Oil Today: A Slippery Situation?

    Welcome back, everyone! Today, we're going to discuss one of modern society's most treasured and versatile resources: oil. Over the past 10 years, oil prices worldwide have skyrocketed to unprecedented proportions, motivating drastic actions by some nations to reduce dependency on oil; the ambivalent success of this transition has created some stability. Nonetheless, the price of oil remains subject to turbulence and instability as a result of several political complications.
     Among the world's major commodities, oil is particularly driven by politics. Indeed, the political affairs of individual nations hold the largest influence over the oil industry; in the wake of the monumental political turmoil in the Middle East (the source of 33% of the world's know oil supply), this is not a good sign. As of recently, some Middle Eastern militia groups have attempted to seize control of certain key oil-producing nations, creating a precarious situation for the global oil market. Similarly, the potential for domestic and offshore drilling in the United States has generated a fair amount of controversy. Indeed, parts of the Gulf of Mexico, the southwestern U.S and Alaska harbor immense deposits of oil and natural gas, some of which remain untapped (and others have been drilled by foreign countries such as China and Russia. This is the result of the American federal government's inability to invest in the domestic oil industry, causing not only an increased reliance on imported oil, but also a degradation and lack of development of oil drilling technology; the latter is to blame for such events as the infamous BP oil spill of 2009; in this ecological disaster, a malfunction at a decades-old oil well operated by BP in the Gulf of Mexico led to a massive contamination of huge expanses of ocean, damaging not only local ecosystems but also local fishing industries. Likewise, the construction of an oil pipeline in the Alaskan wilderness has received backlash by environmentalists, due to its supposed disruptive effect on local ecosystems.
     As one of modern civilization's most valued resources, the trade of oil holds an especially critical role in international political affairs. It should thus come as no surprise that the price of oil is largely subject to influence by various political factors. It has served as both a source of violence and conflict as well as a source of innovation and prosperity. With that in mind, one should closely watch the current affairs of the world's largest oil exporters (i.e. the Middle East, Russia, China) for a good forecast of fluctuations in oil prices.


-Chris Cattafi, Investment Club Co-Founder and Vice President

Sprint: Mobile Not for Long

Welcome back everyone! Today we are continuing our segment on the largest mobile companies in the US, with the clash between AT&T (already posted), Sprint, and Verizon. Today's company is the oldest and the weakest - Sprint Nextel (S). Over 100 years old, Sprint was established in 1899 as the Brown Telephone Company. The company changed names from Brown Tel. to United Utilities and to United Telecom, at the same time it completed the first transnational fiber optic line in the mid-1980s. At this point, while AT&T and Verizon were puny startups while Sprint charted the future of mobile telecommunications and, in 1989, laid the first transatlantic fiber optic cable. This was the company's peak. Since then, Sprint oscillated to the top but now faces the harsh curve downwards, possibly never shooting back up. Other companies, including the two major rivals we discuss, took over the market at the turn of the century. The Information Era marked the end of a century of innovation and a fall to stagnant, uncompetitive times for the company masked by a final name change to Sprint.
As we look at Sprint's stock history (we only looked since the Information Era, we know there was tremendous growth prior), we noticed a disappointing decline in the price of shares. The end of the era's boost hit hard and the company never fully gained again levels from the 1900s. Fortunately, Sprint gained some ground again into 2006 and 2007. Since 2007, S has been headed by CEO Dan Hesse; mix a change in management in late 2007 with a recession in 2008 and the solution is devastating. Sprint, a company which sold shares for about $20 in 2007, now sells them for a weak $5-6. Unfortunately, Sprint Nextel seems unable to recoup from this devastating loss, and is on the road to failure. In late October, the company was suffering graver losses than usual and was forced to sell 70% of the company to Japanese Softbank Corp. Once Sprint files for bankruptcy again, we expect JSC to buy out the rest of the company or for another buyer to make the purchase. In the case of that happening, we hope services remain available in the US as to not have major employment and economic repercussions.
Although we know the company needs a revival of monetary trade, we advise against investing in S. Sprint Nextel is currently in a vicious cycle: loss of customers, loss of sales, loss of revenue, decline of EPS, less investing, and repeat. Investing in Sprint may revitalize the company a tad (if thousands of investors were to suddenly gain interest, which is highly unlikely) but for individuals looking for profit, this misses the target. This would be a waste of money and time in the long term.

Mobile Showdown - AT&T

 

As we veered into the communications sector, we simply could not stay away from the massive rivalry existing between AT&T, Sprint, and Verizon. Although each company is not necessarily owned by just one larger company, we want to see what makes the companies tick, why they are the top three (in the USA), and which are the best investments. This week we will analyze all three major carriers, starting today with AT&T (T).

