Introduction The decision to invest is inherently a challenging one; many people approach investment decisions with apprehension: How much should I invest? Where is my money placed best? When should I invest? For how long should I keep my funds in a stock? At what point do I sell, reaping returns or absorbing a loss? The uncertainty as well as the risk that comes along with the venture of investment can sometimes lead investors to stay away from the market place altogether. One can, however, beat the odds of market uncertainty by spending a considerable amount of time carrying out careful research studies before making an investment commitment. This brief report intends to do just that; it aims to aid prospective investors by systematically analyzing and evaluating the investment potential of three North American companies with consideration of both the short and long term prospects. In particular, it critically reviews such important factors as the nature of the company/industry, its profitability trends, the company’s management culture, and its performance overview. These factors will help determine whether a stock is best sold short or long.
4
5
The logo may be red, but profits promise to be green in years ahead! The history of ExxonMobil begins in Pennsylvania in 1859, when the first successful oil well was built by Colonel Edwin Drake and Uncle Billy Smith. Exxon and Mobil operated as two separate companies until a merger in 1999. 1Today, it is best known for selling gasoline under the brands “Esso”, “Mobil” and “Exxon”. The corporation also functions as a provider of marine and aviation fuels to large companies across the globe. The ExxonMobil Empire extends into more than 21 countries, in which 37 oil refineries have been built under its name. Refining up to 6.3 million barrels of oil per year, the company is currently known as the largest multinational, publicly traded ‘oil and gas corporation’ in the world.2 Exxon also rotates between the top and secondplace rankings of the highest revenue-earning companies.3 Its dominance is constantly challenged by competitors such as Chevron Inc., Royal Dutch Shell, Conoco Phillips, as well as the infamous BP. Cognizant of the fierce competition that exists in the oil and gas industry, the management has been known to make slow but calculated moves to foster the company’s steady growth and maintain its dominant market share.4 As the company expands further into the Middle East and South America, revenues and production are likely to climb upwards5.
The Well-deserved Title of Blue Chip Blue chips are established corporations that continuously please their stakeholders by both devising and applying innovative marketing, finance and production strategies to achieve sound results. This type of company is universally recognized as a corporation with top investment potential in terms of its quality. ExxonMobil is a corporation which practically epitomizes what it means to fulfill the aforementioned criteria. Its size, continued success and financial stability place it in the Blue Chip category. Between its founding and its current state today, ExxonMobil has well over 125 years of experience of running the business venture and defining as well as refining its business strategies. Today, its empire stretches across multiple continents, and its stock sells slightly above $80 on the renowned New York Stock Exchange. Not only is it large in size, the company is also immensely profitable. Exxon has earned hundreds of billions of dollars of revenue in each of the past few years, setting a precedent in the oil and gas industry. The management has successfully devised a strategy for the company to profit during both favourable and trying economic times. During the global economic meltdown, in 2008, investors watched in awe as it reached record-high revenues of over $476 billion.6 What can ultimately be seen is that this Dow Jones company is large in size, strong and stable in its performance, and equipped with the tools to successfully handle harsh economic periods—it is a blue chip, in every sense of the term.
