These plans include things like event marketing, online listing management, online surveys, coupons, and social media marketing. Yep, that last one brings the company into the current decade.

But even so I still wasn’t ready to buy. I wanted the market to overreact again. Well, all I had to do was wait until they reported last week on July 23rd. They beat on earnings AGAIN, with an adjusted 29 cents a share, while analysts were expecting 22. They had another small revenue miss, $91.5 million while the analysts were looking for $91.8 million.

So what happened when the market opened on July 24th? The stock tanked to as low as $23.05. I held my nose and bought 14 shares at $23.21. Here we are about a week later and it’s at $25 bucks. Now I’m certainly not claiming victory on the dollar and change gain I have on 14 shares, but green always feels better than red. I’m also not claiming that the bottom is in. This has been a growth story for a couple of years, and that is being called into question. Bad things can happen in the stock market when growth is questioned. But I feel that MOST of the bad things have already happened here.

Here are some of the positives that get me there. The credit card acceptance rate seems to be working itself out. Their ARPU (Average Revenue Per User) is in an uptrend, as well as their number of users. They have a great balance sheet, generate great cash despite the negativity of the analysts, and are buying back stock. They’ve recently bought back $30 million, and plan on another $50 million over the next 12 months. They’re also testing their service in Spanish speaking markets. 12% to 13% revenue growth guidance for 2015 is nice too.

While the majority of their customers are in the cheaper, email focused packages, I see that as an opportunity, not a drawback. They know that to grow, they need to retain their current customer base while converting many of them to higher priced packages (think ARPU), and at the same time draw more customers into the service via their free 60 day trial. It’s not all fun and games though; the company was not happy with last quarter’s trial-to-customer conversion rate, so that’s something to keep an eye on.

Bottom line? I think the positives outweigh the negatives here. One huge factor is HOW the company plans on enticing customers toward higher priced packages. If successful, this will be a story of execution. I believe the company can pull it off, but I don’t expect it to happen tomorrow, and I don’t expect the share price to rocket back to $43 next month. There may still be a leg down on this one. If so, I intend to grab that leg with a limit order for 23 shares at $18.25. With the questions about a possible stumble in this growing company, it just might happen. I will have no problem buying if it does.

As always, feel free to look at my portfolio and see how I’m doing. And please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender

Can Mattel Stop Toying Around?

Let’s talk toys. Mattel, Inc. (NASDAQ: MAT) is a company I want to own. Well, a piece of it anyway. I’m going to go out on a limb and assume that pretty much everyone knows this company. They make toys, lots and lots of toys. Hot Wheels, Monster High, Ever After High, Polly Pocket, Fisher Price (that’s a big one that’s actually doing well), American Girl, and other stuff, including licensed products for Disney, WWE, and others. They also have Barbie. I’ll be talking more about her below.

So why do I like the company? Because its stock has performed horribly lately and the company is in a turnaround. No shock there if you’ve read some of my other blog articles. The stock was almost $48 at the end of 2013. As of this writing it’s trading around $23.70.

Hasbro Inc. (NASDAQ: HAS) has been eating Mattel’s lunch. Go take a look at Hasbro’s stock over the past three years. A very pretty sight compared to Mattel’s utterly painful chart. One thing that Hasbro recently took from Mattel was a very lucrative Disney (NYSE: DIS) license that included certain Frozen dolls. In case you hadn’t heard, Frozen is HUGE and is expected to remain that way for awhile. The deal ended a nearly 20 year partnership between Disney and Mattel. Ouch.

Hasbro was mainly known for its line of toys for boys, but that may be changing. They want to continue to eat Mattel’s lunch, and take more shelf space away from the toy giant. Will Mattel sit idly by? Can Barbie pull this one out of the fire without melting all over the place in a puddle of horrible smelling resin? I don’t know, but it’s not a pretty visual.

So what’s up with Barbie? She hasn’t been performing well lately. Sales are down, huge, and have been for awhile. In fact, sales were down 19% last quarter, year over year. Admittedly she’s getting up there in years, though you wouldn’t know it by looking. (She must have had some work done.) And that may be the problem. A lot of people think she doesn’t promote a positive, realistic body image to young girls. We might not have worried so much about this in the 50’s, when Barbie was young, but by darn it’s a problem now.

