| MARKET ROUNDUP | |
| Dow | +91.26 to 16,651.80 |
| S&P 500 | +12.97 to 1,946.72 |
| Nasdaq | +44.88 to 4,434.13 |
| 10-YR Yield | -0.029 to 2.413% |
| Gold | +$2.30 to $1,312.90 |
| Crude Oil | +$0.03 to $97.40 |
Confession time: I played Candy Crush for a while. I wasn’t a first-wave, early adopter mind you. But while I was waiting at the repair shop to get some new tires on my car several months ago, my youngest daughter, Zoey, encouraged me to download it on my iPhone to pass the time.
Many, many levels and countless hours of “lost” time later, I realized it just wasn’t for me anymore. Spending a few bucks on extra lives or game upgrades really was a waste of money. And let’s face it, that in-game music gets really annoying after a while!
That brings me to the market disaster-du-jour in shares of King Digital Entertainment Plc (KING, Weiss Ratings: C). The maker of the Candy Crush game plunged 23% after it reported disappointing sales and provided guidance that failed to wow investors or analysts.
| “Avoid flash-in-the-pan type stocks whose fortunes are tied to only one or two products that have a limited shelf life.” |
The company’s second-quarter revenue of $593.6 million missed forecasts for $609 million. It also slashed its gross bookings forecast for the year to as little as $2.25 billion from $2.55 billion in May. Those bookings are what gamers pay for perks and items in the game environment online, and the reduced guidance clearly shows the fading popularity of Candy Crush.
The stock went public at $22.50 in March. Including today’s decline, it has now handed investors a loss of 38% in just five months!
So what’s the message you can take away? Watch out for “Fad Investments”! I’m talking about flash-in-the-pan type stocks whose fortunes are tied very closely to only one or two products that have a limited shelf life.
Look at all the losers that fall into this category. One of King’s primary competitors in online game publishing, Zynga (ZNGA, Weiss Ratings: D), comes to mind. It has plunged more than 80 percent from its post-IPO peak.
So does a stock like the GPS navigation device maker TomTom NV (TMOAF), which now trades irregularly as an over-the-counter tracking stock in the U.S. Those shares went for around $98 in late 2007, versus only $7 now.
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| Disappointing sales of Candy Crush helped batter the shares of its maker. |
It remains to be seen whether more recent examples, like GoPro (GPRO), can avoid the curse. That stock has pulled back from its post-IPO peak of around $50 to the $39 area today. But suffice it to say, when you buy into a fad stock, you’re taking your investment life into your own hands.
What has your experience been with names like these? Did you get crushed by King, too? Zinged by Zynga? Do you have any investment rules you follow with these kinds of stocks? Are there ways you can make money with them, then get out of the way before the fad fades? Let me know at the Money and Markets comment section!
| OUR READERS SPEAK |
Master limited partnership stocks had another powerful upside move today. In fact, one of my favorite names in the Safe Money Report model portfolio jumped more than a buck to within a whisker of a fresh all-time high.
Reader J.S. brought up one of the potential hazards of investing in these stocks — namely, the tax reporting requirements involved with them. The comment:
“I held, for several years, and then sold Kinder Morgan Energy Partners (KMP, Weiss Ratings: C+) and had a huge tax bill because the so-called income was actually return on investment and anything after that was taxed as ordinary income. I had to come up with $10,000 to pay the additional taxes. Note that my taxes are prepared by an EA who knows what’s she’s doing.”
J.S., my view is what I stated the other day. I never put the tax cart before the investment horse. If I like a stock or MLP, and think it can deliver nice yields, nice capital gains, or some combination thereof, then I will recommend it. After all, while tax reporting and tracking for MLPs can be more complex than with common stocks, if you make 10-15-20 percent or more a year on these companies, I don’t think you’ll mind too much, right?
Many MLP firms also provide detailed information to help you file your taxes. For instance, KMP offers this website to assist with tax filing requirements.
Meanwhile, Reader Dean weighed in on the positive impact of the American energy renaissance. He said the following about the way it’s helping the city of Pittsburgh: “Excellent Idea. I’m glad to see the airport and jobs being saved through this even though I never fly to or from there.”
Reader Joseph S. also weighed in on the positive impact that the energy revolution is having in his backyard in Texas: “The game changer was the perfection of horizontal (directional) drilling. My small ranch is located in the eastern part of Texas in the area covered by the Haynesville shale.
“During the ‘boom’ in 2009-2012, one could see dozens of drilling rigs lighting up the sky at night all around my ranch. Yes I have a drill site on my land; in fact there are drill sites all around me … My and my neighbors’ well water is sweet and my grass is green with fat cows grazing … with the added bonus of a royalty check once a month in the mail.”
But Reader B.Z. warned that air, water and land pollution can be a problem, what with the potential for fracking fluid to pollute aquifers and the construction of access roads to foul the air and land. The words of caution: “They don’t tell the inside story!”
So where do you come down on this debate? If you want to weigh in, the website is the place to do so!
| OTHER DEVELOPMENTS OF THE DAY |
 Are more American boots going to be on the ground in Iraq soon, pledges otherwise notwithstanding? That’s a real possibility being explored by the Obama administration.
