Growth Stock Radar: Decline in Airlines Sector, SAVE | JBLU

Airlines had a sharp decline today. I have been looking at a few names in the sector: Spirit Airlines (SAVE), JetBlue Airways (JBLU) and Southwest Airlines (LUV). Today teaches us again why we shouldn't be chasing a good stock while it is going up. It is down days like today that keep happening once in a while and present a good discount to buy our favorite companies. Since JBLU announced a decent quarter the stock ran up and I couldn't pull the trigger. Once it was already up, I didn't. With today's decline it is back to pre-earnings level. This is an example of how the market behaves irrationally sometimes, presenting opportunities for us. 

Consider Spirit Airlines (SAVE) for a moment. This has been a terrific company and stock. The chart below shows how it has been growing its revenues and earnings consistently year over year. This is the reason why the expectations became too high from the stock and it fell sharply on even a slight concern in the recent conference call. Today it fell another 6.68%. In December 2014, this stock was trading with a PE of 23x. That was still a PEG of under 1, as analysts are expecting a 22% growth rate over the next 3-5 years. Now the stock trades at a PE of 17.8x. Mr. Market is again presenting us with a great opportunity to own a growth stock at a reasonable price (GARP). I might pull the trigger over the next few days. It is on my radar.

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5 Best Free Online Resources for Researching Stocks

There are a bunch of online paid services that give you access to historical financial data, charts and stock analysis. I have often found that buying those services is probably not the best use of our money, which should rather be put in the market. Especially for the little guys like me who only invest less than $2k at once. In this post, I’m going to discuss the best free options for researching stocks.

1. Google Finance: This is the best service for quickly looking at charts, earnings calendar and even a bit of historical financial data. I think the Related Companies section is awesome for figuring out the competitor firms in the space. But the best feature has to be Portfolio/Watchlist. Here you can add your transaction details and really keep track of the whole portfolio. This even supports multiple geographies and google takes care of the conversion for you to give a unified look if you want. Additionally, I use it to maintain multiple sector-wise/strategy-wise watchlists that I can glance quickly at the end of the day to get and idea of where the marker moved. Google Finance is easily the tool that I use the most.
2. Guru Focus: There is a paid version, however the free version does a decent job for most of my needs. Once, I want to dig deep into the financials of a company I switch over to Guru Focus. It has a 10Y summary of financial statements that I find the most useful. I would often look into the Dividend section for my Value buys as well. Along with the yield and dividend growth, it also tells me about the buy-back rate which is great. Guru Focus has overall the most comprehensive list of financial ratios available for free. Peter Lynch chart is also free!
3. Trading View: This is probably the least famous options in this list. This is mainly used for advanced charting. I use it less for generating buying/selling signals (like the traders do), but rather look at overbough/oversold levels for the stocks and basic support/resistance analysis. I used to be a hardcore technical analyst, but I have since learned to use the power of combining technical analysis for buying fundamentally solid companies.
4. Seeking Alpha: It is foolish to buy stocks on somebody else’s recommendations. That said, reading a lot about stocks that are in your radar never hurts. There are multiple viewpoints being discussed. If you have a viewpoint, you might get some validation or a reason to challenge yourself on your conviction. It is important to keep the thinking process going and developing and I find SeekingAlpha to be an excellent platform for that, at least better than following news articles.
5. FinViz: FinViz has the best free stock screener out there. Period.

There. You have it. 5 best online (free) resources to research on stocks. There are some strong contenders who couldn’t make it to the list, but worthy of a mention.

Yahoo Finance | MSN Finance | Reuters

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Best Investment options for 401k

Putting money in a 401k has many benefits, tax benefits and employer contribution being a few of them. Often the employer 401k plans are limited in investment options. A few employers do allow you to buy individual stocks. However, often you are left with a pre-selected set of 30-35 Mutual funds to choose from. Dividing money equally month them can be the easiest (and worst) option. Often there are overlaps across funds, and such a strategy can lead to abnormal allocation. You could end up with a portfolio, too heavy on a few sectors or stocks. Further, typical mutual funds have an expense ratio in excess of 1%, and some even up to 2.5%. That means, they take this cut out of your money every year, irrespective of whether you gain or loose money that year. This puts a lot of burden on your retirement portfolio in the long run.

John C. Bogle was the pioneer of Index Funds. Index funds have a low expense ratio, typically under 0.20%. Nowadays employer 401k plans have an a few index funds as an option. The best and simplest thing to do is to put your retirement money into these index fund options.

Why not buy stocks on 401k account?