A few days ago, Mattel released its 2015, Q2 earnings report, and held a conference call. I’ll sum up the financial results in a horribly oversimplified manor. If you don’t count foreign currency headwinds due to the strong U. S. dollar, then Mattel did flat, to kinda-sorta ok. Meh. If you DO count the foreign currency headwinds, Mattel did kinda bad, but maybe a little better than the analyst were thinking. Stop me if these financial terms are a bit over your head. In fact, just go listen to the conference call if you’re serious about investing in Mattel. It’s less than an hour, and we’re talking about MONEY here…

One positive is the DC superhero franchise. Mattel expects to make some serious money making toys based on the upcoming movies. There was also talk of some Teenage Mutant Ninja Turtle stuff coming down the pipeline. Toy Story 4 should be a big deal for Mattel as well.

Mattel knows it’s been a poor performer lately. Admitting the problem is the first step right? In the previous conference call, in April, they conceded that they were too slow to embrace change and new technology. So this commitment to change has been in the works for a short while, but it will still take time. In April they also appointed a new CEO, Christopher Sinclair.

According to the Q2 call, Mattel is committed to faster decision making, streamlining the organization, taking risks and innovating. They want to be a faster, nimble organization that gets new products from design to shelves FAST. They seem to be making the right strides in that direction. They also realize that they have work ahead of them to bring back their formerly strong licensing partnerships.

And here’s a big portion of the story, the dividend. Mattel’s yield is about 6.4%. That’s huge. High yields can be a red flag, but during the call they stated that they are comfortable with their commitment to the current dividend. If they are able to maintain this dividend, I believe income investors will rush in and buoy up the stock price. If, however, they cut the dividend in the future, I see this tanking, hard.

But what about Barbie, how is she pulling her weight in this turnaround? Many believe that she will make or break Mattel. They’re pushing hard on the new Barbie Fashionistas line. This is basically Barbies from around the world. Hispanic Barbie, Asian Barbie, African Barbie, ect… I get the impression that Mattel is hoping ethnic diversity will trump body image issues. If this doesn’t work, maybe we can get a Barbie with a beer gut and less of a thigh gap. But expectations are pretty low for the old gal, so any improvement should be well reflected in the stock price.

As I write this, I do not have a position in Mattel. I do, however, have a limit order to initiate a position at $22.90, a little less than a buck lower that it’s currently trading. If it falls below the recent support of $22.32, it might just keep falling for awhile. Looking at the chart, I might buy again at around $18.50. I could see myself averaging down with four buy points, if necessary. I mean, the company isn’t going anywhere, right?

As always, feel free to look at my portfolio and see how I’m doing. And please READ MY DISCLAMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender

Daktronics Inc. is Looking Good in My Portfolio

It’s time to dial things down a notch and talk about the small cap name in my portfolio: Daktronics Inc. (NASDAQ: DAKT) At a market cap of just under 500 million, this company isn’t one most investors have heard of. How did I stumble across it? Honestly, just fooling around on Yahoo! Finance, looking for charts I liked.

 

So what does this company do? They make electronic display systems. Large ones. Small ones too, but the large ones are more fun to talk about. Check out some videos on their website and you’ll get a good idea about some of the high profile jobs they’ve done.

 

daktronics.com/en-us/video-gallery

 

The company has five segments: Commercial, Transportation, Live Events, High School Parks and Recreation, and International. So while they do major projects like 36.5 feet high by 129 feet wide screens for the StubHub Center in Los Angeles, they will also grab dollars at your local high school by putting up more modest scoreboards and displays. But really, many of the high school displays are not all that modest. Some are downright amazing.

 

On a recent Yahoo! Finance video, Daktronics President and CEO Reece Kurtenbach discussed this phenomenon. He talked about how the trend in spending for video displays you see in pro sports filters down into college sports. And that same trend filters from college sports down to high school sports.