1
http://www.exxonmobil.com/Corporate/history/about_who_history.aspx http://www.nytimes.com/2009/07/14/business/energy-environment/14fuel.html?pagewanted=all 3 http://www.incomediary.com/top-earning-companies-in-the-world 4 http://www.theglobeandmail.com/globe-investor/investment-ideas/breaking-views/exxons-slow-and-steady-pace-could-win-the-race/article2321653/ 5 http://www.independent.co.uk/news/world/middle-east/exxons-deal-with-the-kurds-inflames-baghdad-6274452.html 6 http://www.google.ca/finance?q=NYSE:XOM&fstype=ii 2
6
The Investment Opportunity: Stock Information Regardless of the time of year, companies listed on the Dow Jones generally present themselves as strong long-term investment opportunities. The next few months seem to be especially promising for ExxonMobil, according to Market Watch writer Steve Gelsi. In his article, Gelsi explains that Exxon underperformed during the fourth quarter of 2011, leaving the stock price lower than what analysts had expected. Even though profits rose by 2%, production numbers loomed around 4.53 million barrels, below analysts’ predictions of 4.73 million. The article also contains the management’s explanation for this discrepancy: apparently, “unplanned down time at some of its oil rigs contributed to lower production”. The production drop still brought the stock down about 2%, prompting Exxon to respond by investing in in its own shares at record-levels. What can we garner from this, exactly? The fact that production went down but profits still rose speaks volumes about the corporation. ExxonMobil tactfully dealt with the unexpected events it encountered. It retained high earnings, and even ensured that investors were informed about its unusual circumstances. From the looks of it, last quarter’s production decrease was an anomalous incident for a company which generally produces oil in very high numbers (Gelsi quotes the company has a solid plan to rectify the situation very soon). Exxon’s decision to invest in itself also signals to investors that the management is expecting improvement in its stock price within the next few quarters. In other words, the stock is undervalued now compared to what it could be in the future. It seems to be a great time to go long with Exxon. ExxonMobil is consistent, well-managed, responsible and strong; rendering itself a wonderful opportunity for investors who seek reasonable returns in the future without taking on the burden of extensive risks. Headquarters: Irving, TX Exchange: NYSE Ticker: XOM Price: $86.50 (Feb 29th) 365-day High: $88.13 365-day Low: $67.03 Dividend: $0.47/share (v. good)
7
Exxon Mobil’s profit up 2% as production falls Blue chip’s quarterly earnings top $9 billion; shares trade lower January 31, 2012|Steve Gelsi, MarketWatch NEW YORK (MarketWatch) — Exxon Mobil Corp.’s fourth-quarter profit increased 2% to meet consensus Wall Street expectations, but shares of the oil major lagged on its lighter-than-expected production, financial results showed Tuesday. Exxon Mobil (US:XOM) reported earnings rose by $150 million to $9.4 billion, or $1.97 a share, up from a net profit of $9.25 billion, or $1.85 a share, generated in the final three months of 2010. Analysts, on average, had expected Exxon Mobil to earn $1.97 a share, according to a survey of estimates by FactSet Research. Total production fell to 4.53 million barrels of oil equivalent a day, below the year-ago figure of 4.97 million barrels a day, and missing the analyst estimate of 4.74 million barrels a day. Exxon shares fell 2.1% to close at $83.74 as the worst-performing component among the 30 stocks in the Dow Jones Industrial Average (US:DJIA) on Tuesday. On a conference call with investors, Exxon said unplanned down time at some of its oil rigs contributed to lower production. But looking ahead, Exxon said its performance on this front is improving. The oil major’s fourth-quarter earnings were “mediocre,” said analyst Brian Youngberg of Edward Jones. Breaking out about $800 million in asset sales, earnings were down for the quarter, he said. “Production was lighter than anticipated,” he said. “Growing production remains a challenge for them.” He reiterated a hold rating on Exxon Mobil, adding that Chevron Corp. (US:CVX) remains more profitable per barrel and enjoys a better outlook for production growth. Exxon Mobil is reinvesting in its business, which “should help in the long run,” Youngberg said. Upstream earnings from oil production increased to $8.83 billion in the December quarter, up $1.35 billion. Downstream earnings from refining fell to $425 million from the prior year’s $1.15 billion, largely on weaker margins. “Exxon Mobil recorded strong results while investing at record levels to develop new supplies of energy that are critical to meeting growing world demand, and supporting economic recovery and growth,” Chief Executive Rex Tillerson said in a statement. For 2011, the company’s capital spending rose 14% to $36.76 billion. The oil major’s profit rose 35% in 2011 to $41.06 billion. The Irving, Tex.-based company bought back $5 billion in stock during the quarter. Capital spending for the latest quarter remained essentially flat at $10.02 billion. Liquids production totaled 2.25 million barrels of oil equivalent a day, down 276,000 barrels.