More than a hundred American military advisers and special operations forces are either already in-country or potentially headed there as part of the rescue and supply operation underway. It’s designed to prevent ISIS militants from massacring thousands of Yazidi refugees trapped in the country’s north.
But that was somewhat weaker than economists were expecting. It’s worth noting that shares of Macy’s (M, Weiss Ratings: B+) got pasted after the department store retailer reported disappointing guidance.
The New York Times says that’s changing now, though. Businessmen and women, politicians, and the public are increasingly turning against the country, even though some 7,000 German firms do business there.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
Mike Larson
P.S. Wealthy investors are surprisingly picky about the companies they invest in — demanding the very best in order to preserve their capital and make it grow. Simply put: They have patience. Would you like to know what else separates them from average investors? Then click here for Bill Hall’s FREE report.
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 12 comments }
VALUE OR SPECULATION ?
Is social media, categorically, and stocks like Facebook to a large extent “Fad Stocks” too?
Facebook has less than $1.00/share in earnings, is a multimillion dollar company, and sports a hefty P/E ratio of about 80. Its really hard to see this as an essential product or service people can not live without in a recession, like Apple products currently are. Apple is hardware and software. Facebook is just another way to soc and interact while online and their revenue is primarily from advertisers who combine other venues to get the word out. Growth from a low base is still from a low base. Flash-in-pan sector or stock?
Let’s wait for winter and you’ll see how that hard German’s stance on Russia softens if Putin cuts gas supplies to Europe.
The national press is so anti-corporate and anti-fracking that if there was even an inkling of a real problem with what is going on all over the place, it would be all over the national news and the pro-environmental newspapers. Where is the beef? All generalities, no specifics, fracking going on in rural and semi-urban areas while making people happy with no or low apparent problems. Anti-business idiocy-sorry to disappoint you psychos- no one has died, no one is drinking bad water- it is happening despite all the obstacles people are inventing.
Long term in fracking there are leaks all over the place and earthquakes all over get rich quick and pay later
William O’neil’s rule of never take more than a 7% loss prevents the kind of disaster you describe. Sure you’ll sell stocks that drop 7% and more and then double or triple, but you’ll never suffer the losses of an Enron, Worldcom, Global Crossing, etc.
Strongly suggest you not waste time on the political show time of Russian Sanctions by this Administration, particular note to your comment on Germany finally getting on board. If history is any teacher, and Mike, you can appreciate based on your background, we forget Germany was anti Bolshevik in the 1920’s but yet did a marvelous business with the Bolsheviks. And they with Germany on industrial trade and armaments. So forget about the political false agenda on Sanctions and concentrate on the tangibles for us investors to make some money.
Mike–
Thank you for your report today, and for the reader comments regarding the fracking issue, I must chime in and say that my family has had gas wells on our farm land in California for more than 80 years. While nobody is doing “fracking” on our property, slant drilling and other things which people have historically complained about have always proved to be environmentally safe. Gas wells, of course, have inherent risks, such as leaks, fires and explosions, but the ground water (from wells) in the Central Valley has so far never been contaminated other than minor issues after flood times. And, even after the huge flood in the Meridian area in 1996 (where VP Gore pledged tons of support which never materialized), the ground water has remained potable. Bottom line:–those who are sounding the alarm about fracking would probably be alarmed about something else if fracking was not so readily available.
–Jeff
Obama is saying no troops on the ground in Iraq. I feel by February, they will be back there fighting, especially helping the Kurds.
Mike,
You are one of the best of the “Money and Market” guys who I read. But trying to find the next Microsoft company is just not going to happen for you and me. Trying to pick a game company that will be a long term winner is not going to work for us. I even missed Net flix…My advice to both of us is to buy stock in companies that we like. Coke and Dairy Queen made Warren B. billions. Let’s put our heads together on this subject. I am thinking lately that Panera Bread (PNRA) will survive as long and do as well as McDonald’s has in the last 30 years. Check them out. They have a great market plan. You have to love their food, as a great fast food, sit down restaurant. They have coffee and deserts too. Their bread is great. All they need is the little ovens and fast electric grills to set up. They do not have the grease that McDonalds has to deal with. No big zoning issues to enter an area to build a Panera Bread shop.
Good article, Mr. Larson. I am going to put the link into my “action” folder on my computer so I can read the article again whenever I think about how I should not have missed the latest and greatest path to a new Rolls Royce. I agree with Max above – we who comprise the great unwashed investing public are never going to catch Netflix at the beginning, and we should not try. If we do, we will fall into the trap set for us by the used car salesmen in your industry who will promise anything to galvanize us to chase the idiot dream they are touting at the moment.
So you and your Gurus should be investing your money. Not telling us what to do.
After all, does the Fed really care what you say?
Or any Hedge Fund. Wish investors could meet you guys. And know it is only entertainment. Not any more than that.
Imagine, Florida is now a mecca for financial advice.
You got a great scam going. I have to hand you that.
my e mail address is willymette@gmail.com
You sell fear and greed. Not common sense investing.