There are two main reasons: 

• Let’s say you are making contributions to your 401k account, twice each month. The typical maximum you will be contributing (including your employer contribution) would be $1000. This means if you buy stocks and pay commissions of $8 (let’s say), you will be paying 0.80% on commission alone for each such stock purchases. This is a bad choice to spend your retirement money.
• Investing in stocks is risky. 80% of the Fund managers, who spend hours and hours on researching stocks still can’t beat the stock market. You, as an individual investor, have odds against you when it comes to investing in the stock market. When you buy index funds, you already beat 80% of the people in the market!

I’m not discouraging you researching and investing in individual stocks. What I’m saying is that the best way to invest is to first maximize your contributions to retirement accounts, invest them in low-cost index funds on a regular basis . Then you are free to research and invest in individual stocks in your investment account. This strategy ensures that you are going to at least have a portfolio invested in the broader market and for a longer term, giving you market performance. While the money in your retirement account funds are still subject to market risk, you are investing them for the long term and in a diversified portfolio. You can use your investment portfolio for seeking alpha, if you are very interested in playing the market. 

If you have a 401k account with Fidelity, you can choose to invest in their Spartan Funds.

Spartan® 500 Index Fund - Institutional Class (FXSIX)

Spartan® Extended Market Index Fund - Fidelity Advantage Class (FSEVX)

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Growth Stock Buy: Twitter (NYSE: TWTR)

I recently wrote about how Twitter is one of the growth stocks in my radar right now. Last week I executed the trade on Twitter, buying 42 shares @ $38/share on 05/13/2015. The dip in the stock price presented a sweet opportunity for this strong brand with growing users. There are clearly challenges that the company is facing. Those challenges are, however, addressable. To figure out how Twitter can monetize their millions of user is something that can take time. I am happy to wait and I'm happy to initiate a position when the rest of the market is getting bearish.

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Growth Stock Radar: Twitter (NYSE: TWTR)

Twitter announced its 1Q15 results on 28th April, after market close. At least it was supposed to be after market close. What actually happened was a result leak on Twitter (!) while the market was still open. Revenue came in at USD 436M vs guidance of USD440-450M. This led to a market wide panic with stock ending 18% lower on the day. The same panic continued the next day as stock fell another 9%. This presents a classic opportunity to buy into the stock. Results were only marginally lower than guided. In fact, there was an EPS beat. Agreed that Twitter needs to figure out how to monetize its users. I believe it will happen over time. With 300M monthly active users (MAU), and a strong brand recognition and unique social offering, twitter isn't going anywhere any time soon.

In fact, if the stock plummets further from its current market cap of just under USD 26B, it would become a takeover candidate. We still have a lot of big tech firms trying to get some success with Social and Twitter might be a perfect solution for them. Apple, Microsoft, Amazon and even Google: any of them could benefit from acquiring Twitter. Facebook acquired WhatsApp for USD 19B. I believe Twitter is a much stronger brand and offers a unique value proposition for its users. While WhatsApp already had a lot of competition from WeChat and Line messenger apps, along with old-school messenger apps, Twitter remains a clear leader in micro-blogging space. I would argue that even buying Twitter at USD 30B would be a good deal for the big techs.

I believe it is time to buy into this market panic. There was no reason for 25+% drop on a slight revenue miss, while it was still a 70+% YoY revenue growth in 1Q15. This is a wonderful opportunity to buy into this growth name and I plan to initiate a position in Twitter (NYSE:TWTR) over the next few days.

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Structure of TheZenFund.com

To give a structure to this blog, I'm going to post in one of the following categories. This will give my readers an indication of what to expect from a post.

1. Growth Stock Radar: I'll be introducing or discussing a growth stock from my watchlist and what makes it a candidate for my portfolio.
2. Growth Stock Buy: Once I have transacted on a growth stock from my watchlist, I'll write a small post related to my entered position.
3. Value Stock Radar: I'll be introducing or discussing a value stock from my watchlist and what makes it a candidate for my portfolio.
4. Value Stock Buy: Once I have transacted on a value stock from my watchlist, I'll write a small post related to my entered position.
5. Growth Stock Sell: when I sell a growth stock holding.
6. Value Stock Sell: when I sell a value stock holding.
7. Monthly Investment Summary: I'll summarize the new positions entered or positions exited, a summary of my portfolio and report the dividends received.
8. Monthly Income/Expenses: I'll go through my list of budgeted and actual expenses each month.

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Is Options Trading Right for You?