 

Why is that happening? Why are some high schools shelling out real money for large, nice electronic displays? While I know Jack about sports (despite spending much of my time working in a casino sports bar) it makes sense when you think about it. Pro stadiums sell advertising space on these huge screens. Colleges do too. Why not high schools? Now for a high school they might not call it ‘advertising’… they probably call it ‘sponsorship’. But who cares. Your local HS might not be selling ad space to PepsiCo, Inc. (NYSE: PEP), but they are selling it to Bob’s local auto shop, or Cindy, your neighborhood Realtor who can get the job DONE. (And heck, they MIGHT be selling it to PepsiCo too)

 

More interesting, to me at least, is their commercial segment. More and more businesses are using digital displays to draw in customers. More and more of the billboards you see along the freeway are digital. A billboard you don’t have to pay people to climb up and change? A screen where you can display one thing as a certain demographic drives by your business at rush hour, then change later as another demographic walks by at lunch? (or whatever, you get the idea) A display you can have potential advertisers bid on and instantly change? I don’t see this trend slowing down.

 

Let’s talk about advertisers bidding for space on a digital display. In May, Fliphound announced that its ad space bidding platform can now be accessed through Daktronics Visiconn display management system. What is Fliphound? They provide an online system where advertisers can bid on real-time billboard space. Users can basically log in and pick specific billboards on a map. Pretty cool idea. Maybe they’ll go public some day? I’d invest in the idea, at the right price, of course. Their website proclaims ‘Billboard ads from $10/day’. Heck, I might advertise stockpickingbartender.com! I need eyeballs too.

 

Why Daktronics? They aren’t the only company in the world that does this kind of thing. Here are some statistics, taken from their website. They have 75,000 displays installed worldwide. They have over 700,000sqft of manufacturing facilities in the United States. They have more market share than any other company. They’ve made the Forbes list of ‘America’s Most Trustworthy Companies’ from 2012 to 2015. And that sounds great right? I wouldn’t want to invest in anything on the Least Trustworthy list, would you?

 

The company is also working hard to grow internationally. Last year they bought Data Display, an Irish company that does digital signs for railways, airports and such. Daktronics has a good balance sheet, and a dividend yield of about 3.5%. In fact, in doing research for this post, I saw Daktronics listed on several sites that were focused on dividend yield. Free money while holding the stock? Why not?

 

On June 2nd, Daktronics reported quarterly earnings per share of 9 cents before the market opened. Analysts were looking for 11 cents. The day before, DAKT closed at $10.79. It opened on June 2nd at $10.10, only to jump back up and close at $10.81 that same day. A great move.

 

Where did I buy? RIGHT at $10.10. That’s the lowest price you could buy it in the last several months. Am I a genius? Well, maybe, but not because of this. I think my limit order was at something like $10.35, but my online broker got me in first thing that day, so I got my 31 shares at a great price. Since then it’s gone up to $12.25, and back to $11.34, where it’s at as I write this. This has been a pretty good example of making a list of companies you like, and snapping one up when it dips down to your target. If I hadn’t done the work ahead of time and simply read the headline the day it reported, I wouldn’t have gotten that price.

 

Why did the stock react like this? Well, I guess the 2 cent miss scared some people out of their positions, but later on the details fleshed out during the conference call made people optimistic. That’s my take anyway. Margins were down because of some big projects they worked on in the period. Larger projects have lower margins due to competition and sub-contracting. Gross profit margins for the quarter decreased from 24.8% for the 4th quarter the previous year, to 22.3%. In the conference call they also talked about increasing sales, AND increasing expenses. We can’t have it ALL, can we? The outlook for future business sounded good, including a large project for the new Atlanta stadium.

 

So would I buy more of this company? Well, I would not ‘average up’ into a stock, but I’d certainly buy more if it fell significantly below my buy price, unless something fundamental changed my outlook for the company, of course. I don’t THINK this will fall down to that point though. It seems to have pretty strong support in the high $9’s, low $10’s. I really wanted to buy more at first, but I followed my discipline. Also, I knew I’d feel like the biggest fool on the planet if I ‘doubled down’ first thing and it kept tanking. The general trend has been down since the end of 2013. But I’m up on the position now, and expect to stay that way. And yes, I know that sounded a little pretentious. (Look at the ‘Trading Philosophy’ section to see how I make my trades.)

 

Well, this has been my third blog post, about the third and final company currently in my portfolio. If you’re interested Chesapeake Energy (NYSE: CHK) or First Solar Inc. (NASDAQ: FSLR), take a look at my previous posts. Unless I buy something by Tuesday, July 21st, my next post will be about a company on my watch-list, along with where my limit buy is. Fun stuff! Stay tuned.

