GPS Enabled Cell Phones: Find Friends/Businesses on Map, Emergency 911, and opportunity for SIRF, GOOG and others

GPS Chips inside Cell Phones: New Applications and How to Profit.


1. Find Friends on Map

Want to find friends and family on the map? It's easy.

There is a well funded startup called Loopt which does just that. Using selected cell phones with GPS (Global Positioning System) capability, mostly from Boost Mobile, Sprint, and Nextel, Loopt can let you find friends and family on a map (with their approval), for a subscription fee.

This Mobile Networking Application is just the beginning of location based services which take advantage of GPS chips inside a cell phone. This service allows users to be able to interact with other users based on geographical location.

2. Let Emergency 911 Responders Find People

Another important mobile application of the GPS chip in a cell phone is Emergency 911 service. With GPS chips inside cell phones, now, Emergency 911 Responders can easily find the location of the person who needs help. This will save many lives!

Aside from companies who setup the E911 system, companies which provide GPS chips to cell phones, such as Sirf Technology (SIRF), who makes the GPS chips, will benefit, as well as companies such as Navteq (NVT) who provide digital maps, which are especially useful to GPS location based service applications.

3. Connect Business to Mobile Users

Another important application of GPS chips on cell phones involves connecting users to businesses and advertisers. With the original Navigation Device (non-cell phone) from companies such as Garmin (GRMN) or Tom-Tom (TOM2.AS), one could use the device to search for a local business such as a restaurant, hotel, or gas station, even if that business is a few miles away from a major freeway. Businesses that have their information embedded in these Navigation Devices will see increased business and revenue. Any company that profits from having businesses pay to be included in the Navigation Device Search function also would benefit.

Now if this Portable Navigation Device would be extended to GPS enabled cell phones, this market would explode. Now, if a GPS enabled cell phone could somehow connect to a central information center to help connect mobile users to particular business, that would allow companies who provide local business information to mobile users to profit.

A company such as Google (GOOG) would profit. They already have Google Local Search, Google Maps, Internet Search, and mapping services. If a mobile user could interact with Google, Google would read the mobile cell phones GPS location, and connect the mobile user with businesses near that area.

Profit from GPS Chips on a Cell Phone

The GPS Chip on a Cell Phone is still in its infancy. Sirf Technologies (SIRF), previously cited some problems as a wireless customer was slow to ramp up to their GPS chip in a cell phone. Sirf (SIRF) has recently bounced back as Motorola, the #2 cell phone maker, will be using Sirf's GPS chips in their cell phones.

Sirf currently has a 90% share in the GPS chip market for Personal Navigation Devices. However, Bank of America analyst Sumit Dhanda says that Sirf's market share could go down to 70% share thanks to competition from STMicroelectronics (STM), Taiwan's MediaTek, and Broadcom (BRCM), which recently bought private company Global Locate for less than $200 Million.

Analysts have also said that GPS customers such as Garmin (GRMN) are looking for "dual-source key inputs."

While there is pressure on Sirf's market share, Sirf is still the dominant leader, and will continue to produce the best chips.

Current Valuation is still very reasonable. Sirf (SIRF) has a forward PE of 16.37, five year estimated growth of 26.62%, for a very cheap Price Earnings to Growth (PEG) ratio of 0.61, which is very cheap (PEG less than 1 is very cheap).

Compare this with Broadcom (BRCM) which has a forward PE of 25.36, 5 year growth rate of 22.37%, for a PEG of 1.13.

The company has virtually no debt, is cash rich ($4 cash per share for a $20 stock), and belongs to a very rapidly growing segment.

Sirf (SIRF) has shown recent momentum, and still remains a long term buy as its performance has lagged other Location Based Service companies such as Garmin (GRMN) and Navteq (NVT).