When it comes to personal investing, leverage is a poison. In 2008, I used to trade stocks on leverage and ended up losing a lot of money when the market turned. Trading on borrowed money is the worst thing one can do financially. Options is a fancy name of doing the same. People are often attracted by the promises of limited downside and multiple upside. In reality, whatever money you put to any financial instrument, you can loose. With options, there is often a time frame over which you will lose your money. All of it, when you buy a call or a put option. Unless do understand the intrinsic details of how the option pricing, volatility and greeks work, I strongly recommend you stay away from options.

The only strategy that can work with options is selling calls on the stocks you own. Never sell naked calls (without owning a stock), that presents unlimited downside for you. When you own the stocks, by selling a call option you can earn a premium and enhance the yield of that stock. If you are fairly confident that the stock can't go up in price and want to enhance the yield, this can be a good strategy. The downside is you might end up having to sell that stock position. With stalwarts (Peter Lynch's definition of stocks growing at 10-12% and paying decent dividends), this strategy could work once stock has had a good run up and looks overvalued and yields have come down as a result. Earning a call premium enhances annual yield on this stock position.

Before entering such trades however, I strongly recommend  getting a thorough understanding on options. I am going to rarely do any options trade in my portfolio. I have some experience with options and might discuss the strategy when applicable. Always remember that options are highly leveraged instruments. And leverage is poison!

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What type of investments? Growth/Value?

Today I'm going to talk about what type of investor I try to be. Some people are value investors, fully focused on low PE, high dividend stocks or turnarounds. This can be a good defensive strategy if applied to some large cap companies with proven business model as a low valuation and high dividend can act as a cushion for these stocks. That is why during the times of recessions or market declines, these stocks tend to perform slightly better than the rest. Some people are growth investors, fully focused on stocks with high net income growth or revenue growth. This is an aggressive strategy but also one that can help choose the multi-baggers over time.

What type of an investor am I? Investing only in value stocks means missing out on some good growth stocks and fully investing on growth stocks can be risky at times as companies mature and their multiples contract quickly. A good combination of growth and value stocks can be a good strategy for your portfolio. Growth stocks will boost the returns and value stocks would provide some cushion. To be a prudent investor, even when searching for growth stocks one has to find value or cheapness to avoid paying too much.

What percentage to invest in growth and value? It is really a personal choice again. I started out with a very defensive investment strategy focusing mostly on dividend paying stocks. I have come to learn that while this provides a good cushion, it will give me fewer multi-baggers over the years. Not that multi-baggers is the criteria for investing, but having those few trump cards can really boost the portfolio. So, I have shifted my focus to a mixed style, now picking some growth stocks with a long term story as well. I plan to put 50-75% in value stocks and 25-50% in growth stocks depending on the market valuations.

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Refocus

I have been going through a transition lately. I quit my job in February to move and do something I love. I am passionate about investing but the way finance industry works doesn't confirm with my principles. It was an obvious decision for me, but perhaps the most illogical one for my friends and colleagues. I was on my way to successfully become an Equities Research Analyst, except that I didn't want to. During this transition I thought about the things that matter and trying to refocus my time into that.

Through this blog, I plan to share my journey as I build my investment and retirement portfolio, in hope that it can help you in some way. I will remain honest and transparent as much as I can, without disclosing my true identity, as that is irrelevant to the purpose of this blog. Identity is just a distraction to what I'm trying to achieve with this and I fear revealing my identity would make me conscious and wary of how much I disclose. So, it is rather an advantage to write under an alias. Perhaps when it is needed, I'll share who I am.

Having some first hand exposure to how the Research Analysts (the guys who make 'buy'/'sell' calls and come on TV once in a while) work, I am convinced that Peter Lynch was correct in saying that the little guys like us have an advantage when it comes to picking stocks. I have met so many analysts who would go and have a high conviction call on a stock. They will tell the fabricated stories around the stocks to the mutual funds and hedge fund managers. They will do the same on TV. They need to appear confident and come across as an expert. I have lived with them closely and most of them wouldn't even put money on their own calls. It is just a marketing job for some, and the revenue pressures ensure that you keep coming up with some story to encourage clients to make a trade. You have to be right sometimes, but can get away with not being right half of the time.

The biggest advantage for you is that you don't have to impress anybody. You don't have to pretend that you know. You can remain calm and humble and shut out the noise to truly invest how it was meant to be. My blog is going to be about creating a portfolio for the long term. I am not interested in doing short term trades, though I do get tempted with them. There could be some 'trading' around core positions like we'll discuss later. I have spent some time in the trading floor as an fx and rates trader as well. Those guys don't know much either! There is only one way to win this game. To be in it for the long term and always align your actions to your long term goal.

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