Assignment

The Dow Jones Industrial Average has dropped three consecutive days since the start of the week to 16,340.08 at the close of Wednesday. A general overview of the market shows that the absence of corporate news could be the cause of the drifted markets. In addition, international investors were worried about the slow growth rate of China. Data on the economy released early Thursday had little impact since it did not do much in reassuring investors of the China’s economic rate of growth. This kind of information would have the market index under consideration here react negatively. Investors are cautious and trying to figure out if it is an okay time to buy stocks due to the Dow Jones Industrial Average trading below its recently recorded all time high. Furthermore, there are insights given by prominent investors such as Warren buffet who have assessed the stock market and concluded that it is overvalued. Buffet expresses the total market capitalization to the gross national product. If the output of the ratio falls between 70 and 80 percent, then buying stocks is encouraged as it will be profitable and value additive. On the other hand, if the ratio’s output goes as far as 200%, then it may not be wise to buy stocks. Presently, the ratio gives a value of 142% which is indicative of an overvalued market (Dzombak, 2014).

The portfolio has performed poorly compared to the previous week. The value of the portfolio has dropped from 5.11% to an all time low of 3.18%. Basically all shares with the exception of Best Buy Company Inc and Microsoft registered a gain from last week’s figures as at the end of trading on Wednesday. The biggest losers were Icahn Enterprises L.P Caesars Entertainment, RR Donnelley & Sons, Realogy Holdings, Delta Air Lines, Donaldson Co Inc, Supervalu and Coca Cola Company in that order. The last two shares showed dismal negative performance.

We shall start analysing the portfolio with the week’s gainers. Best Buy Co Inc. registered a gain of 2.55%. According to Green (2014), during the last quarter, the retail store giant had to put up with its deteriorating sales and declining margins. This was the reason the stock performed poorly the previous week. Nevertheless, the good news is that the company is targeting an annual billion dollar cuts in costs which significantly boosted online sales. The market share of the company has also increased due to the important proposals being rolled out.

The gain can also be explained by the fact that investors became aware of the additional stores opened with a floor spaces shared between Samsung and Microsoft Windows. Another recent partnership is that with SolarCity. It is a company that puts up for sale leases that allows their customers pay only for the electricity energy powered by solar over a twenty year term. What is advantageous to their consumers is that they do not get to own the solar panels and other equipments or incur any installation costs. A test run of their proposed plan was carried out late last year in one of the Best Buy stores in California and New York. The plan was such that Best Buy and SolarCity share income through a model. The model is such that SolarCity pays a certain fixed rate to Best Buy for a lease signed up by each customer. It is for this reason that the investors would assume the general cost of power will decline, therefore, future company revenue will bound to increase.

Microsoft shares also increased their value by a marginal 0.63% compared to last week. This comes after Microsoft cut prices for devise makers installing Windows 8.1 Operating System for their products costing less than $250 from $50 to $15. Also, the Verge reported that the company was taking into consideration reducing the license fee of Windows Phone. This move will have the desired effect of attracting new device makers. This will enable the company compete with Apple and Google that are providing alternatives to the traditional PC market with both mobile and PC Operating System (Cruz, 2014). Meg Whitman at Hewlett-Packard reveals that the earnings of the company are attributed to the performance of PC’s. Microsoft may view this as good news since Windows and Office are still large contributors and the biggest headwind facing Microsoft.

The game called Titanfall was released early this week and has an enormous importance to Microsoft. Microsoft is hopeful that this game will boost sales of the Xbox game console and also increase its market share as far as the video game is concerned as it competes with the PlayStation by Sony in the technology sector. PlayStation has been outsold compared to the Xbox by up to two million units. This game is only compatible with Microsoft gaming devices. This will be profitable to Microsoft as they get to close in on the gap. Titanfall is a big deal in the gaming industry since it has won over sixty awards at last year’s Electronic Entertainment Expo.