AT&T once again falls under the wired and wireless connectivity description, but perhaps more than other companies. T encompasses all wired connectivity (Internet cables, home phones, etc.) and all wireless devices as well (cell phones, broadband, TV antennas through contracts with DirectTV, Dish, and the like). Judging from the plethora of services offered, not specified to any particular area of expertise but rather a wide range of services for personal and business use, we can already see why AT&T remains one of the top players. As we will discuss in the coming days, however, other large companies will display similar products and positions. The key to earning a competitive stand in the market, of course, is through competitive pricing; the best prices per product will gain the most customers, but competitiveness prevents any company from monopolizing the market.
Our records date back to the mid-1980's, when AT&T was established in 1983. Until 1999 the company showed tremendous, and unbelievably positive growth. Since the turn of the century, and the end of the Information Era madness, stocks fell back down but restrengthened before the recession in 2008. Fortunately, however, stocks recuperated into 2012; unfortunately, a stark contrast to early 2012, the latter part of the year began showing decline in stock price. While these long-term occurrences helped us to predict future economic growth, more recent activity shows social issues, rather than those economic, provoke AT&T's current stock instability. On November 1st, AT&T and T-Mobile spread a rumor of a possible liaison, but this enacted few new trading trends as the other companies had similarly exposed such claims. Note that we are not analyzing T-Mobile; it is the only company of the top four to have lost competitive vigor (we will discuss it in later posts). Back to T and social issues, mid-November witnessed that AT&T was voted the best employer of LGBT. In modern society, this remains a highly controversial debate, fought between conservatives and liberals, which we will not delve further into. This new controversy surrounding the company causes heavy fluctuations in the market and we decided to declare the company as a not buy.
Since our decision, we have noticed a slight revitalization in the communications sector that spurted minor growth within AT&T. Google supposedly holds claims to partner with Dish Network in making a new wireless service; overall, the sector is seeing greater activity and promised growth. Although we still have doubts about investing in AT&T, and haphazardly made slight profits in our own trials, we believe stocks are starting to stabilize and encourage short-term investing before the end of the fiscal quarter!

Broadsoft

Welcome back, and happy December to everyone! Today we are looking at a company very similar to last week's Broadcom, Broadsoft (BSFT). Comparatively, Broadsoft was established later (in 1998, 7 years later) and is headed by Michael Tessler. Broadsoft also falls under our wired and wireless connectivity category, but focuses more on VoIP, Voice over IP (Internet Protocol), which allows to call using one's wired/wireless network instead of using a lone service. The company offers three major products: Broadworks, which provides video, fax, and voice connectivity; Broadcloud offers cloud infrastructure and instant communication (IM and Skype-like services); and Broadtouch combines the two former products and provides the ultimate business communications, with a balance between basic phone and fax and newer cloud services.
When we observed the Stock Market initially, beginning in late 2010, we immediately noticed tremendous growth into 2011, but instability since. Solely from this first perspective, we can expect stocks to rise again with the end of the year, and the beginning of the next Fiscal Year - stocks typically rise with the quarter/year change in expectation of new growth. At the end of October, Broadsoft misleadingly rose their price target, prompting an influx in trading. The earnings released were higher than expected, but unfortunately also lower than the previous FY; on November 6th, the market for BSFT opened nearly 6 points below the previous day's close. That same day, however, it became a stock recommended by analysts for investment - after such a drop, it could only go back up. We advised to buy while stocks were low, as we strongly predict growth in late December and early January; we will keep our stocks on the market until this incline, then sell. Since buying after the drop, we have made about $13 in profit. We stay true to our advice and still suggest to buy while stocks are low!

Global Outlook - Early December 2012

Welcome back, everyone! Today, we're going to take a panoramic view at the global economy as a whole, continent by continent:

In North America, the approach of the looming fiscal cliff remains a significant issue to economists and the public alike. Mixed optimism and pessimism regarding the fiscal cliff has likewise affected economic activity. Some project a potential rise in taxes for the wealthy as a result of this occurrence.

In South America, the rising price of grain has caused many to speculate an agricultural shift towards corn production in the near future, drastically affecting such economies as Argentina and Paraguay. Similarly, the rise of oil prices has inspired major Brazilian oil firm Petrobras to expand into the petroleum industry, so as to compete amongst oil superpowers such as Venezuela.

In Europe, many economists project that the debt crisis of the last few years is currently waning; thus, confidence in the Euro has improved, causing significant appreciation of the Euro and resultant deprecation of the British pound. Furthermore, some nations such as Norway have expressed plans to invest in U.S real estate.

The Asian economy, having experienced a recent downturn, has taken measures to revive some of its important markets. The Japanese property market exemplifies this trend and now experiences a pinnacle in economic activity. Likewise, Singapore's economy looks forward to a renewed Western interest in Singaporean industries and firms.

In Australia, the economy once perturbed by the recession of recent years has revived its steady growth by a gradual scaling-back process. Despite this, Australian airline services have experienced a degree of conflict through the competition between Qantas Airlines and Virgin Australia.

In Africa, devastating economic failure ravages the majority of the continent: indeed, only 28% of all African citizens maintain stable, salaried jobs. Several East African nations have expressed a collective interest in the advancement of their public transit systems. The fiscal opportunities withheld by the African continent is expected to rise in the long run.

This concludes our Global Outlook for early December!