Sunday, May 20, 2012

Joe and Mary Investor Log On For Facebook Shares

WIth close to a billion users around the globe, newly-public Facebook was a natural to be embraced by small-fry investors.

So it’s small wonder that the action is hot and heavy at online brokerages that cater to Main Street stock buyers.

Online brokers geared up for a busy day Friday as some of those IPO shares hit the market around 11:30 am EDT as some trading problems delayed the stock’s scheduled 11:05 am opening on Nasdaq.

In reading through the prospectus and parsing the legalese, it appears that Facebook (ticker: FB) wanted to make certain that mom and pop investors were able to buy shares. There’s an uncommon focus on retail allocations.

E*Trade Financial’s senior vice president Christopher Larkin says that his firm is able to offer a unique and differentiated distribution channel, and is considered more cost-effective than the usual institutional banks.

“It’s exciting to offer IPOs to our customers,” Larkin says.

E*Trade (ETFC) customers were able to find the Facebook offering in their IPO Center. To indicate an interest in participating, customers must have a funded account with the broker, then go through an eligibility questionnaire that considers their investment experience, objectives, financial background, and corporate affiliations. If the customer’s responses pass muster, the next step is to place a conditional limit order for a minimum of 50 shares.

A Barron’s reader gave us the details of his experience with E*Trade’s IPO process. He placed an order for 200 shares at $40 per share, amending his order after the offering price was increased on Tuesday, and was informed early this morning that he will get 50 shares. His 50 shares appeared in his portfolio listing prior to the open at the offering price of $38 per share.

“I had wanted 100 shares, so I bid for 200,” he says.

Larkin was not willing to disclose the specifics behind E*Trade’s allocation process, but says it includes the customer’s asset level, tenure as an E*Trade customer, and past behavior. E*Trade customers are encouraged to hold the stock for at least 30 days.

E*Trade’s past IPOs include eBay (EBAY), Google (GOOG) and Morningstar (MORN), among others.

Fidelity customers were also put through a questionnaire after downloading the Facebook prospectus. Though they aren’t a direct underwriter, Fidelity is distributing some shares through their exclusive arrangement with Deutsche Bank. Spokesman Steve Austin says, “We can’t meet customer demand with the popular IPOs. The Deutsche Bank allocation is reserved for customers with $500,000 in assets or at least 36 trades in the previous 12 months.”

Fidelity also will distribute shares that they receive through another arrangement with private-equity firm Kohlberg Kravis Roberts); this block will be made available to customers of with over $100,000 in certain assets outside 401(k) accounts.

Larkin says that the number of shares each broker is allowed to distribute is never disclosed. The final prospectus will show the shares each broker or bank has agreed to accept, and should give an indication of the order of magnitude, but it’s not a specific allocation. Larkin notes, “The number in the prospectus tells you how many shares each entity is obliged to purchase if the deal goes pear-shaped. But they’re not the final allocations.”

One official very familiar with the prospectus noted that the offering was designed to make sure there were allocations across the board, avoiding the usual focus on institutional allocations. There was a cap on the number of shares an individual could purchase, says this official who requested that his name not be used. “I know brokers would love to throw everybody a bone, but you obviously want to give a bigger bone to your better customers,” he says.

If you miss out on scoring Facebook IPO shares, take heart. E*Trade’s Larkin says that “we actively go out and speak to companies about participating in these offerings. We’ll continue to see if there are opportunities going forward.”

Zecco’s CEO Michael Raneri notes that his firm is the only one that lets Facebook users actually place stock trades from within Facebook. In advance of his firm’s merger with rival TradeKing, Raneri says,

“The Facebook IPO lets us shine a brighter light on that capability,” Raneri says. “It’s a great opportunity.”

Published on Barron’s Online “Weekday Trader,” May 18, 2012. 