Location Based Service Companies

Sector S&P 500 PE Ratios, and Earnings Growth

Sector S&P 500 PE Ratios

Based on 2007 Estimates, here are the PE Ratios of the different S&P 500 Sectors:

1. S&P 500: 15.38
   
2. S&P 500 Financials: 10.95
   
3. S&P 500 Energy: 12.02
   
4. S&P 500 Materials: 15.11
   
5. S&P 500 Health Care: 16.61
   
6. S&P 500 Industrials: 16.83
   
7. S&P 500 Utilities: 16.38
   
8. S&P 500 Telecommunication Services: 18.03
   
9. S&P 500 Consumer Staples: 18.07
   
10. S&P 500 Consumer Discretionary: 18.47
    
11. S&P 500 Information Technology: 23.09
    

Based on 2008 Estimates, here are the PE Ratios of the different S&P 500 Sectors:

1. S&P 500: 13.71
   
2. S&P 500 Financials: 10.36
   
3. S&P 500 Energy: 11.52
   
4. S&P 500 Materials: 13.30
   
5. S&P 500 Health Care: 14.84
   
6. S&P 500 Industrials: 14.97
   
7. S&P 500 Utilities: 14.79
   
8. S&P 500 Telecommunication Services: 14.46
   
9. S&P 500 Consumer Staples: 16.09
   
10. S&P 500 Consumer Discretionary: 14.71
    
11. S&P 500 Information Technology: 18.66
    

S&P 500 and Sector Earnings Growth

Financial Earnings Growth


Energy Earnings Growth


Materials Earnings Growth


Health Care Earnings Growth


Industrials Earnings Growth


Utilities Earnings Growth


Telecom Earnings Growth


Consumer Staples Earnings Growth


Consumer Discretionary Earnings Growth


Info Technology Earnings Growth


Sectors Sorted by 2008 Earnings Growth

1. S&P 500 Consumer Discretionary: 25.6%
   
2. S&P 500 Telecommunication Services: 24.7%
   
3. S&P 500 Information Technology: 23.7%
   
4. S&P 500 Utilities: 13.8%
   
5. S&P 500 Materials: 13.6%
   
6. S&P 500 Industrials: 12.4%
   
7. S&P 500 Consumer Staples: 12.3%
   
8. S&P 500: 12.2%
   
9. S&P 500 Health Care: 11.9%
   
10. S&P 500 Financials: 5.7%
    
11. S&P 500 Energy: 4.4%
    

Chart Comparison of Sectors Earnings Growth 2006-2008




Sources

1. Much of the data came from Standard and Poors Earnings Spreadsheet.
   
2. Another View of Historical Sector PE Ratios Part 1
   
3. Another View of Historical Sector PE Ratios Part 2
   
4. Another View of Historical Sector PE Ratios Part 3
   

Overbought, Oversold, and Oscillators

Overbought and Oversold

Many pundits out there throw out the words overbought, and oversold when it comes to stocks or the major stock indices. Is there a way to keep track of overbought and oversold?

Oscillators

There are many technical indicators (special indicators by looking at the stock charts) to help determine oversold and overbought conditions. Oscillators are the most popular. At one point, a stock (or index) is overbought, and then at another point, it oscillates back to oversold.

S&P Oscillator

One popular Oscillator is the S&P (Standard and Poors) Oscillator, which is a proprietary Oscillator. In Jim Cramer's 'Real Money: Sane Investing in an Insane World', Jim Cramer mentions the proprietary S&P Oscillator as one way to spot a market bottom. He says that it costs around $1000 to subscribe.

On Jim Cramer's site TheStreet.com, Jim Cramer Says:

"When the oscillator is over five, people must sell, regardless of how great it looks," Cramer recommended. "There have been some [times] where the animal spirits of the market have been so great that it's gone to plus nine and 10, but the percentages on the upside are that there's going to be a selloff. It may not be major, but I do believe it will happen."

When it's over five, if he were fully invested, Cramer said he would cut to being 75% invested. At this time, short-term traders should maybe go 50% invested, and "if you're a guy who is able to short, maybe 25% short," he said. "That's how much I have faith in this indicator. I have faith in almost no indicators other than this one.

"Helene Meisler, [a contributor to RealMoney.com does] her own oscillator work," Cramer said. "She seems to agree with me on the site. When we both agree, we tend to have a pretty powerful correlation between right and wrong."

