Google - the price of success

I am one of Google's greatest supporters, but in the realm of the web, there is a huge price to pay for success. Looking back on a number of service providers, it makes for an interesting growth model. First there was MSN offering free Hotmail accounts. I used to love their site until they became too successful. Their site was so popular that everyone wanted a Hotmail account. The consequence was that their service became really slow.
I see the same thing happening with Google. It adds more features making Google an even more compelling service to use, but the service is starting to deteriorate. The signs I see are these:
1. Requests to close mail accounts I am not using
2. Congestion or service down on weekends
3. Service down for Google Chat function

This is a problem for Google shareholders because if the market is pricing the Google stock at a premium because they have a history of surprising the market on the upside. When they show a performance below expectations, I think you can expect them to collapse in value. It will be interesting to see if they can re-invent themselves.

Actually I think the greater threat to Google is on the revenue side. I think people are starting to loose interest in the adverts its clients place on their sites. I've noticed that I don't get as many clicks as before despite my web traffic growing.
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Andrew Sheldon www.sheldonthinks.com

Pan Australian Res update (PNA.ASX)

Pan Australian Resources (PNA.ASX) surprised me today by not only breaking its downtrend line, but rising 10c to break its previous high. I expected this to happen, just not in the near-term. I was expected the stock to retrace back to a 85c support based on weakness in copper prices. Maybe the market is telling me something? Might that be:

1. Earnings outlook: That it sees that its trading at just a PER of 4x earnings compared to 14x for its nemisis Oxiana Resources.

2. Metal prices: That copper prices are not going to weaken because of weakness in the USD. It makes sense that copper will be attractive if the USD is weak. I frankly think the USD is falling back to 85Yen, so thats about a 15% move, worth about 40c/lb to copper prices. As expected copper prices have retraced from their $4.00/lb level. I'm still thinking its not going to break $4.00, but I think it might just hold the higher end of its range. If something proves me wrong its going to be the extent to which the market has new supply coming on-stream, and the extent to which strikes are undermining capacity. Supply issues matching weaker demand.
The next issue is - where to from here. Well its encouraging that PNA rallied 10c, that it broke support, and then closed at its high. On that basis I think its going to take off. Looking at the chart, we see that PNA has a weak 'flag structure' or pendant, which suggests that the stock is going to rally another 45c, which would take it to $1.60. That makes for a nice trade. I think you can then some weakness, then consolidation around that level.
PNA is starting to justify its status as a blue chip - which is just as well because I would have little other place to stick it.

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Andrew Sheldon www.sheldonthinks.com

Pan Australian Resources (PNA.ASX)

This company is more of a 'spec' than a 'blue chip' stock. It has a large resource base, offers large scale production and low unit costs. Whilst it has yet to start large scale production, it is a major project.
This stock makes for a great trade. It is constrained on the upside by a downstrend, and on the downside by a support level at 85c. The support is coming from the strong copper and gold prices, but since most of this strength is arising from a weak USD, there is some basis for weakness in this stock.
I see the stock falling back to 85c in coming months. But in the short term it will likely climb back to $1.05 per share. The outlook for this stock in the long term remains positive.

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Andrew Sheldon www.sheldonthinks.com

Australian Agricultural Company (AAC.ASX)

I have watched with interest as Australian Agricultural Company (AAC.ASX) has fallen from $3.50 to $2.50. At that level the stock is at an important support. But before recommending this stock, there is reason for thinking it will fall back to $2.00.

1. Drought: Although there has been drought relief across Australia, and AAC's areas received good relief rains last year, according to the following map a great number of the company's farmlands remain in severe drought - that is they have experienced a severe deficiency of rain over the last 6 months.

2. Stronger AUD: I am expecting a stronger AUD because of rising interest rates in Australia, but stable rates in the USA.

3. Rising costs: The high price of oil is likely to greatly impact on this company's profitability, as well as more general increases in the cost of living.

Drought relief and stronger beef prices offer alot of upside from the $2.00 support, particularly as I expect that after the Nov'08 US presidential elections we will see a return to the 'strong USD' policy, or perhaps better stated 'stronger'. I think there are some austerity measures ahead for the USA. That means - higher taxes (or a return of the taxes previously lowered) and higher interest rates to encourage greater savings in the USA.

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Andrew Sheldon www.sheldonthinks.com