Stock market investment blog

“We don’t think it’s reasonable to assume we’re going to gain a lot of share from Google,” Chief Financial Officer Susan Decker said in an interview. “It’s not our goal to be No. 1 in Internet search. We would be very happy to maintain our market share.”

This has aroused some criticism: “It kind of makes you wonder about how serious they are about search,” said Danny Sullivan, editor of London-based SearchEngineWatch.com, which tracks the search industry. “It really ought to be their goal” to be No. 1, he said. “Whether it’s realistic or not.”

I say we take it at face value – Yahoo is not going to try to win 21% more of the search market from Google (Google has 60% while Yahoo has 19%). The search market might be the most profitable niche, but it’s not the only one. While this is certainly good news for Google stock (nice to have a wide moat), it may not be bad news for Yahoo stock.

I’ve written about CHA before and readers may remember that I invested in CHA at around 33. Now that the price is up to around 38, it is time to consider selling. Reading the Morning Star report on the stock, I see that they call the business risk “above average”.

CHA does have a narrow moat, but is seeing increasing competition. More importantly, the Chinese Government is the majority shareholder. China Telcom may do things that are seen as good for China even if they may not be good for the company. One example is if China Telecom uses a new Chinese developed technology for 3g mobile services.

Finally, CHA has a history of relying on debt for funding. So far operating cash flow is covering interest and capital needs. Considering these risks, it seems like time for me to take my profits and run back to the safe index funds and dividend paying (CHA does pay a dividend) stocks I prefer.

Whole Foods (WFMI) is a stock that doesn’t often make the news but is making headlines now. Whole Foods, the biggest U.S. natural-foods grocer, said that it’s making a “historic” purchase of renewable energy credits from wind farms to offset 100% of the energy it projects it will use in 2006 to run its stores, facilities, bake houses, distribution centers, offices, and headquarters in the U.S. and Canada.

Whole Foods spokeswoman Ashley Hawkins declined to disclose the purchase price. Clearly, investors need to consider how costs might influence profits at WFMI, shares of which currently trade at close to 79 times earnings. WFMI has historically traded at very high multiples.

At first, Whole Foods reminded of of the Washington Post because it has a wide moat. That is, its position in the market is dominant and new competitors are unlikely to show up, much less prevail. However WPO has a PE around 23.5. I suppose Starbucks (SBUX) is a better comparison with its customer loyalty and its PE over 50.

Personally, I don’t understand why stocks like WFMI and SBUX trade at much higher price to earnings rations than a stock like WPO. With WPO shares down to 771 (down over 18.00 or 2.3%) WPO is a stock I have to reconsider. For those of you keeping track, the stock price was around 750 when I mentioned it on Nov. 20, 2005. At the moment I am not invested in WPO stock.

A week or two ago I heard a stock pundit talking about legacy carriers, traditional US-based airlines like AA as a contrarian stock pick. Maybe, but how do you pick one that’s not about to go out of business?

Independence Air (FLYi) has flown its last flight, but Southwest and Jetblue seem to be doing better than the legacy carriers and this is reflected in their stock prices. A profitable US airline is so exciting that JetBlue Airways Corp. (JBLU) is trading with a PE of 97 and a 1 year estimated forward PE of 77. Southwest Airlines Co. (LUV) has a more attractive PE around 26 with a forward PE of 24.

AMR Corp. (AMR), US Airways Group Inc. (LCC) and Continental Airlines Inc. (CAL) are losing money while ticker symbols say it all for DELTA AIR LINES INC (Other OTC:DALRQ.PK) and Northwest Airlines Corp. (NWACQ.PK).

Contrarian picks? Certainly. Good investments for a retirement nest egg? No. Airline stocks are trouble because they can’t control geopolitical uncertainty or oil prices. Both of those things can wreck profits. The US based legacy carriers are in a mess to begin with…