Stocks Of The Month: NFLX, BIDU

I've been watching this stock for literally hundreds of dollars, but there is still room to grow.

Netflix (NFLX)

Positives:

Huge revenue growth this year (50%), estimated next quarter (52%) and next year (34%).

Good ROA (24%), outstanding ROE (89%).

Relatively small market cap ($14B) vs. competitors DirecTV ($37B), Comcast ($66B), Amazon ($85B).

International expansion underway.

Negatives:

P/E of 78, forward P/E of 40.

Likely some form of "bandwidth usage tax" forthcoming.

The only stock I can see that has better growth and profitability metrics is Baidu (BIDU), whose fundamentals have been covered previously. I have added some more this month, and will continue to accumulate.

Here's my current portfolio. As always, I believe in all of these stocks - until I sell them.

Apple (AAPL) 11.84%

Baidu (BIDU) 8.09%

Southern Copper (SCCO) 7.40%

Dominion Resources Black Warrior Trust (DOM) 6.48%

Google (GOOG) 5.89%

Annaly Capital Management (NLY) 5.81%

Ace Limited (ACE) 4.69%

Apache (APA) 4.20%

Hugoton Royalty Trust (HGT) 3.80%

BP Prudhoe Bay Royalty Trust (BPT) 3.69%

American Software (AMSWA) 3.42%

Intuitive Surgical (ISRG) 3.34%

Cherokee (CHKE) 3.25%

Blackstone (BX) 3.01%

Prospect Capital (PSEC) 2.93%

Vodafone (VOD) 2.58%

Intel (INTC) 2.57%

DuPont (DD) 2.53%

McDonald's (MCD) 2.50%

The Distressed (ERTS, ESI, JSDA, LZB, MMI, MSI, PCS, RVR, STEC, WFC) 2.37%

F5 Networks (FFIV) 2.18%

BreitBurn Energy Partners (BBEP) 2.15%

American Capital Agency (AGNC) 1.98%

Chimera Investment (CIM) 1.84%

Netflix (NFLX) 1.28%

The Summer Of (Stock) Discontent

Sometimes I sell a stock because it has incurred capital losses. Sometimes I sell a stock because the company is in trouble. Sometimes I sell a stock because its dividend is at-risk.

Sometimes I sell a stock because I get tired of looking at it every day.

Or sometimes, all of these things come together in an overwhelming confluence of ineptitude, where I, the chooser of the stock, is left to wonder...what the heck went wrong here? How did I allow this to happen?

Earlier this year, Great Northern Iron (GNI) imploded. Today, I sold both Frontline (FRO) and Nokia (NOK) after they drifted down 37% and 25% respectively from where I bought.

These should have been three pleasantly boring dividend stocks, but turned out to be volatile losers. Let's examine where I went wrong vs. my previously stated investing philosophy.

"My intentions are to own stocks that"...

• "are long-term, 'buy-and-hold' investments" - GNI is a trust with an expiration date of 2015, so it can't even pass this most basic of thresholds. FRO and NOK are presumably going to be around longer.
• "represent great underlying companies and/or valuable assets" - GNI's underlying asset isn't minerals; it's the dissolving trust. FRO is a fleet of shipping tankers - not good. NOK is a technology portfolio that was cool 10 years ago - even worse.
• "have excellence across as many metrics as possible" - here's where things get tricky. GNI has outstanding stats everywhere...profitability, ROA/ROE, revenue growth, earnings growth. Of course, none of that matters; you can probably guess why by now. FRO's stats are, quite frankly, awful. NOK's aren't much better, other than being a cash cow.
• "are cheap by valuation" - cheap for a reason, no?
• "pay outstanding, stable, well-funded dividends" - the dividends are large, but flawed. GNI's just isn't enough given its shelf life. FRO's is notoriously inconsistent. NOK's is a great bet to be slashed or suspended in the near future.
• "promise extraordinary growth" - a big ol' "N/A" here.

The proceeds from the sales of Frontline and Nokia went towards buying shares of American Capital Agency Corp. (AGNC) and Chimera Investment Corp. (CIM), two REITs with large dividends of their own. I would ordinarily write up some nice things to say about them, but I'm too afraid I'd look like an idiot in a few months.

The proper Stock Of The Month will appear next week.