Berko: Invest in more FireEye shares?
Friday, November 22, 2013 7:00 AM
Dear Mr. Berko:
On my broker’s recommendations, I bought 300 shares of FireEye at $36 several days after its public offering. It’s now $44, and the analysts at my broker’s research department believe that FireEye could trade in the $80s in the next six months. Now my broker wants me to buy another 300 shares. Please email me your opinion as soon as you can.
And Janet Yellen will be chairwoman of the Federal Reserve soon. What are your thoughts on her? Will she be as good for the market as Ben Bernanke?
W.E., Springfield, Ill.
During the third week of September, FireEye Inc. came public at $20, and within a few hundred million picoseconds, it began trading at $40.
FireEye (FEYE-$35.31), with trailing 12-month revenues of $115 million, probably won’t earn a dime until March 2022, yet Wall Street values the company at $5 billion. This is a sickness! Heck, my 96-year-old uncle Cleve just got $4.1 million for his toupee glue company and probably makes more money than FEYE ever will. FEYE and similar IPOs during the past year are emblematic of an insidious investor greed that, like a sexually transmitted disease, manifests itself without visible symptoms.
Wall Street has the sickness, and the infection is spreading, even among the many good folks whom we’d believe to be least likely to be tempted.
Immediately after the FEYE offering, dozens of cheering employees were hosting drinks with raised arms, toasting their success at the usual Nasdaq opening day celebration. But if you look more closely, you see that they’re actually cheering and waving goodbye to the suckers who bought the stock. But if I were among those partying insiders, I’d be counting the days till the IPO lockup expires, which is the date insiders can sell their shares.
FEYE develops and sells malware protection systems (so do hundreds of other companies) that are deployed in-line at Internet access points to analyze Web traffic mail, detect vulnerabilities, block malicious codes embedded in email content and stop advanced attacks that could exploit unknown operating systems and browsers. FEYE’s systems also analyze network file servers to detect and quarantine malicious software brought in by network users through online sharing and associated collaboration tools. And like a clump of other companies – such as IBM, Amazon.com, Oracle, etc. – FEYE wants to be among the first to peddle a galaxy of cloud-based subscription services.
Wall Street must be as drunk as a bishop to justify FEYE’s market capitalization, which is twice that of giants with multibillion-dollar revenues, such as U.S. Steel, Foster Wheeler, Toro and others. The public’s palpable loathing for Wall Street is only slightly better than its visceral odium for Congress. Though I’m told that this piece of tech trash could run to the $80s, I’m uncomfortable owning something that will have zero earnings for years to come.
Well, Yankee Doodle Dandy, Janet Yellen will be the new Fed head, so it’s going to be an easy-money party for years to come. In fact, she may increase the Fed’s monthly stimulus to $150 billion a month. Yellen has a warmer personality than Bernanke, whose public persona has always been as sober as a hangman. She intends to keep rates low and is likely to extend federal bailout assistance (Bernanke strongly opposed this) to Detroit and Illinois.
Continued low interest rates suggest that the stock market should continue higher and that investors will continue taking on more and more risks. For the next year, Yellen will try to follow the Bernanke template. But I doubt she’s tough enough to head off a certain outbreak of inflation, which is a given considering the growing size of our national debt, the inability of China and Saudi Arabia to continue purchasing our bonds, and expected higher unemployment numbers beginning in mid-2014. Yellen and the Obama administration believe that inflation may be the only way for the U.S. to manage its growing debt.
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