Square: Cracks Forming

Square actually traded down following a big Q3 beat.

A lot of the negative signal from prior to the quarter contributed to the weakness in the stock.

The market has missed that share counts are exploding, up 15% YoY.

The stock still trades at about 23.5x '18 adjusted revenue estimates.

As some shareholders hate, my previous articles on Square (SQ) pointed out the substantial risks in owning the mobile payment provider with limited profits at stretched valuation multiples. Following the release of Q3 results, some more cracks are starting to form in the runaway growth story where my investment thesis already identified negative signals.

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Disclosure: No position mentioned. Please review the disclaimer page for more details. 

 

Qualcomm: Don't Overreact

Qualcomm is down over 8% on disappointing FQ1 guidance.

Apple remains the main thorn in their financials impacting the comparisons until the license dispute is resolved.

Business remains solid, with EPS targets rising even without ~$1.7 billion in high-margin license revenue.

The net payout yield is set to reach 35% make a very bullish buy signal.

The perplexing story of Qualcomm (QCOM) was further evident by the reaction to a large FQ4 earnings beat. After massive stock buybacks and with 5G on the horizon, now isn't the time to abandon ship just because Apple(AAPL) continues playing hardball. My long-term investment thesis remains solid.

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Disclosure: Long QCOM, AAPL. Please review the disclaimer pages for more details. 

 

Baidu: Buy China-Induced Weakness

• Baidu continues to slump to multi-year lows.
• The Chinese company has growth opportunities outside internet search in voice assistants and self-driving cars, among others.
• The stock remains exceptionally cheap in the large-cap technology sector as margins rebound with the exit of transaction-related businesses.

The general weakness in Chinese tech stocks provides a substantial opportunity for a stock like Baidu (BIDU). The internet search leader in China has in-roads to new technologies and the Chinese economy is still transitioning online while the economy is growing at one of the fastest rates in the world. My investment research continues to support buying weakness in the stock, especially on irrational fears related to Google (GOOG, GOOGL) entering the Chinese internet search market.

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Disclosure: Long BIDU. Please review the disclaimer page for more details. 

 

IBM: Bold Move

IBM agreed to pay a 63% premium for Red Hat to become a leader in hybrid cloud.

The deal is accretive to free cash flows starting around 2020.

The $34 billion of additional net debt adds risk to the story.

The transformative deal could be the bold move to change the perception of the stock trading at only 8.5x '19 earnings estimates.

The market has long complained that IBM (IBM) hasn't made a bold move to transform the company. The move to acquire Red Hat (RHT) was the move that the market always wanted, but no doubt views as highly risky now. The deal premium adds more risk than justified but IBM might just pull the company out of this tailspin with this bold move.

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Disclosure: Long IBM. Please review the disclaimer page for more details. 

 

eBay: Too Pessimistic On Split

eBay tanked following PayPal reporting weak TPV numbers for the online merchant.

The online retailer has only started the process of managed payments that removes PayPal from the process.

The stock is incredibly cheap with no actual confirmation that GMV will be weak due to the payments transition.

eBay (EBAY) plunged 9% on Friday as the market reacted to GMV numbers provided by PayPal (PYPL). Considering eBay is in the process of implementing managed payments that removes PayPal from the process, investors need to be careful with data from a potentially unhappy partner. My investment thesis remains bullish.

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Disclosure: Long EBAY. Please review the disclaimer page for more details.