Icahn Enterprises L.P. is our top loser this week. It shed 7.31% of its value after gaining 6.43% the previous week. The market value of the shares seems to be unstable and could be driven by the amount of information within the domain if the investors and the forces of demand and supply are evident. Mr. Icahn is in the limelight over the eBay debate amongst other successful business people. The debate is as to whether PayPal and eBay should split or not. He accused the board of eBay for placing its interest ahead of that of its shareholders and criticized the company’s Chief Executive Officer for his poor management over the matter with the board.

Caesars Entertainment is trading lower than it did last week. It lost 5.93% of its value in the portfolio. The company which is based in Las Vegas reported an expected net loss attributed by the weak performance in its properties in Atlantic City and assets sold. Besides, the company has frail cash flow and its earnings per share reflect weak growth. Atlantic City’s dwindling market conditions are to blame together with probable variations in the useful life of particular assets. The company’s Chief Executive Officer, Gary Loveman is hopeful about the improving volume trends and investments in hospitality assets in Las Vegas despite the challenging operating environment (Lahiff, 2014).

RR Donnelley & Sons Company shed 3.16% of its portfolio value over the past week. Most of this loss is seen towards the end of the last week. Early this week, the company reported that it had been awarded a quarter billion dollar multiyear agreement by Dex Media that seeks to expand and extend the relationship for production of directory until the year 2020. RR Donnelley has been printing directories for Dex Media for over two decades. The shares had started soaring up as a result of this good news.

To add onto the favourable investor news is that the company is intending to acquire a Canadian based company called Multicorpora. The company to be acquired offers solutions in international translation technology. Acquisitions of this kind have in the past been the major reason for RR Donnelley’s growth.

However, towards mid week this week, the share performance decline gradually. This could be associated to the news the company issued regarding its $350 million debt offering that was released mid week. RR Donnelley is planning to use proceeds obtained from this issue to repay borrowings and among other corporate reasons. It may be important to note that RR Donnelley is still under pressure as a result of pricing, competition from its rivals and not forgetting varying prices in its raw materials.

The performance of Donaldson Co Inc has been relatively steady the last three weeks in the portfolio. The company released its quarterly financial report mid last week that saw its gross margin stand at 34.7% which is an improvement from the prior year’s of 33.4%.

The data chart below shows the previous week’s performance as at the close of trading on Wednesday.

Source : https://finance.yahoo.com/portfolio/pf_3/view/v2

References

Billionaire Investors And Tech Moguls Pick Sides In Ebay Battle. Retrieved from http://www.forbes.com/sites/stevenbertoni/2014/03/10/billionaire-investors-and-tech-moguls-pick-sides-in-ebay-battle/?partner=yahootix

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Cruz, M. N. (2014, February 28). Microsoft’s pricing power under attack. Retrieved from http://www.fool.com/investing/general/2014/02/28/microsofts-pricing-power-under-attack.aspx

Dzombak, D. (2014, March 12). Warren Buffett's Favorite Market Indicator Shows the Stock Market Is Overvalued. Retrieved from http://www.fool.com/investing/general/2014/03/12/warren-buffetts-favorite-market-indicator-shows-th.aspx

Form 10-Q for DONALDSON CO IN. Retrieved from http://biz.yahoo.com/e/140307/dci10-q.html

Green, T. (2014, March 3). SolarCity Moves Into Best Buy. Retrieved from http://www.forbes.com/sites/uciliawang/2014/03/12/solarcity-moves-into-best-buy/?partner=yahootix

Lahiff, K. A. (2014, March 3). Why Caesars Entertainment (CZR) Is Lower on Wednesday. Retrieved from http://www.thestreet.com/story/12527278/1/why-caesars-entertainment-czr-is-lower-on-wednesday.html?puc=yahoo&cm_ven=YAHOO

R.R.Donnelley Acquires Multicorpora. Retrieved from http://finance.yahoo.com/news/r-r-donnelley-acquires-multicorpora-170007779.html

RR Donnelley Announces $350 Million Debt Offering. Retrieved from http://finance.yahoo.com/news/rr-donnelley-announces-350-million-134225355.html

Titanfall May Give Microsoft and Game Consoles A Boost. Retrieved from http://www.forbes.com/sites/charleyblaine/2014/03/12/titanfall-may-give-microsoft-and-game-consoles-a-boost/?partner=yahootix

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