8
9
Taking the Industry by Storm What is now known globally as SXC Health Solutions began as Systems Xellence, a relatively small Canadian-based company which came into being in 1993.7 SXC is a pharmaceutical benefit management (PBM) corporation. In simpler terms, its purpose is to act as a third party in administrating prescription drugs. The rise in appeal of pharmaceutical products has made for a robust and highly competitive market. Among the chief competitors in the industry is the American giant CVS Pharmacy, as well as Medco, and Catalyst Health Solutions.8 Presently, the company is comprised of three respective divisions: InformedRx, Healthcare IT Group, and Health Business Systems.9 Today, it receives widespread endorsement from business analysts who constantly refer to it as a leading player in PBM. A Fast-Grower like No Other Only a few years ago, SXC was a mere underdog, an unknown company barely standing as a competitor in the industry of pharmaceuticals. It is currently a corporation that is growing at a record-setting pace. In fact, the company’s impeccable growth record has earned it the number 1 spot on the prestigious Forbes’ list of 100 fastest growing companies.10 How fast is it growing, exactly? Between 2005 and 2010, after Mark Thierer was appointed CEO, its revenue grew 3400%.11 The growth in revenues was matched by an equally outstanding increase in the bottom line. In 2008, SXC reported a modest income of $15.11 million. Just three years later, in 2011, it reported earnings of $91.79 million, accounting for a growth of over 600% in only three years. As a result, its share price rose from $41.45 to over $70 within only the last year.12 The corporation shows all the signs of being what we call a “fast grower” in the stock market. Not only has it reported a steep surge upwards in sales and earnings, it has also acquired one company after the other (e.g. Healthcare IT Group, Zynchros Inc.13). The company is young and expanding, with solid future plans to invest and grow. SXC’s streak has continued strong for over 5 years, leaving investors anxious to know whether 2012 will bring even more triumph for this company (possibly even Stalwart status in a few years), or whether its success stretch is bound to meet its end.
7
http://www.sxc.com/wps/wcm/connect/0c495c004665dc97a663afb5111009cc/AR2010.pdf?MOD=AJPERES&CACHEID=0c495c004665dc97a663afb5111009cc 8 http://www.google.ca/finance/related?q=TSE:SXC 9 http://www.thefreelibrary.com/SXC+Health+Solutions+receives+2007+Rx+Benefit+Innovation+Award.-a0159660484 10 http://people.forbes.com/profile/mark-a-thierer/3546 11 http://www.theglobeandmail.com/report-on-business/small-business/grow/new-product-development/cashing-in-on-theus-drug-craze/article1821069/page1/ 12 http://www.google.ca/finance?q=TSE:SXC&fstype=ii 13 http://www.zynchros.com/news-events/news/2008/SXC_Dec222008.pdf
10
The Investment Opportunity: Stock Information Some may be inclined to argue that SXC’s Headquarters: Lisle, IL stock price has or will hit a point of plateau, but Exchange: TSE, NASDAQ evidence presented in an article in the Canadian Ticker: SXC Business magazine certainly suggests Price: $71.03, $72.15 (TSE, NASDAQ, Feb 29th) otherwise. The article’s title in itself provides a 365-day High: $72.38, $72.73 (TSE, NASDAQ) clear indication that a bright future lies ahead of 365-day Low: $41.45, $40.36 (TSE, NASDAQ) the company, encouraging investors to go long Dividend: N/A (but may be in future) with its stock: “SXC Health Solutions 4Q Net Income Jumps”. The author illustrates how the company has been able to maintain an impressive rate of revenue growth, while also improving its earnings per share. In the next quarter alone, the author predicts revenue figures will hover around the 1.55 billion dollar range, well above the reported earnings in the last few quarters which are all in the 20 million dollar span. SXC has maintained an exponential growth streak for the last four years, giving an indication that it is highly profitable. The article’s optimistic predictions are likely to have stemmed from recent news releases of SXC’s multi-billion, multiple-year contracts with Health Spring Corp. and Blue Shield-Blue Cross. It is also important to mention that SXC’s financial situation and stock price changes seem to be in line with analysts’ predictions. This shows that the company has remained fairly stable in the past few years, making it less risky to investment in its stock. Such an analysis is definitely reassuring to a prospective investor who might be concerned about the company’s continued growth prospect and the risks involved with investing in its stock. SXC’s stock price rises dramatically each year as profits stay strong. Analysts’ predictions of even higher EPS figures certainly forebode an increase in the stock price in the coming quarters without an equal increase in the risks in investing. The ability of SXC to build relationships with large companies and sustain growth signifies excellence on the management’s part. The company’s sound strategy, terrific management decisions, strong numbers, consistent performance and the growth predictions from experts are indications of even a better future. SXC is headed in a promising direction, and smart investors will be quick to jump aboard and watch their profits grow.
