TAKING STOCK: Netflix and Navios

Dear Mr. Berko:

I just sold 300 shares of Wal-Mart and want your opinion on investing the proceeds in 50 shares of Netflix and 500 shares of Navios Maritime in a conservative, growth-oriented IRA account. The 9 percent dividend is an added gift. And by the way, thank you for your Atlas Pipeline recommendation, which I bought at $18 in October of last year.

K.L., Oklahoma City

Dear K.L.:

Netflix (NFLX-$248) is one of those many multibillion-dollar revenue businesses that don't have to hire people. KKR, Priceline and Home Shopping Network, to name a few, generate three to 10 times more revenue per employee than Procter & Gamble, Wal-Mart or Kroger. This is the trend, my friend, because the good old times are coming to an end.

Netflix is the largest online entertainment subscription service in the universe, with more than 100,000 titles for rent. It has a subscriber base of 20 million who can rent eight movies at a time with no late fees or due dates using monthly plans that cost between $4.99 and $47.99, while nationwide centers provide next-day service for almost all subscribers.

Meanwhile, NFLX online movie streaming is gaining purchase quickly, and its impressive results should continue to prove a growth driver. And the introduction of NFLX's streaming service in Canada is also noteworthy. Assuming Canadian revenues continue strong, NFLX will consider other venues of international expansion.

I like NFLX because its subscriber business should grow by 20 percent to 30 percent annually during the foreseeable future. I like NFLX because customer transition from DVD to streaming content will significantly reduce postage and packaging expenses and allow the company to purchase more digital content. I like NFLX because the Street believes revenues can double to $5 billion by 2015, that net profit margins can soon improve from 7.0 percent to 10.0 percent because earnings can touch $9.50 per share, cash flow $22 and because this company doesn't need any more than 2,000 employees to meet the Street's expectations by 2015.

And while I really like NFLX, I would stay miles away from the shares because there's no way under the sun, Saturn or Sagittarius that NFLX is worth $248 or 72 times expected 2011 earnings of $3.89 per share. That's industrial-strength dumb. At some point in the near future, NFLX's torrid growth will slow, and that premium valuation will fall like hailstones in Kansas. Stay away.

Navios Maritime (NMM-$19) is a master limited partnership that owns and operates a fleet of 12 vessels that deliver iron ore, coal, grains and fertilizers to most major discharge ports around the world. The dividend, which was recently raised to 43 cents per quarter yields 8.9 percent and is about 90 percent non-taxable. NMM is homeported in Greece, run by Greeks, came public in 2007, has almost zero operating history and posted $80 million in revenues last year, which is about the gross-dollar volume of a Sam's Club super store.

Ocean carriers have been maintaining capacity, and the outlook for this group is positive, which reflects some rather favorable global trends. However, this business is as capricious as the winds, and most of these shipping companies have highly leveraged balance sheets. Rates known as FEU (Forty-Foot Equivalent Units) are up about 50 percent, but still down about 35 percent from the record August rates of $2,900 FEU, when there was a shortage of container ships.

These Greek-based MLPs are a drachma a dozen, but the Street seems to think that NMM may be a cut above the others, and the consensus suggests a share price of $25 in the next six to 12 months. NMM looks like a decent speculation, and the high dividend, which could be increased again this year, is appealing. Go for 300 shares. But remember what the Trojans said: "Beware of Greeks bearing gifts."


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Mon, Apr 11, 2011