Question:
I have a couple of stocks I’d like to run by you: Zillow, Intuitive Surgical and IDEX Corp. Buy Sell or Hold?
Answer:
Zillow, Inc. (NASDAQ: Z) provides products and services to help consumers with home buying. It is a real estate web site with 80% of its revenues coming from agents who pay a subscriber fee to have their properties listed. It is a competitive market space with Trulia Inc. (NYSE: TRLA) and RE/MAX building their online catalogs.
While Zillow does not meet our strict financial quality standards, it is certainly an interesting company. The company has been public for about two years and has shown pretty impressive growth since its IPO. The company grew revenues 117% in 2011 and 77% in 2012, and currently has about 39,000 active agents subscribing to its Premier Agent advertising program. The company hopes to keep up its current pace of growth by further tapping the pool of more than 1 million commission earning realtors in the United States. Zillow shares are up 360% from its IPO price and 225% year-to-date, which makes us concerned that maybe the stock has run up a bit too quickly. We find Zillow priced beyond perfection. The company has no earnings, which is something we look for when we evaluate a stock. As mentioned, Zillow does not meet our criteria for investment. We would not recommend purchasing at this time.
Intuitive Surgical Inc. (NASDAQ: ISRG) designs, markets and manufactures the da Vinci Surgical Systems, which allows doctors to perform robotic surgery from a console.
In short, we would not be buyers of ISRG right now. We believe the growth is limited for the company, and find the stock overpriced. The company announced in the most recent quarter and preannounced that earnings would be well below expectations. Then, on the company’s official earnings release date, they dramatically slashed their 16% to 19% guidance for sales growth to the low end of 0-7%. To top it all, management also announced that following an onsite inspection of company facilities, the FDA sent a warning letter asking for additional steps to resolve two observations from their recent visit. Shares have fallen almost 24% since early July when these events occurred. Shares are currently down 35% from their 2013 highs. While the stock’s recent decline may reflect a fair valuation now, we prefer to remain on the sidelines until the company is able to work through the current issues at hand. If you already own, we would recommend holding.
IDEX Corp. (NYSE: IDEX) designs, manufactures, and distributes a broad range of proprietary pumps and machinery products, dispensing equipment and other engineered products to a diverse customer base around the world. The company operates through several business segments including Fluid Metering Technology, Health Science Technology, and Fire and Safety/Diversified. About half of their revenues are derived outside the United States. The company has gone through a series of restructuring initiatives in recent years in an attempt to improve operating efficiencies. As a result, the company has seen margins rise across all segments. IDEX has shown consistent growth on both the top and bottom lines over the four years, and the shares look inexpensive compared to its peers. To top it off, the shares yield 1.6%. However, with less-than-stellar growth and a less-than-market dividend, we see no reason to own it.
Question:
I run my own business from home. For the last few years, I’ve only been able to save to my IRA. Now that my business is taking off and I’m making some significant money, what better options do I have for retirement savings?
Answer:
The simplest plan to put into place is a SEP-IRA. It is a non-qualified plan that allows a business owner to make contributions to both his own and his employees’ retirement accounts. There is no annual tax filing required for a SEP-IRA. The maximum 2013 contribution cannot exceed the lesser of 25% of the employee’s compensation, or $51,000.
Anytime an investor can shelter income from taxes for retirement savings is generally a good idea. You’ll want to discuss your options with both your C.P.A. and a financial planner, especially if you intend to hire employees, as a retirement plan can make your business attractive to prospective employees.
Question:
What do you make of E*Trade as an investment? I use E*Trade, and well, I figure “Invest in what you know.”
Answer:
E*Trade Financial Corp. (NASDAQ: ETFC) provides online brokerage and related services to retail investors. It was a great platform that provided stiff competition to Ameritrade and Charles Schwab & Co. In 2008, E*Trade underwrote a lot of toxic debt in mortgage-backed securities, and the company took a hit. In 2009, the company had to issue new shares, which diluted their existing shares. In the meantime, the competition has grown stronger. We recommend avoiding this stock. It has a beta of 1.65, which means it much more volatile than the market.
Question:
Will Medicare alone be enough to cover all my health-care needs in retirement?
Answer:
In short, no, Medicare will not cover all of your health-care needs. Medicare has deductibles, co-payments and co-insurance costs. You may want to consider a Medigap policy, which is a supplemental medical insurance policy. These are sold by private health insurers and are standardized and regulated by federal law. There are 10 different types of policies, but not all are available in every state. You are eligible to enroll in a Medigap policy up to six months after you turn age 65, without being subject to a medical exam; therefore, it is best to sign up for a Medigap policy when you enroll in Medicare. If you are still covered by an employer’s health-care plan, you may not need to purchase a Medigap policy. We recommend you work with an insurance agent who is familiar with health care coverage.
Question:
As a wedding present, we received some shares of MasterCard from my wife’s grandmother. I think this was a way for her to start minimizing her estate. She gave us $12,000 in shares. What should we do with it? This is our only holding, except for our 401(k)s at work. It’s in a taxable brokerage account.
Answer:
We would recommend you sell some shares and take some profit. MasterCard Inc. (NYSE MA) is a global payments and technology company, with a lot of growth ahead. Currently, we think the stock is a bit pricey. Based upon the amount of money invested in MasterCard, coupled with the fact this is your only holding, we recommend selling some shares and diversify your portfolio into a index mutual fund.
However, since your grandmother is still alive, her cost basis in the stock transfers to you. When you sell, you have capital gains tax due on the growth in the investment. This is the difference between what your grandmother paid for the shares and what it is worth today. In all likelihood, your grandmother gave you shares with a low basis; therefore, transferring the capital gains to you.
At Henssler Financial we believe you should Live Ready, which includes understanding the stocks you are invested in. If you have questions regarding your holdings, 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.