Posted by twcarey on 05/20 at 06:44 PM
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Saturday, May 12, 2012

Using an iPad to Stress-Test Earnings

You can do just about anything on an iPad these days, so why not use it to spot the weakness in a company’s profits, giving yourself the chance to sell the shares short? A new app, available on iTunes, lets investors assess the quality of earnings at companies in a given sector. Christopher Laudani, publisher of the new Instant Analyst, runs Short Ideas, a research firm that delves into earnings. Clients often asked him how he generated trading plays; now he’s making some of the basic information available.

Borrowing from the razor-and-razorblade model, Laudani offers the app (instantanalyst.com) free but charges for his reports. Without the reports, the app isn’t very helpful. He organizes the reports by sector and publishes a new one every three months. Laudani is selling a sample analysis for just 99 cents, though his other studies will set you back $24.99. The sample covers the materials business; others provide information on the energy, industrials, consumer-discretionary, consumer-staples, health-care, information and telecom sectors.

Each sector report contains a single-page on 100 to 150 companies, pinpointing current and historical financial data and providing 15 color-coded charts intended to convey earnings quality at a glance. It’s not a sorting or screening service; Laudani envisions the user flipping through the charts and making note of companies to research further.

“What I wanted to do was put everything that you look at on one page and let you flick through it. You didn’t have to know all the symbols of all the companies in each sector—you could just move from one company to the next, looking for ideas.”

One portion of the report is based on fundamental data and includes figures like days of inventory and annual free-cash-flow growth. The charts display quarterly items from the income statement, balance sheet and cash-flow statement such as operating margin and net working capital. If the trend is negative, the chart is colored red; positive trends are green. A sideways trend appears in yellow. The color-coding makes it easy to identify key trends.

The iPad app’s focus is on earnings quality, which isn’t necessarily reflected in static data. For instance, rising sales-per-employee figures might look like a positive, but they could simply be a result of unannounced layoffs that you’ll have to dig deeper to uncover.

“You can screen stocks all day and get lots of numbers, but they’re just numbers,” says Laudani. “The stuff you see on the Internet is all the same: chart different stocks 10 different ways, look at consensus estimates and dividends—so what? I wanted to provide something different that conveyed a sense of earnings quality.”

Initially, Laudani had considered issuing his reports in Adobe Acrobat’s PDF format, but when the iPad arrived, he realized it was a better platform.

In flipping through the sample materials sector, I found the organization into sub-sectors—aluminum, diversified chemicals and precious metals, etc.—helpful in making direct comparisons of similar companies. Navigating around the report, however, is a little clumsy. A progress bar at the bottom of the screen that lets you to go back to the table of contents or jump to a different page took some getting used to.

The Website for Laudani’s business is shortideas.com. As he publishes a second edition for each sector, Laudani plans to offer annual subscriptions. He thinks investors will find the reports interesting. “Is there a reason why this stock is going up and that stock is going down?,” he asks. “Instant Analyst is an ideal app for curious investors.” Drop the 99 cents on the materials sector to see if you agree.

KAPITALL GENERATION (kapitall.com), an online investing platform, has produced a video, aimed primarily at those new to investing, that explains Facebook’s upcoming IPO. It’s short, just 2½ minutes, and can be found at kapitall.com/fb. Did you know that approximately 8.5 billion minutes are spent daily looking at Facebook by its 901 billion users? As the video notes, that’s longer that it would take to walk to the sun and back twice.

A NEW ONLINE INVESTING SERVICE, Motif Investing (motifinvesting.com), came to our attention a while ago. It’s still in late-beta mode, but the firm is accepting customers. It’s an interesting idea, which we’ll soon review in depth. We mention it now because investors are being offered commission-free trades in May as Motif ramps up.

Motif Investing gathers groups of stocks that are set up by general interest—say, biotech, senior care, or home improvement. Each motif features 20 to 30 stocks, and when you buy into a motif with a fixed dollar amount, you own the stock individually—even fractional shares. You can customize each motif as you wish. The usual commissions are $9.95 for a motif, or $4.95 for a transaction involving a single stock.

Published in Barron’s, May 7, 2012. 

Posted by twcarey on 05/12 at 09:34 AM
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