1 Reason Not to Jump Into Netflix Today

Goldman upgrades Netflix -- it is enough?

Jul 1, 2014 at 10:15AM

U.S stocks are higher on Tuesday morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) up 0.44% and 0.6%, respectively, at 10:30 a.m. EDT. Stocks put in a very respectable performance during the first half of 2014, with the S&P 500 rising 6.1% over the first six months ended on Monday. However, in an unexpected development, long-dated Treasury bonds notched up a roughly a 13% return and surpassed stocks, With the 10-year Treasury yield just above 2.5%, the only thing investors can now expect from bonds is for the principal to hold its value relative to inflation (and that is assuming you hold the bonds to maturity). Carefully chosen stocks are the best game in town if you wish to achieve an actual return. Speaking of which, Goldman Sachs is giving one high-profile secular growth stock, Netflix (NASDAQ:NFLX), a boost this morning. Do the Masters of the Universe at the bank have this story right?


Shares of Netflix are up 5.3% in morning trading, in the wake of the Goldman upgrade from neutral to buy and price target spike of a whopping 55% to $590. Goldman said Netflix will "drive sustained outperformance," as "subscriber growth will continue to exceed expectations." It also forecast that the streaming-video provider's addressable audience will double as it continues to add new markets.

Netflix is expected to move into France and Germany in the second half of this year; the company has said it expects its international operations to become profitable this year and that international revenue will eventually exceed that from the U.S. Indeed, although Netflix already operates in 41 countries, it derives only a quarter of its revenue internationally. Growth and operating leverage in the international unit could ultimately provide a very substantial profit boost once Netflix begins to raise its prices.

I think the stock market tends to overvalue short-term growth and undervalue long-term earnings power and market position, and Netflix scores very highly on the latter two. However, with the company at 65 times the earnings-per-share estimate for 2015, it's tough for this value investor to get tremendously excited about Netflix shares. Outstanding company, yes -- I'm a happy, loyal customer myself – but the stock looks a bit rich to earn the same adulation.

My judgment could be tainted by a value investor's skepticism, of course, and I could ultimately be caught flatfooted in this situation, as the company's long-term growth overwhelms the impact of any excess in the valuation. Either way, investors should only buy shares in Netflix with a long-term holding period in mind if they expect to properly capitalize on this secular growth story. Don't jump into the stock for a trade just because it's rising on the back of an analyst upgrade -- that's a losing proposition.

Beyond Netflix: Cable companies are scared, but you can get rich from this $2.2 trillion market
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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