 

As always, feel free to look at my portfolio and see how I’m doing. And please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

 

Thank you,

Michael, the Stock Picking Bartender

 

Why I Think First Solar Has Upside!

So what is First Solar Inc. (NASDAQ: FSLR)? Well, First Solar is a leading designer and manufacturer of solar panels. They also design and install large utility scale projects using their panels. Check out their website, they have some great videos on what they do.

I could go into detail about all of the technical aspects of the materials and technology they use to convert solar energy into electricity, but then again, no I couldn’t. Suffice it to say that it all sounds really cool, really complicated, and really, really beyond my ability to fully understand. Sunlight goes in, electricity comes out. Their materials technology differs from the other solar companies, I guess. How? Well… it just does. Anyway, they sound like they know what they’re doing. I just want to make some money.

But how? Ok so they make solar panels. What about cheap Chinese competition? What about cheap oil and gas as an alternative? Well, honestly if there weren’t those concerns out there, the stock price would probably be high enough that I wouldn’t be interested. Problems beget opportunity.

One major opportunity is the ever lowering cost of solar energy. Recently, First Solar CEO Jim Hughes stated that $1 per watt was achievable by 2017, and could be a widespread commercial reality by 2020. Well, personally I don’t see solar taking a huge chunk out of traditional energy generation that soon. Give the technology another fifteen years and we’ll talk. But that doesn’t mean that this quality company isn’t investable right now. I think it is, especially given its recent drop from around $65 in late April to where it’s trading now, around $45.

Why the sudden drop? On April 30th, First Solar held its 2015 Q1 conference call. They reported a loss of 62 cents per share, but were expected to report a loss of 29 cents a share. This was their first reported loss in years. Why such a big miss? Among the reasons for the loss was the delay of several projects, and a few things that were supposed to be counted for Q1 being moved to Q2. Doesn’t sound like such a big deal to me. Bring that share price down so I can have a chance at it, please. Well, the sellers did, and I dove in.

So why do I think First Solar will bounce back? One word: YieldCo. First Solar and SunPower Corp (NASDAQ: SPWR) have gone into a joint venture to form 8point3 Energy Partners LP (NASDAQ: CAFD). So what is the yieldco for? How does it work? 8point3 will buy solar projects, mainly from First Solar and SunPower. It will operate these cash generating projects, with the intent to distribute that cash to shareholders as dividends. According to what I’ve seen, First Solar will retain ownership of 31.1 percent of shares in 8point3. So it sounds to me like this company will be buying assets FROM First Solar, and then turning around and distributing dividends TO First Solar. Sounds like a nice setup. I’m in.

As a side note, 8point3 hasn’t done so well since its IPO about a month ago. It’s gone from around $21 down to around $18. It might become interesting at about $15 or so. Anyway, I’m keeping an eye on it, though I doubt it will get down there due to the dividend yield expected from the company. But with disappointed buyers of the IPO, some general market weakness, maybe even a downgrade out of nowhere… who knows? It could happen.

I should also note that First Solar has a nice strong balance sheet. Nothing wrong with that.

I had a limit order set at $45.50 for 7 shares of First Solar. That order was filled on July 2nd. I had the order set up weeks in advance, and as I watched the share price SLOWLY slide down from $55, to $50, to $47, etc… it was hard not to just give in and buy it. I REALLY wanted a piece of this company. Of course I’m glad that I stuck to my discipline and respected my price target. I now have a second limit order placed to buy 11 shares at $37.40. Will my second order get filled? I hope so, as I see this eventually working its way back to recent highs. I’m willing to average down into this position for a total of four buy points, should it come to that. (Look at the ‘Trading Philosophy’ section to see how I make my trades.)

As always, feel free to look at my portfolio and see how I’m doing. And please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender

Why I’m Adding Chesapeake Energy to My Portfolio

When I first got into the stock market, Chesapeake Energy (NYSE:CHK) was one of the darlings of Wall Street. In the second half of ‘07 and the beginning of ’08, it defied the market, not to mention pretty much anything I bought at the time. (Check the ‘About’ section of this blog to look into my history with the market at that time.) So imagine me, getting back into the swing of things several years later, seeing that Chesapeake can be had at these low, low prices.