RSI Oscillator

For more inexpensive ways to determine oversold/overbought, one can use the RSI indicator. RSI stands for Relative Strength Index. When the RSI is over 70, the stock or index is overbought. When the RSI is under 30, the stock or index is oversold.

Of course, stocks or indices can remain oversold or overbought for long periods of times:



In the above example with Garmin (Chart of GRMN with RSI information here), we notice that when RSI is in overbought territory, GRMN is near its high, and when RSI is in oversold territory, GRMN is near its low.

Towards the middle of 2007, we do notice that GRMN remains in overbought territory, but GRMN makes very good gains during this time. This is an example of an overbought situation remaining overbought for long periods of time. The same can happen with oversold stocks or indices. Some technicians suggest to wait till the RSI goes down below 70 after remaining overbought, or wait for RSI to go up above 30 after remaining oversold.

Other Oscillators

There are many other oscillators as well such as using Bollinger Bands, or Stochastics. TradingDay has a good link to some of these oscillator methods.

Bottom Indicators

There are many other bottom indicators as well. Some oscillators above may be more suitable for traders and short term traders. But if one wants to find more long term investable bottoms, you can use some of these other methods:

1. S&P 500 Stocks Above the 50 and 200 Day Moving Average (Low value = Bottom)
   
2. S&P 500 High-Low Index (Low Value = Bottom)
   
3. 10 Day Moving Average of Put-Call Ratio (High value = bottom)
   
4. Ratio of Stocks Above 200 Day Moving Average to Stocks Above 50 Day Moving Average
   
5. Bull-Bear Ratio and Bullish Percentage
   
6. Index in Relation to 52 Week High and 52 Week Low
   

You would like to look at several of the different indicators and look at the support and resistance levels of a particular stock or index.

Seasonal Patterns in Interest Rates?

Previously, we noticed patterns in the stock market by Day of Week, by Day of Month, and by Month of Year.

Ryan, in a previous post, pointed out a research report showing seasonal patterns in interest rates. In the report, there's a table of interest rates (T-bills, Government Bonds, Corporate Bonds) grouped by Month of Year.

After looking through the data, what patterns do you notice?

S&P 500 Returns By Month of Year

Previously, we've looked at performance of the S&P 500 index based by day of the week, and by day of the month.

Now, we look at S&P 500 performance (1926 to 2006) by Month.

Only one month has a negative return, and that is, September.

Results:

1. Jan: 1.71%
   
2. Feb: 0.26%
   
3. Mar: 0.63%
   
4. Apr: 1.49%
   
5. May: 0.27%
   
6. June: 1.37%
   
7. July: 1.86%
   
8. Aug: 1.27%
   
9. Sept: -0.76%
   
10. Oct: 0.66%
    
11. Nov: 1.18%
    
12. Dec: 1.79%
    

There is also a common saying, Sell in May, and Go Away. According to Stock Trader's Almanac if you invested $10,000 in the Dow Jones Industrial Average, and used the strategy of investing in Stocks from November through April, and switch to fixed income from May through October, over 56 years, that amount grows to $544,323. But if the opposite strategy was used (fixed income November through April, stocks in Dow Jones from May to October), compounded to a loss of $272.

The results from Stock Trader's Almanac and the Monthly Statistics of the S&P 500 seem to match. From November through April, we have:

1. Nov: 1.18%
   
2. Dec: 1.79%
   
3. Jan: 1.71%
   
4. Feb: 0.26%
   
5. Mar: 0.63%
   

Not a bad return. November through January, seems to be a very good return period.

We also notice that June through August is also a good return period:

1. June: 1.37%
   
2. July: 1.86%
   
3. Aug: 1.27%
   

Sources

1. All Financial Matters Blog
   
2. CNN article on Sell in May and Go Away
   
3. Appendix B of Ken Fisher's The Only Three Things That Count
   

Harris (HRS): Specialty Communication Equipment Provider to Defense, Government and Private Sector

Harris (HRS) is worth investing in:

1. Harris (HRS) is a Specialized Communication Equipment Provider that caters to Government, Defense, and Civilian Organizations.
   