11
SXC Health Solutions 4Q net income jumps February 23, 2012 12:07 PM ET
LISLE, Ill. (AP) - SXC Health Solutions Corp. said Thursday that its net income soared 61 percent in the fourth quarter as both pharmacy benefit management and health care information technology revenue improved. The Lisle, Ill., company also provided 2012 earnings and revenue outlooks above Wall Street's expectations. Shares of SXC jumped $4.20, or 6.6 percent, to $67.73 in midday trading. Earlier in the session, the stock hit a new 52-week high of $68.74. In the fourth quarter, SXC earned $26.7 million, or 42 cents per share. That's up from $16.6 million, or 26 cents per share, a year earlier. Taking out amortization of intangible assets and other items, earnings were 48 cents per share, matching the average analyst estimate, according to a survey by FactSet. Revenue for the three months ended Dec. 31 more than doubled to $1.38 billion from $526.9 million. Wall Street forecast $1.27 billion in revenue and even more improvement in EPS figures. Prescription benefit management revenue rose on acquisitions, higher prescription claim volumes due to new customers and converting customers from health care information technology to prescription benefit management contracts. Health care information technology revenue climbed on higher transaction processing revenue and an increase in professional services work. For the year, SXC earned $91.8 million, or $1.46 per share. That compares with earnings of $64.7 million, or $1.03 per share, in the previous year. Adjusted earnings were $1.63 per share. Annual revenue more than doubled to $4.98 billion from $1.95 billion. Looking ahead, SXC expects 2012 adjusted earnings of $2.37 to $2.45 per share on revenue of $6.8 billion to $6.9 billion. Analysts forecast earnings of $2.31 per share on revenue of $6.51 billion. Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
12
13
A Company with a Clouded Future On its website, NeoMedia Technologies proudly deems itself “the global market leader in 2D mobile barcode technology”14. The company, inaugurated in 1989, is involved in creating barcode technology and infrastructure solutions15. In simpler terms, it creates a form of technology that enables a cell phone to serve as a barcode scanner. This is done through NeoReader, an application that works in real time to convert bar codes into product information available at the ease and convenience of the user.16 NeoMedia operates in a highly competitive industry that is dominated by IT specialists like ManTech International, Teradata Corporation, and of course, International Business Machines Corporation. As consumers become increasingly reliant on technologies, the tech industry remains strong and fiercely competitive. This is in part due to the fact that technology has evolved in many ways to become user-friendly, quick and convenient. In terms of profitability, however, Neo-M has remained volatile since 2005. It operated in net losses of $8 to $67 million between 2007 and 2009, before finally achieving a net profit of $35 million in 2010. 17
A Speculative Stock The speculative stock is notoriously known to investors as the riskiest, perhaps most thrilling form of investment. While investors who take the safe route by investing in relatively well-established companies usually receive modest amounts of gain or loss, speculative stocks tend to produce income or loss in high, unpredictable amounts. There is a level of uncertainty in this realm that makes the average investor shy away from investing in penny stocks. NeoMedia emerges as a perfect example of what the title of speculative stock entails. It sells for less than one cent!18 It’s interesting to mention that NeoMedia was selling its shares at over $50 in 2005 but fell steeply a few months later19. It would, therefore, have been appropriate to deem it a turnaround stock between 2005 and 2007, when the stock showed some potential of being brought back into the higher price range. However, a 5-year price chart reveals that the stock price of NeoMedia has plateaued since 2008. This, when combined with the fact that NeoMedia has downsized and currently sells in the OTC market, leaves it in a position to be more of a penny stock than a turnaround. A lot of uncertainty is clouding the future of this small company.