But why so low? Why has CHK been one of the WORST performers of the S&P 500 this year? A real stinker. Surely there must be a reason. So I did the research, comforted myself that this is a good long term story, and took the plunge. My first buy in years!

What is Chesapeake Energy? They are one of the largest producers of natural gas in the country, 2nd only to Exxon Mobil (NYSE:XOM). Chesapeake is also the 10th largest producer of oil and natural gas liquids in the country. You’ve probably heard of ‘fracking’; that’s what this company does.

The recent weakness in the price of oil has hurt Chesapeake. Natural gas is at ridiculously low prices, which hurts CHK even more. But low commodity prices aren’t the only problem here. Another concern is the balance sheet, though the company has an unused line of credit set up if necessary.

Some of the company’s problems can be blamed on the excesses of co-founder and former CEO Aubrey McClendon. If you look up his history you’ll see scandals ranging from using company employees to fix up his house, to the alleged misappropriation of confidential information on his exit from the company in 2013. I think I like this company better without him.

Enter CEO Doug Lawler, who seems to be focused on reducing spending, increasing efficiency, and just generally pulling this company up from the nosedive that it’s currently in. I just love a good turn-around story. But is this one real? I listened to the 2015 Q1 conference call (You wouldn’t put your money in a company without listening to at LEAST the most recent CC would you? Go listen to this one if you are considering taking a position in CHK.) and they talked quite a bit about cutting capital expenditures and putting things in order.

A great deal of the call was focused in detail on the high quality of the company’s assets, and the technical breakthroughs in how they drill wells; breakthroughs that lower cost and increase efficiency. Longer wells, wells closer together, refracking older wells. This all amounts to getting the goods out of the ground faster, cheaper, easier. That all sounds good to me, especially if/when oil and gas prices rise.

While being mainly a natural gas company isn’t working out so well for Chesapeake at the moment, that may change in the future. Look at the vehicles that run on natural gas. Look at the environmental restrictions that are constraining coal. I keep hearing that the U.S. will soon ramp up exports of liquefied natural gas to the world. This sounds bullish for the price of natural gas to me. If CHK turns into a phenomenal investment for my portfolio, I’m thinking this will be the main catalyst. I’m not expecting a buyout, or anything along those lines.

Chris Doyle, EVP of Operations, Northern Division, spoke on June 23rd at the GHS 100 Energy Conference. Anyone interested in investing should read the transcript, easily found on Yahoo Finance. What I took away from the speech was his confidence and the company’s dedication to value and efficiency.

Another factor is the huge stake in the company held by activist investor Carl Icahn. It’s nice to be on the same end of a deal as someone like him, I suppose. But then again, Carl didn’t consult me on his decision to get into Chesapeake, so he probably won’t be giving me a personal heads-up if his opinion of the company changes. I’m thinking that watching people like him is a good resource for ideas, but not an excuse to buy something without doing all the regular legwork.

So here’s what it boils down to, for me: can Chesapeake weather the current commodity environment long enough to see those prices rise? Will they burn through their cash and credit, despite the CapEx reductions and increases in efficiency? Can they make it through without a dilutive event? (Lawler said recently that he doesn’t see one taking place.)

I obviously think CHK is a good investment, but I’m not looking for short term gains here, nor am I jumping into a full position all at once. I see this as something I’ll look back on in 1 or 2 years and be glad I bought. Analyst downgrades, weak commodity prices, more analyst downgrades… that’s fine. Keep them coming. I will buy the fear.

I made my first buy at $15.17, and my second buy at $12.30, for an average price of $13.61 for 59 shares. Ok, so I’m not moving markets with my orders, but I gotta start somewhere. I’m certainly willing to buy more at lower prices. CHK is currently trading at $11.72. I’m considering buying around 55 more shares somewhere in the $8 to $8.50 range, though I have yet to put in a limit order. I expect plenty of people to tell me it will get there, sooner rather than later. Will it? Who knows? I certainly won’t be buying any more above $10. (Look at the ‘Trading Philosophy’ section to see how I make my trades, though I made my first buy in CHK before I finalized my disciplines, and bought a little too much of it.)

As always, feel free to look at my portfolio and see how I’m doing. And please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,

Michael, the Stock Picking Bartender