2. Harris is levered more to government and defense spending than consumer discretionary products.
   
3. Harris operates four main segments:
   1. Government Communication Systems (46.2% of 3rd quarter fiscal 2007 revenue)
   2. RF Communications (28.2%)
   3. Broadcast Communications (12.8%)
   4. Harris Stratex Networks (12.8%)
   
4. Market Cap: 9.16B
   
5. Forward PE: 16.21
   
6. 5 Year Estimated Growth Rate: 27%
   
7. Price Earnings to Growth Ratio: 0.60 (under 1 is very cheap!)
   
8. Current Ratio: 1.16 (anything over 1 is okay)
   
9. 80% domestic, 20% international.
   
10. Upgrading military communications and infrastructure is key driver.
    
11. Analog to Digital TV is a key driver.
    
12. Microwave communications needed for 3G cell technology.
    
13. Broad product line and high government contract win rate (60%, and 80% in recent quarters).
    
14. Since products are very specialized, Harris doesn't really have direct competitors.
    
15. Harris remains subcontractor to companies such as Boeing (BA), and Lockheed Martin (LMT)
    
16. Recently Raised Dividend by 36%
    
17. $600 Million Buyback announced May 2007.
    
18. Company is currently at or near its 52 week high.
    
19. From the companies 10-K:
    

    
    Defense Markets: The U.S. President's budget proposal for the U.S. Government fiscal years 2008 to 2012 focuses on achieving a balanced budget while addressing the nation's most critical needs and the continuing trend by Federal agencies to reduce costs by outsourcing IT and communications related operations. The Administration's priorities include a continued and accelerated commitment to modernizing the military to focus more on the needs of its combat commanders and to develop portfolios of joint capabilities. As a result, the U.S. Government remains committed to funding intelligence, information superiority, special operations and support. Requirements to upgrade and modernize tactical radio communications capabilities and provide more secure, interoperable and reliable communications remain a funding priority. International defense forces continue to drive toward tactical communications upgrades and interoperability with the systems and equipment used by the U.S. Government.
    

    
    

To continue research, I recommend:
1. SeekingAlpha/Zack's Research on Harris (HRS)
2. Aug-27 10-K Summary.
3. Full 10-K June 29, 2007
4. Yahoo Finance Research on Harris (HRS)
5. Harris Corporation Website

Recession Odds: 23% and How to Calculate Odds of Recession

Is there a way to calculate the odds of a recession in the US?

There is one model which takes into account the spread between the 10 Year Treasury Bond Yield, the 3 Month Treasury Bond Yield and the Federal Funds Rate. This model was created by Federal Reserve Board's Jonathan Wright in The Yield Curve and Predicting Recessions.

Some general points regarding the Yield spread and the Fed Funds Rate:

1. The bigger the difference between the 10 Year Treasury Bond Yield minus the 3 month Treasury Bond Yield, the less likely a recession will occur within the next twelve months. This the the normal upward sloping yield curve. The bigger the difference between the 3 Month Treasury Bond Yield minus the 10 Year Treasury Bond Yield, the greater the chance of a recession within the next 12 months. This is the inverted yield curve case.


2. The higher the Fed Funds Rate, the greater the odds of a recession within the next twelve months.

To Calculate

To Calculate, use the calculator on this website. The calculation is based on Jonathan Wright's work mentioned above.

You will need these:

1. The 10 Year Treasury Bond Yield. Get the information from Stockcharts.com using $UST10Y. The value of the $UST10Y, is the Yield on the treasury. Currently, as of August 31, 2007, the 10 Year Yield is 4.54%


2. The 3 Month Treasury Bond Yield. Get the information from Stockcharts.com using $UST3M. Currently, the 3 Month Treasury Bond Yield is 4.01%.
   
3. The Fed Funds Rate. Go to Bankrate.com to get the current Fed Funds Rate. It is currently at 5.25%. You can also estimate the odds of a Fed Rate Cut Here.

Chance of Recession as of August 31, 2007: 23%

Now to do the actual calculation, go to the website with the calculator.

Using the values mentioned above, we find out that there is a 23% chance of recession within the next twelve months. If the Fed cuts rates by 0.50%, then the odds of a recession (let's assume that the yield spread remains the same) goes down to 18%.