14
http://www.neom.com/company http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=109189 16 http://wikimobidex.org/index.php?title=NeoMedia_Technologies,_Inc. 17 http://www.google.ca/finance?q=OTC:NEOM&fstype=ii 18 http://www.google.ca/finance?q=OTC%3ANEOM 19 http://www.google.ca/finance/historical?q=OTC:NEOM 15
14
The Investment Opportunity: Stock Information: When an experienced trader believes that a share selling Headquarters: Atlanta, GA at 2 cents is ‘overvalued’, investors should definitely be Exchange: Over the Counter concerned. In his article on hotstocked.com, a website which aims Ticker: NEOM to aid investors in penny stock investing, Martin Tsvetkov nd Current Price: $0.008 (Mar 2 ) explains how the poor financial health of NeoMedia Technologies 365-day High: $0.23 renders it a risky, unpromising choice for long-term investment. 365-day Low: $0.01 Tsvetkov makes a reference to the company’s 2011 balance sheet, Dividend: N/A in which the corporation reports having only $68 000 in cash but over $129 million in liabilities. Tsvetkov also goes on to describe how the financial situation shows little sign of ameliorating in the future. He, instead, expects the company to be unable to shrink its “gargantuan working capital deficit”. In a relatively brief article, Tsvetkov provides ample evidence to suggest that it would be unwise to go long with this company. For one, the corporation has sustained a poor profit record for the past 3-4 years, ever since it took a plunge in 2005. It also proves itself to be a financially weak company that is heavily reliant on debt. Some may argue, and reasonably so, that a low stock price should encourage investors to go long with the hope that the company will grow. However, the failed attempts of the management to bring the company back on track have definitely discouraged investors from taking interest in the company. Only 3.6% of the corporation’s authorized shares were actively traded, as of September 2011. I am inclined to argue that NeoMedia should be avoided; its volatility can hurt investors regardless of whether it is sold long or short. However, a very keen investor should consider shorting the company. It seems like the best course of action would be to wait for the quarterly reports to be released (because Google Finance indicates that share prices have historically risen immediately after), then go short. However, NeoMedia presents a bleak future as a long-term investment, as bankruptcy is an imminent possibility. In a nutshell, if a company that has not managed to rectify its low liquidity, heavy debt-dependence, minimal expansion efforts, and net-loss operations in 7 years, then, who will take the enormous risk of betting on its future growth?
15
NeoMedia Technologies, Inc. (OTC: NEOM) Shifts About 16 Million Shares, Stock Remains Highly Overvalued by Martin Tsvetkov Sep 20, 2011 0 Comments
NeoMedia Technologies, Inc. (OTC:NEOM,NEOM message board) was not promoted yesterday. Yet, this did not prevent NEOM stock from shifting 15.7 million shares, setting a new eight-week volume record. The latter, in turn, led to a 5% depreciation in the value of NEOM stock which ultimately closed the session at $0.022 per share. What could have caused this trading frenzy appears to be a press release which came up on the same day. The news release announced that NEOM had now entered into a new partnership agreement with Global IP Law Group in an attempt to increase the value of NEOM's patent portfolio. Neomedia Technologies, Inc. claims to be a global provider of 2D mobile barcode technology and infrastructure solutions. The company has been following an open-door policy regarding its financials, which is why it occupies the premier OTCQB market tier. In accordance with its filing obligations with the SEC, NEOM submitted a complete 10Q form covering Q2 of 2011 last month. As of Jun. 30, the company's balance sheet included:
cash reserves of $68K;
current assets of $0.67 million vs. current liabilities in excess of $129 million!
quarterly net loss near the $56 million mark.
In spite of NEOM's diligent information policy, its financial health is in dire need of a miracle. The gargantuan working capital deficit seems highly unlikely to shrink any time soon. If this were not enough, only 3.6% of the company's A/S has been issued and outstanding, which means that there are still more than 4.8 billion shares waiting to see the light of day. As soon as their time has come, current (and future) stockholders will most probably be swept away by one of the biggest dilution rates in pennystockland.
