|Dow||-272.58 to 16,719.33|
|S&P 500||-29.74 to 1,935.08|
|Nasdaq||-69.60 to 4,385.20
|10-YR Yield||-.075 to 2.35%|
|Gold||+$3.30 to $1,210.60|
|Crude Oil||-$1.53 to $88.81|
First, it was Candy Crush game maker King Digital Entertainment (KING, Weiss Ratings: C) that lost its sweetness.
Today, it’s the home beverage company SodaStream (SODA, Weiss Ratings: C) that’s going flat!
SodaStream warned that third-quarter revenue would come in around $125 million, far below the $153.6 million that analysts expected. The company specifically cited weakness in the U.S. for its systems, which allow you to carbonate and flavor your own soda blends at home.
I’ve seen the company’s countertop machines at stores like Bed Bath & Beyond, and frankly I never understood the purpose of ’em. They’re overpriced, for one thing. For another, we just didn’t have room for yet another appliance on our cluttered kitchen counter top.
But the story here is bigger than SodaStream. It’s a story of just how dangerous those infamous “Fad Stocks” can be! You probably remember I wrote about King back in August after its shares plunged 23 percent. The problem? Revenue missed forecasts, and gross bookings guidance disappointed investors.
There are few things more faddish than Candy Crush, the tablet and smartphone game that many people have just grown tired of. But it looks like the “Gee, isn’t it exciting to make your own soda at home?” fad has also passed its peak.
How much money has SodaStream cost investors as a result? Well, the shares were already down to just over $27 yesterday from around $50 at the beginning of the year. Including today’s shellacking, they’ve now lost a whopping 72 percent from their mid-2013 fad peak!
Is there anyone else out there who’s vulnerable to the same fate? GoPro (GPRO, Weiss Ratings: C) is one I’d be worried about over time — if not in the immediate future. Everyone and his sister is using the company’s water-resistant, shock-resistant equipment to film crazy stunts and adventurous vacations right now — and paying through the nose for the right to do so.
|What will be the next fad to disappoint investors?|
But how many skydiving and extreme kayaking videos can you upload to YouTube before you get tired of it? And as cheaper competition comes online, how many people will still be content to shell out a few hundred bucks for a top-of-the-line GoPro camera? Just something to consider since the stock has already surged from around $40 in August to almost $100 a few days ago.
So what do you think?
Have you made money from fad stocks before? Or do you avoid them as a general rule? Is GoPro doomed to suffer the same fate as SodaStream, with disastrous results for investors? Or will it ride the video filming craze for a few more years, then maybe get bought out by a larger firm to reward investors with even bigger profits? Hop on over to the comment section to add your two cents!
|Our Readers Speak|
The breakup of lumbering giant Hewlett Packard (HPQ, Weiss Ratings: B) … as well as the bigger issue of boosting results through financial engineering … prompted a couple of lively discussions on our website.
With regards to spreading the wealth between Wall Street investors and Main Street employees, Reader Philip W. said: “One way to combine both would be to have the employees of the company be the shareholders; then all the investment in buybacks and dividends would go to the employees.
“In addition, their ideas would be listened to as shareholders, so money could then be invested in more and better items for the business. The cycle would complete itself as money earned would then flow back to the shareholders (employees), and begin again.”
|“Is GoPro doomed to suffer the same fate as SodaStream?”|
Reader John also weighed in on the relative merit of distributing money to shareholders versus re-investing in the business. His take: “The idea of shareholder first — what does that mean? Isn’t the best thing a company can do with capital is expand its business and make it even more successful that it’s been in the past? To me that IS putting shareholders’ interests first.
“It’s especially true if companies can gain critical advantages such as economies of scale or strategic position that turbo-charges profits even beyond just getting bigger. So yes I agree with your lament that corporations seem lately to lack imagination, gumption or both.”
Thanks for your input, gentlemen. I agree that there’s nothing wrong with distributing money to shareholders via dividends. I like juicy yields as much as the next investor! But the problem is that too much money seems to be flowing to payouts and buybacks versus business investment. That puts future profits and competitiveness at risk.
Meanwhile, Reader Saranjeet S. had an interesting take on corporate spin outs. He noted the example of Imperial Chemical Industries of the U.K., which separated its commodity chemicals and paints businesses from its pharmaceutical/crop-care divisions. The pharma business is now the successful AstraZeneca (AZN, Weiss Ratings: C+). The chemical business faltered. His view?
“The latter got destroyed due to incompetent leadership, which made a bad acquisition. In fact, with the benefit of hindsight, if they had split the paint business from the heavy chemicals business, the paint business could be a world leader today.
“If HP is splitting its businesses due to different approaches required for the two parts, it might be worth considering the split, with one proviso: You need to ensure that the leadership for each component is appropriate and world class. This could well lead to two world class businesses. Otherwise, from my observation, one will survive and succeed whilst the other fails.”
That’s a great historical perspective Saranjeet — thanks for sharing. But Reader Duane M. sounds utterly unconvinced that financial engineering offers any real benefits. His comments:
“True engineering of materials and things creates wealth and there is too little of that going on. You can play with the money all you want, but if most people aren’t hired to make anything productive we’ll all eventually starve to death. And forget about trickle down theories. Bottom line: Too much greed and manipulation by those in high places is killing us all.”
Do the rest of you agree? Or do you think financial engineering serves a legitimate purpose? Here’s where to add your thoughts!
|Other Developments of the Day|
• ISIS has overrun parts of the Syrian city of Kobani, according to reports. That’s drawing even more airstrikes from the U.S. and other allies, who don’t want the terrorist group to gain any more ground — especially in a town hard up against the Turkish border!
• Tougher anti-Ebola screening is coming to select U.S. airports. That’s an intermediate step that falls short of some calls to ban inbound travel entirely from the most heavily infected West African nations.
• Forget the sick man of Europe economic theory. The whole continent looks sick! The latest dismal data: Seasonally adjusted industrial production in Germany just plunged 4 percent in August. That was the biggest decline since 2009 — and almost triple the drop that economists were expecting
• Speaking of the economic risks emanating from Europe, the International Monetary Fund just slashed its global growth forecast for 2015. It lowered its projection to 3.8 percent from 4 percent, citing weakness in Germany, France, and Italy as well as geopolitical risks in places like Brazil and Russia.
Until next time,
P.S. Could Martin’s Ultimate Portfolio strategy really multiply your money 7 times over?
Absolutely! And he has posted the evidence, complete with charts and tables, on a special Performance page of his website. Click here to see for yourself.