Question:
I own shares of NetSuite as my technology/software holding. Is it a buy, hold or sell? I have money coming in the next month, and will be investing it into the market. I happen to be underweight in technology.
Answer:
We count you as a very fortunate man to own NetSuite Inc. (NYSE: N), seeing that it has risen from about $10 a share in 2009-2010 to nearly $80 today. The company has probably ridden on the latest tech craze, the “Cloud.” NetSuite provides cloud-based financial and enterprise resource planning software and has seen its sales double in the past five years. Yet, the company has still failed to produce a profit in any of those years.
Larry Ellison, the man behind Oracle Corporation (NASDAQ: ORCL) and the fifth richest person in the world, owns nearly half the shares. We could see Oracle eventually making an offer to buy NetSuite.
However, given the run the shares had despite a complete lack of profitability, we recommend selling NetSuite. If going the technology route, give Apple Inc. (NASDAQ: AAPL) shares a look. Investors and consumers may have lost a little bit of their appetite for Apple products, but shares are now below $400, pushing its market cap to $370 billion. They have nearly half that much in cash alone.
Others you may want to consider are: Oracle, Qualcomm, Inc. (NASDAQ: QCOM), and maybe even Baidu Inc. (NASDAQ: BIDU), the Chinese version of Google.
Question:
With oil prices hitting $88 a barrel today, what is your outlook for the energy holdings?
Answer:
At Henssler, we’re a bit underweight in Energy in our Recommended portfolio. However, you should have exposure to this very important sector. No matter what the President says and invests, the fact is green energy, including wind and solar, are still not economically profitable.
Oil prices have suffered because we’ve seen signs that global economic growth may slowdown, which would reduce demand. Another reason is that production has risen and supplies are high, which could be a longer-term trend too. We’ll likely see supply shocks every now and then because of the always volatile Middle East region. Those shocks may be a thing of the past, thanks to new drilling technologies here in the United States.
Our nation is experiencing an energy boom like never before as a result of technologies, such as, hydraulic fracturing and deepwater technology. These have led to a 25% rise in U.S. oil production since 2005.
Hydraulic fracturing, horizontal drilling, and tight-oil production, i.e., oil extracted from dense rock formations, should increase dramatically in the next decade, as they become more and more economically viable. A tripling of crude oil prices in the past decade certainly hasn’t hurt its profitability. For example, shale gas, which made up about 2% of U.S. gas production in 2000, now accounts for about 40% of U.S. production.
According to the International Energy Agency, by 2017, the United States is expected to surpass Saudi Arabia and Russia, as the world’s top oil producer. Furthermore, North America is predicted to become a net oil exporter by 2030. The United States should be almost completely energy self-sufficient by 2035. Unconventional production methods should grow tremendously in the next two decades, as the industry invests about $5 trillion in new capital.
Question:
I was listening a few weeks ago, and it’s good to know you’re OK with Coke these days. I’m curious about what you think of Coke’s related companies? Why is the company so fragmented, i.e., Coca-Cola Enterprises, Coca-Cola Bottling, Coca-Cola FEMSA, etc.
Answer:
We are not exactly sure why the company is so fragmented, other than it’s difficult to manage operations when they’re as far flung as Coke’s are. The Coca-Cola Company (NYSE: KO) can also focus primarily on marketing its 500+ brands and developing new flavors.
The Coca-Cola Company tinkers with the syrups in order to meet local taste preferences. Perhaps it’s more efficient and easier to have multiple bottlers bottling these different flavors; hence, you have multiple bottlers, e.g., Coca-Cola Enterprises (NYSE: CCE), Coca-Cola Bottling (NASDAQ: COKE), and Coca-Cola FEMSA (NYSE: KOF).
All these names are surely a little confusing. After The Coca-Cola Company acquired Coca-Cola Enterprise’s North American bottling operations, Enterprises became solely a European operation. Coca-Cola Enterprises should have some room for growth in Europe, given its lower soda consumption rates. However, the European continent is still in decline and is surely a difficult environment in which to operate.
Coca-Cola FEMSA is Coca-Cola’s Mexican bottler, distributing throughout Latin America, which should certainly provide growth opportunities. It may also be more volatile because of the still-developing and unpredictable economies south of the border.
Coca-Cola Bottling, on the other hand, is the second largest Coca-Cola bottler in the United States, controlled largely by the Harrison family’s 85% ownership stake. We like the stability its U.S. operations provide, but even so, the bottlers profitability has been a little choppy in recent years.
All things considered, we recommend sticking with “the real thing,” The Coca-Cola Company. Or, of course, you could own PepsiCo (NYSE: PEP) shares, as we recommend in our portfolios. We prefer PepsiCo because it has snack foods operations.
At Henssler Financial we believe you should Live Ready. If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