16
Bibliography Exxon Mobil:
Cockburn, Patrick. "Exxon's Deal with the Kurds Inflames Baghdad." The Independent. Independent Digital News and Media, 09 Dec. 2011. Web. 04 Mar. 2012. <http://www.independent.co.uk/news/world/middle-east/exxons-deal-with-the-kurds-inflames-baghdad6274452.html>. Dunlop, Michael. "Top Earning Companies in the World." How To Make Money Online. Make Money, 14 Apr. 2009. Web. 04 Mar. 2012. <http://www.incomediary.com/top-earning-companies-in-the-world>. "Exxon Mobil Corporation: Quotes & News." Google. Google, 29 Feb. 2012. Web. 04 Mar. 2012. <http://www.google.ca/finance?q=NYSE:XOM>. ExxonMobil. "Our History." Object Moved. Web. 29 Feb. 2012. <http://www.exxonmobil.com/Corporate/history/about_who_history.aspx>. Gelsi, Steve. "Exxon Mobil's Profit up 2% as Production Falls." Market Watch. The Wall Street Journal, 31 Jan. 2012. Web. 28 Feb. 2012. <http://articles.marketwatch.com/2012-0131/industries/31028918_1_exxon-mobil-exxon-shares-brian-youngberg>. Mouawad, Jad. "Exxon to Invest Millions to Make Fuel From Algae." New York Times. The New York Times Company, 13 July 2009. Web. 29 Feb. 2012. Swann, Stephen. "Exxon's Slow and Steady Pace Could Win the Race." Globeandmail.com. Globe and Mail, 31 Jan. 2012. Web. 28 Feb. 2012.
SXC Health Solutions:
SXC Health Solutions 4Q Net Income Jumps." MSNMoney. MSN Money, 23 Feb. 2012. Web. 29 Feb. 2012. <http://money.msn.com/business-news/article.aspx?date=20120223>. "SXC Health Solutions Acquires Zynchros, Inc." Zynchros.com. 22 Dec. 2008. Web. 4 Mar. 2012. <http://www.zynchros.com/news-events/news/2008/SXC_Dec222008.pdf>. SXC Health Solutions Annual Report 2010. Rep. 2 Feb. 2011. Web. 4 Mar. 2012. <http://www.sxc.com/wps/wcm/connect/0c495c004665dc97a663afb5111009cc/AR2010.pdf?MOD=AJPERES&CACHEID=0c495c004665dc97a663afb5111009cc>. "SXC Health Solutions, Corp.: TSE:SXC Quotes & News - Google Finance." Google. Google, 29 Feb. 2012. Web. 04 Mar. 2012. <http://www.google.ca/finance?q=TSE:SXC>. "SXC Health Solutions, Corp.: TSE:SXC Related Companies - Google Finance." Google. Google, 29 Feb. 2012. Web. 04 Mar. 2012. <http://www.google.ca/finance/related?q=TSE:SXC>. "SXC Health Solutions Receives 2007 Rx Benefit Innovation Award." Thefreelibrary.com. 22 Feb. 2007. Web. 4 Mar. 2012. <http://www.thefreelibrary.com/SXC+Health+Solutions+receives+2007+Rx+Benefit+Innovation+Award.a0159660484>.
NeoMedia Technologies:
"NeoMedia Technologies, Inc. | Company." NeoMedia Technologies, Inc. Neo Media Technologies, Inc. Web. 04 Mar. 2012. <http://www.neom.com/company>. "NeoMedia Technologies, Inc.: OTC:NEOM Historical Prices - Google Finance." Google. Google, 29 Feb. 2012. Web. 29 Feb. 2012. <http://www.google.ca/finance/historical?q=OTC:NEOM>. "NeoMedia Technologies, Inc.: OTC:NEOM Quotes & News - Google Finance." Google. Google, 01 Mar. 2012. Web. 01 Mar. 2012. <http://www.google.ca/finance?q=OTC:NEOM>. "NeoMedia Technologies, Inc.: OTC:NEOM Quotes & News - Google Finance." Google. Google, 29 Feb. 2012. Web. 29 Feb. 2012. <http://www.google.ca/finance?q=OTC:NEOM>. "NeoMedia Technologies, Inc." WikiMobidex. Wikipedia. Web. 04 Mar. 2012. <http://wikimobidex.org/index.php?title=NeoMedia_Technologies,_Inc.>. Tsvetkov, Martin. "NeoMedia Technologies, Inc. (OTC:NEOM) Shifts About 16 Million Shares, Stock Remains Highly Overvalued." Bankrupt Index Oil & Gas, Inc. (PINK:IXOG) Puts on Spectacular Market Performance. HotStocks.com, 20 Sept. 2011. Web. 29 Feb. 2012. <http://www.hotstocked.com/article/18942/neomedia-technologies-inc-otc-neom-shifts.html>.
17